UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549


___________________




FORM 10-Q


_________________________




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




For the
quarterly period ended June 30, 2008




OR




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




For the
transition period from _________ to _________




Commission
File No.: 1-33640




AMERICAN INTERNATIONAL INDUSTRIES,
INC.




(Exact
Name Of Registrant As 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's Telephone Number,
Including Area Code: (281) 334-9479




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No  ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer, "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.
  Large
      accelerated filer  ̈
              Accelerated filer ̈Non-accelerated
      filer  ̈ (Do not check if a
      smaller reporting company)
              Smaller
      reporting company x
  Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ̈ Nox
 At August
14, 2008, the Registrant had 8,585,531 shares of common stock
issued.





TABLE OF
CONTENTS




Item
            Description
            PagePART I - FINANCIAL
      INFORMATIONITEM
      1.
            FINANCIAL
      STATEMENTS
            3ITEM
      2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION
            22ITEM
      3.
            QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISKS
            26ITEM
      4.
            CONTROLS AND PROCEDURES
            26PART II -
      OTHER INFORMATIONITEM
      1.
            LEGAL PROCEEDINGS
            27ITEM
      1A.
            RISK FACTORS
            27ITEM
      2.
            UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
            27ITEM
      3.
            DEFAULT UPON SENIOR SECURITIES
            27ITEM
      4.
            SUBMISSION OF MATERS TO A VOTE OF SECURITY
      HOLDERS
            27ITEM
      5.
            OTHER INFORMATION
            27ITEM
      6.
            EXHIBITS
            27






2


PART I - FINANCIAL
INFORMATION






ITEM 1. FINANCIAL
STATEMENTS




Consolidated
      Financial StatementsUnauditedConsolidated
      Balance Sheets - June 30, 2008 and December 31,
      2007
            4Unaudited Consolidated Statements of
      Operations - Three and Six Months Ended June 30, 2008 and
      2007
            5Unaudited Consolidated Statements of Cash Flows - Six
      Months Ended June 30, 2008 and 2007
            6Notes to Unaudited Consolidated Financial
      Statements
            8
















3


AMERICAN INTERNATIONAL INDUSTRIES, INC. AND
      SUBSIDIARIESConsolidated
      Balance SheetsJune
      30, 2008 and December 31, 2007 (Unaudited)June
      30, 2008
              
              
              December
      31, 2007AssetsCurrent
      assets:Cash and cash equivalents
              
              $
              2,358,855
              
              
              $
              3,891,156Certificate of deposit
              
              
              5,010,421
              
              
              
              5,195,000Trading securities
              
              
              4,294,827
              
              
              
              6,810,382Accounts receivable, less allowance for doubtful accountsof $234,143 and $231,870, respectively
              
              
              5,994,515
              
              
              
              4,835,452Current portion of notes receivable
              
              
              4,202,686
              
              
              
              3,898,831Accounts and notes receivable from related parties
              
              
              110,000
              
              
              
              30,000Inventories
              
              
              6,508,644
              
              
              
              5,811,997Real estate acquired for resale
              
              
              1,909,066
              
              
              
              1,909,066Drilling rigs held for sale
              
              
              1,734
              
              
              
              187,611Prepaid expenses and other current assets
              
              
              1,504,786
              
              
              
              296,981Total current assets
              
              
              31,895,534
              
              
              
              32,866,476Long-term
      notes receivable, less current portion
              
              
              420,330
              
              
              
              618,129Investment
      in Las Vegas Premium Gold Products
              
              
              250,000
              
              
              
              250,000Property
      and equipment, net of accumulated depreciation and
      amortization
              
              
              4,832,703
              
              
              
              4,619,940Goodwill
              
              
              674,539
              
              
              
              674,539Patents
      and trademarks, net of amortization
              
              
              5,153,942
              
              
              
              5,457,365Other
      assets
              
              
              85,259
              
              
              
              100,105Total assets
              
              $
              43,312,307
              
              
              $
              44,586,554Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts payable and accrued expenses
              
              $
              4,078,383
              
              
              $
              3,197,415Margin loans from financial institutions
              
              
              1,335,629
              
              
              
              1,443,424Short-term notes payable
              
              
              1,409,498
              
              
              
              219,970Property dividend payable
              
              
              654,364
              
              
              
              -Current
      installments of long-term capital lease obligations
              
              
              64,841
              
              
              
              29,967Current installments of long-term debt
              
              
              1,919,930
              
              
              
              185,328Total current liabilities
              
              
              9,462,645
              
              
              
              5,076,104Long-term
      debt, less current installments
              
              
              11,711,034
              
              
              
              10,766,951Long-term
      capital lease obligations, less current installments
              
              
              260,688
              
              
              
              123,100Deferred
      tax liability
              
              
              156,535
              
              
              
              156,535Minority
      interest
              
              
              1,039,748
              
              
              
              1,370,196Total liabilities
              
              
              22,630,650
              
              
              
              17,492,886Stockholders'
      equity:Preferred stock, $0.001 par value, 1,000,000 authorized: none
      issued
              
              
              -
              
              
              
              -Common stock, $0.001 par value, 10,000,000
    authorized:7,141,859 and
      7,107,842 shares issued, respectively7,099,914 and 7,070,480 shares outstanding,
    respectively
              
              
              7,142
              
              
              
              7,108Additional paid-in capital - common stock
              
              
              46,643,999
              
              
              
              46,327,209Accumulated deficit
              
              
              (25,754,796
              )
              
              
              (19,045,752
              )Less
      treasury stock, at cost41,945 and 37,362 shares, respectively
              
              
              (214,688
              )
              
              
              (194,897
              )Total stockholders' equity
              
              
              20,681,657
              
              
              
              27,093,668Total liabilities and stockholders' equity
              
              $
              43,312,307
              
              
              $
              44,586,554The
      accompanying notes are an integral part of these consolidated financial
      statements
  Back to Table of Contents
 4


AMERICAN
      INTERNATIONAL INDUSTRIES, INC. AND
  SUBSIDIARIESConsolidated Statements of
      OperationsThree
      and Six Months Ended June 30, 2008 and 2007(Unaudited)


Three Months
      Ended
            
            
            Three Months
      Ended
            
            
            Six Months
      Ended
            
            
            Six Months
      EndedJune 30,
      2008
            
            
            June 30,
      2007
            
            
            June 30,
      2008
            
            
            June 30,
      2007Revenues
            
            $
            9,496,061
            
            
            $
            7,027,294
            
            
            $
            15,212,123
            
            
            $
            13,639,864Costs
      and expenses:Cost of sales
            
            
            6,073,112
            
            
            
            4,358,831
            
            
            
            9,962,513
            
            
            
            8,962,355Selling, general and administrative
            
            
            3,684,199
            
            
            
            3,448,631
            
            
            
            7,624,299
            
            
            
            6,902,499Total operating
      expenses
            
            
            9,757,311
            
            
            
            7,807,462
            
            
            
            17,586,812
            
            
            
            15,864,854Operating
      loss
            
            
            (261,250
            )
            
            
            (780,168
            )
            
            
            (2,374,689
            )
            
            
            (2,224,990
            )Other
      income (expenses):Interest and dividend income
            
            
            151,944
            
            
            
            272,475
            
            
            
            302,056
            
            
            
            433,164Gain on property dividend distribution
            
            
            2,945,133
            
            
            
            -
            
            
            
            2,945,133
            
            
            
            -Delta lawsuit settlement
            
            
            (1,450,000
            )
            
            
            -
            
            
            
            (1,450,000
            )
            
            
            -Realized gains (losses) on investments
            
            
            26,566
            
            
            
            (30,303
            )
            
            
            (28,861
            )
            
            
            (629,008
            )Unrealized gains (losses) on trading securities
            
            
            (1,277,131
            )
            
            
            (544
            )
            
            
            (2,581,984
            )
            
            
            642,374Interest expense
            
            
            (372,407
            )
            
            
            (240,785
            )
            
            
            (534,003
            )
            
            
            (460,597
            )Texas Emissions Reduction Plan Grant
            
            
            -
            
            
            
            347,160
            
            
            
            57,589
            
            
            
            347,160Gain on sale of assets
            
            
            -
            
            
            
            3,944
            
            
            
            -
            
            
            
            3,944Other income (expense)
            
            
            4,664
            
            
            
            (63,031
            )
            
            
            26,232
            
            
            
            151,838Total other income (expenses)
            
            
            28,769
            
            
            
            288,916
            
            
            
            (1,263,838
            )
            
            
            488,875Net loss before income tax
            
            
            (232,481
            )
            
            
            (491,252
            )
            
            
            (3,638,527
            )
            
            
            (1,736,115
            )Income tax benefit
            
            
            (118,362
            )
            
            
            -
            
            
            
            (95,354
            )
            
            
            -Net loss before minority interest
            
            
            (114,119
            )
            
            
            (491,252
            )
            
            
            (3,543,173
            )
            
            
            (1,736,115
            )Minority interest
            
            
            290,384
            
            
            
            (196,114
            )
            
            
            538,626
            
            
            
            (244,151
            )Net income (loss)
            
            $
            176,265
            
            
            $
            (687,366
            )
            
            $
            (3,004,547
            )
            
            $
            (1,980,266
            )Preferred
      dividends of subsidiaryRegular dividends
            
            
            (60,000
            )
            
            
            (45,000
            )
            
            
            (105,000
            )
            
            
            (90,000
            )Forgiveness of dividends
            
            
            -
            
            
            
            150,425
            
            
            
            -
            
            
            
            150,425Net income (loss) applicable to common shareholders
            
            $
            116,265
            
            
            $
            (581,941
            )
            
            $
            (3,109,547
            )
            
            $
            (1,919,841
            )Net
      income (loss) per common share - basic and
      diluted
            
            $
            0.02
            
            
            $
            (0.11
            )
            
            $
            (0.44
            )
            
            $
            (0.35
            )Weighted
      average common shares - basic and diluted
            
            
            7,135,012
            
            
            
            5,486,981
            
            
            
            7,123,635
            
            
            
            5,474,038The
      accompanying notes are an integral part of these consolidated financial
      statements.


Back to Table of Contents
 5


AMERICAN
      INTERNATIONAL INDUSTRIES, INC. AND
  SUBSIDIARIESConsolidated Statements of Cash
      FlowsSix
      Months Ended June 30, 2008 and 2007(Unaudited)


Six Months
      Ended
            
            
            Six Months
      EndedJune 30,
      2008
            
            
            June 30,
      2007Cash flows from operating
      activities:Net loss
            
            $
            (3,004,547
            )
            
            $
            (1,980,266
            )Adjustments to reconcile net loss to net cash used in operating
      activities:Property dividend distribution gain
            
            
            (2,945,133
            )
            
            
            -Delta lawsuit settlement
            
            
            1,450,000
            
            
            
            -Depreciation and amortization
            
            
            691,635
            
            
            
            576,347Common shares issued for services
            
            
            228,761
            
            
            
            341,775Compensation - stock options
            
            
            88,063
            
            
            
            70,685Realized losses on the sale of trading securities
            
            
            28,861
            
            
            
            629,008Unrealized (gains) losses on the sale of trading
securities
            
            
            2,581,984
            
            
            
            (642,374
            )Stock returned in lawsuit settlement
            
            
            -
            
            
            
            (39,600
            )Texas Emissions Reduction Plan Grant
            
            
            (57,589
            )
            
            
            (347,160
            )Gain on sale of assets
            
            
            -
            
            
            
            (3,944
            )Minority interest
            
            
            (773,826
            )
            
            
            244,151Change in operating assets and liabilities:Accounts receivable
            
            
            (1,159,063
            )
            
            
            494,574Trading securities
            
            
            (95,289
            )
            
            
            268,175Inventories
            
            
            (696,647
            )
            
            
            (970,538
            )Prepaid expenses and other current assets
            
            
            (1,207,806
            )
            
            
            (523,512
            )Other assets
            
            
            14,846
            
            
            
            (517,812
            )Accounts payable and accrued expenses
            
            
            775,969
            
            
            
            (461,199
            )Net cash used in
      operating activities
            
            
            (4,079,781
            )
            
            
            (2,861,690
            )Cash flows from investing
      activities:Purchase of property and equipment
            
            
            (319,936
            )
            
            
            (522,256
            )Costs of securing patents and trademarks
            
            
            (19,934
            )
            
            
            (4,840
            )Investment in rigs held for sale
            
            
            (14,123
            )
            
            
            -Proceeds from the sale of drilling rigs
            
            
            200,000
            
            
            
            -Proceeds from the sale of property
            
            
            -
            
            
            
            4,000Issuance of note receivable
            
            
            (225,000
            )
            
            
            (25,000
            )Investment in certificate of deposit
            
            
            (3,415,421
            )
            
            
            (3,100,000
            )Redemption of certificate of deposit
            
            
            3,600,000
            
            
            
            3,214,000Proceeds from notes receivable
            
            
            118,944
            
            
            
            340,498Loans to/from related parties
            
            
            (80,000
            )
            
            
            9,750Net cash used in
      investing activities
            
            
            (155,470
            )
            
            
            (83,848
            )Cash flows from financing
      activities:Net borrowings under line-of-credit agreements
            
            
            1,427,000
            
            
            
            1,518,218Proceeds from short-term debt
            
            
            344,163
            
            
            
            657,420Proceeds from long-term debt
            
            
            1,773,500
            
            
            
            362,185Payments on margin loans
            
            
            (107,795
            )
            
            
            (194,762
            )Proceeds from issuance of common stock of subsidiary
            
            
            -
            
            
            
            694,672Principal payments on short-term debt
            
            
            (161,259
            )
            
            
            (322,609
            )Principal payments on long-term debt
            
            
            (521,815
            )
            
            
            (64,759
            )Principal payments under capital lease obligations
            
            
            (31,054
            )
            
            
            -Payments for acquisition of treasury stock
            
            
            (19,790
            )
            
            
            (61,445
            )Net cash provided by
      financing activities
            
            
            2,702,950
            
            
            
            2,588,920Net decrease in cash and cash equivalents
            
            
            (1,532,301
            )
            
            
            (356,618
            )Cash
      and cash equivalents at beginning of period
            
            
            3,891,156
            
            
            
            3,275,803Cash and cash equivalents at
      end of period
            
            $
            2,358,855
            
            
            $
            2,919,185Supplemental
      schedule of cash flow information:Interest paid
            
            $
            445,715
            
            
            $
            460,597Income taxes paid
            
            $
            6,361
            
            
            $
            -Non-cash
      transactions:Issuance of note payable for real estate acquired for sale
            
            $
            -
            
            
            $
            1,684,066Acquisition of fixed assets under capital lease obligations
            
            $
            203,516
            
            
            $
            -The
      accompanying notes are an integral part of these consolidated financial
      statements.


Back to Table of Contents
 7


American International
Industries, Inc.


Notes to
Unaudited Consolidated Financial Statements






Note
1 - Summary of Significant Accounting Policies
  The
accompanying unaudited interim financial statements of American International
Industries, Inc. (“American”) have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission and should be read in conjunction with
the audited financial statements and notes thereto contained in American's
latest Annual Report filed with the SEC on Form 10-K. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements that
would substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year as reported in the Form 10-K have
been omitted.
 Organization,
Ownership and Business
  American
International Industries, Inc., a Nevada corporation, operates as a diversified
holding company with a number of wholly-owned subsidiaries and two
majority-owned subsidiaries. American is a diversified corporation with
interests in industrial/commercial companies and an oil and gas service
business. American's business strategy is to acquire controlling equity
interests in businesses that it considers undervalued. American's management
takes an active role in providing its subsidiaries with access to capital,
leveraging synergies and providing management expertise in order to improve its
subsidiaries' growth.
  Principles
of Consolidation
  The
consolidated financial statements include the accounts of American and its
wholly-owned subsidiary, Northeastern Plastics, Inc. ("NPI"), and its majority
owned subsidiary, Delta Seaboard Well Service, Inc., and its 48% owned
subsidiary, Hammonds Industries, Inc. (OTCBB: "HMDI"), formerly International
American Technologies, Inc. (“Hammonds”).  In accordance with
FIN46(R), American consolidates Hammonds although its ownership is less
than 51%, because American appoints the members of Hammonds' board of directors.
Since Hammonds is incurring losses and the minority interest has no recorded
equity value, American recognizes 100% of Hammond’s losses. All significant
intercompany transactions and balances have been eliminated in
consolidation.
  Presentation
of certain amounts for the three and six months ended June 30, 2007 has
been reclassified to conform to the presentations for the three and
six months ended June 30, 2008.
  Revenue
Recognition
 Revenue
is recognized when the earning process is completed, the risks and rewards of
ownership have transferred to the customer, which is generally the same day as
delivery or shipment of the product, the price to the buyer is fixed or
determinable, and collection is reasonably assured. Delta
receives purchase orders for all of its service work and related pipe sales. All
sales are recorded when the work is completed or when the pipe is sold. The
Hammonds Companies and NPI have purchase orders for all sales, of which many of
the items are requested to be container shipped and shipped directly to the end
users. All sales are recorded when the inventory items are shipped.Taxes
assessed by a governmental authority that are incurred as a result of a revenue
transaction are not included in revenues.  American has no significant
sales returns or allowances.
  Earnings
(Loss) Per Share
  The basic
net earnings per common share is computed by dividing the net earnings by the
weighted average number of shares outstanding during a period. 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 shares
outstanding plus potential dilutive securities. For the three and six months
ended June 30, 2008 and 2007, potential dilutive securities that had an
anti-dilutive effect were not included in the calculation of diluted net
earnings (loss) per common share. These securities include options to purchase
shares of common stock that were not "in the money".
  Management's
Estimates and Assumptions
  The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses. Actual results could differ from these
estimates.
  Back to Table of Contents
 8
 Fair
Value of Financial Instruments
  American estimates
the fair value of its financial instruments using available market information
and appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, American estimates of fair value are not necessarily
indicative of the amounts that American could realize in a current market
exchange. The use of different market assumption and/or estimation methodologies
may have a material effect on the estimated fair value amounts. The interest
rates payable by American on its notes payable approximate market
rates. American believes that the fair value of its financial instruments
comprising accounts receivable, notes receivable, accounts payable, and notes
payable approximate their carrying amounts.
  Note
2 - Trading Securities
 Investments
in marketable securities primarily include shares of common stock in various
companies that are bought and held principally for the purpose of selling them
in the near term with the objective of generating profits on short-term
differences in price. These investments are classified as trading securities,
and accordingly any unrealized changes in market values are recognized in the
consolidated statements of operations.  At June 30, 2008 and 2007,
American has unrealized trading losses of $2,581,984 and gains of $642,374,
respectively, related to securities held on those dates. During the six months
ended June 30, 2008 and 2007, American recorded realized losses of
$28,861 and $629,008, respectively, on the sales of trading
securities.
 On September
12, 2007, American acquired 170,345 shares, or approximately 7%, of OI
Corporation's (NasdaqGM: OICO) common stock for a $1,000,000 cash
payment and the issuance of 240,000 restricted shares of American's common
stock, valued at $5.05 per common share based upon the closing market
price on that date, for a total purchase price of $2,212,000.  The
closing market price on the date of this transaction for OICO was $13.23 per
common share.  During the six months ended June 30, 2008, American has
purchased an additional 2,100 shares at an average purchase price of $12.02 per
share.  At June 30, 2008, our investment in the 172,445 shares
of OICO common stock is classified on the balance sheet as trading
securities for $1,998,638 valued at $11.59 per share based upon the closing
market price on that date.  At
December 31, 2007, our investment in the 170,345 shares of OICO common stock is
classified on the balance sheet as trading securities for $2,201,198 valued at
$12.92 per share based upon the closing market price on that
date.The OICO shares were purchased from OI Corporation's
former President and CEO, William W. Botts.  OI Corporation engages in the
design, manufacture, marketing, and service of analytical, monitoring, and
sample preparation products, components, and systems.
  On
November 27, 2007, American acquired 1,000,000 restricted shares, or
approximately 9% of Rubicon Financial Incorporated’s (OTCBB:  RBCF.OB)
common stock for a $1,000,000 cash payment and the issuance of 200,000
restricted shares of American's common stock, valued at $4.90 per common share
based upon the closing market price on that date, for a total purchase price of
$1,980,000.  The closing market price on the date of this transaction for
RBCF was $2.87 per common share.  At June 30, 2008, our investment in
the 1,000,000 shares of RBCF common stock is classified on the balance
sheet as trading securities for $1,650,000, valued at $1.65 per share based upon
the closing market price on that date.  At
December 31, 2007, our investment in the 1,000,000 shares of RBCF common stock
is classified on the balance sheet as trading securities for $3,700,000, valued
at $3.70 per share based upon the closing market price on that date.Rubicon Financial Incorporated is a development stage company,
operating as a full service insurance agency offering personal and commercial
lines, health, and life insurance products to individuals and companies in
California.
 
 The
market value of the trading securities for these two companies was
$3,648,638 at June 30, 2008, or 85% of our portfolio of trading
securities.  The
market value of the trading securities for these two companies was $5,901,198 at
December 31, 2007, or 87% of our portfolio of trading
securities.
 
 Equity
markets can experience significant volatility and therefore are subject to
changes in value. Based upon the current volatile nature of the U.S. securities
markets and the decline in the U.S. economy, we believe that it is possible,
that the market values of our marketable equity securities could decline in the
near term. We have a policy in place to review our equity holdings on a regular
basis. Our policy includes, but is not limited to, reviewing each company’s cash
position, earnings/revenue outlook, stock price performance, liquidity and
management/ownership. American seeks to manage exposure to adverse equity
returns in the future by pursuing to diversify our securities
portfolios.
 Back to Table of Contents
 9
 Note
3 - Inventory
  Inventories
consisted of the following:
  June
      30, 2008
              
              
              December
      31, 2007Part
      and materials
              
              $
              1,383,187
              
              
              $
              1,420,043Work
      in process
              
              
              392,147
              
              
              
              186,045Finished
      goods
              
              
              4,872,435
              
              
              
              4,346,867Less
      reserve
              
              
              (139,125
              )
              
              
              (140,958
              )$
              6,508,644
              
              
              $
              5,811,997
  Note
4 - Real Estate Transactions
  During
the second quarter of 2007, American purchased for investment a 174
acre tract of land in Waller County, Texas for $1,684,066. This property is
listed for sale with a real estate broker.  This property is not going to
be developed by nor is it being held as inventory by
American.  American continues to own 287 undeveloped acres of
waterfront property on Dickinson Bayou and Galveston Bay in Galveston County,
Texas. The book value for this property is $225,000.  In November
2005, American signed a contract for sale of the property for $16,000,000
with Lakeland Partners III. In January 2007, 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. Westfield
deposited $95,000 in earnest money with the title company upon assignment of the
contract, which had an initial feasibility period of one year.  In July
2008, the contract was amended to extend the feasibility period to October 31,
2008.  No revenue has been recognized for this transaction because the
development of the property requires permits from the City of Texas City and the
U. S. Army Corp of Engineers, which the developer believes they can obtain
timely within the terms of the contract.  As a result, the transaction has
not had all the elements necessary for it to be considered a completed revenue
recognition event.
 Note
5 - Long-term Notes Receivable
  Long-term
notes receivable at June 30, 2008 consisted of the following:
  June
      30, 2008
                
                
                December
      31, 2007Net
      note receivable from sale of real estate, principal balance due on or
      before July 30, 2008 (a)
                
                $
                3,020,044
                
                
                $
                3,020,044Sale
      of machinery and equipment, principal balance due on or before December 1,
      2008
                
                
                164,000
                
                
                
                164,000Sale
      of former subsidiary, Marald, Inc., principal and interest due monthly
      through June 5, 2012
                
                
                145,394
                
                
                
                160,892Sale
      of former subsidiary, Marald, Inc., principal and interest due
      monthly through July 2012 (b)
                
                
                200,000
                
                
                
                200,000Sale
      of refinery to settle lawsuit, principal and interest due on June
      1 and December 1, through June 1, 2010
    (c)
                
                
                700,000
                
                
                
                750,000Sale
      of drilling rig, principal and interest due monthly through December 31,
      2009
                
                
                168,578
                
                
                
                222,024Note
      secured by property and shares of stock, interest due monthly at 18%
      through May 9, 2009, principal payment due on or before May 9,
    2009
                
                
                225,000
                
                
                
                -Notes
      receivable
                
                
                4,623,016
                
                
                
                4,516,960Less
      current portion
                
                
                (4,202,686
                )
                
                
                (3,898,831
                )Notes
      receivable, less current portion
                
                $
                420,330
                
                
                $
                618,129
  (a) Net note receivable from sale of
real estate, principal payment due on or before July 30,
2008.  On July 30, 2004, American sold real estate to an
unaffiliated third party for a cash payment equal to the first lien and $250,000
owed to Orion HealthCorp, Inc. and a note receivable in the amount of $5,000,000
secured by a lien on the real estate. The note is being amortized over a 20 year
period, with a balloon payment at the end of five years in the amount of
$4,012,084, and bears interest of 3% per annum. The note was discounted by $1.6
million to the present value of the lowest level of annual payments required by
the sales contract, or $3.4 million, over the maximum period specified by SFAS
No. 66.  Principal payments have reduced the note balance to $3.0
million as of June 30, 2008.  American recorded a gain, using the
reduced profit method for recording the sale of land, in the amount of
$1,815,070 on the sale of this real estate based on discounting the $5,000,000
note at a 7.6% interest rate (approximating the market rate for real estate
transactions by the buyer).  The principal payment of $3,020,044 due
on July 30, 2008 was not received.  American is in the process of
extending the due date on this note for 90 days.  The property
securing this note was appraised in November 2007 for $9,175,000 by an
independent appraiser.
 Back to Table of Contents
 10
 (b) Sale of former subsidiary, Marald,
Inc., principal and interest due monthly through July
2012.  The original note was for $300,000 and was discounted to
$200,000 for the receipt of full payment on or before October 25,
2007.  New payment terms are being negotiated for this note
receivable.  Since the loan is reflected at a $100,000 discount to the
original note, American believes that no further discounting of the loan is
necessary as of June 30, 2008.
  (c) Sale of refinery to settle lawsuit,
principal and interest due on June 1 and December 1, through June 1,
2010.  American received principal payments of $25,000,
$12,500, and $12,500 on February 15, 2008, May 6, 2008 and June 19, 2008,
respectively.  Notre Dame Investors, Inc. has agreed with Lazarus
Energy LLC to pay the entire principal balance of the note, including all
accrued and unpaid interest, upon receipt of financing with a
bank.  The owners of the refinery have received a commitment by a
Houston bank for this financing. The loan is collateralized by a first lien
on the Nixon Refinery and the refinery may be sold in September if a deal
is not completed by then.  The parties believe that if the sale of the
refinery is necessary, the proceeds will be more than enough to cover the
amounts due to the parties.We have
reviewed SFAS No. 114: Accounting by Creditors for Impairment of a Loan—an
amendment of FASB Statements No. 5 and 15, and based on current information and
events, management does not believe that it is probable that American will be
unable to collect all amounts due according to the contractual terms of the loan
agreement.  Therefore, we have not recognized an impairment of this
loan.
 Note
6 - Property and Equipment
  Major
classes of property and equipment together with their estimated useful lives,
consisted of the following:
  Years
                
                June
      30, 2008
                
                
                December
      31, 2007Land
                
                
                $
                892,945
                
                
                $
                892,945Building
      and improvements
                20
                
                
                1,029,996
                
                
                
                1,029,996Machinery
      and equipment
                7-15
                
                
                4,755,649
                
                
                
                4,314,861Office
      equipment and furniture
                7
                
                
                1,010,112
                
                
                
                892,399Automobiles
                5
                
                
                1,047,803
                
                
                
                1,025,2648,736,505
                
                
                
                8,155,465Less
      accumulated depreciation and amortization
                
                
                
                (3,903,802
                )
                
                
                (3,535,525
                )Net
      property and equipment
                
                
                $
                4,832,703
                
                
                $
                4,619,940
  Depreciation
expense for the three and six months ended June 30, 2008 and 2007 was
$190,738, $132,152, $368,278, and $243,097, respectively.
  During
the year ended December 31, 2007 and six months ended June 30, 2008, Hammonds
entered into capital lease agreements for machinery and equipment included in
the June 30, 2008 and December 31, 2007 balances as follows:
 June
      30, 2008
                    
                    
                    December
      31, 2007Machinery
      and equipment
                    
                    $
                    372,722
                    
                    
                    $
                    163,174Less
      accumulated depreciation and amortization
                    
                    
                    (14,571
                    )
                    
                    
                    -Net
      property and equipment
                    
                    $
                    358,151
                    
                    
                    $
                    163,174
 Principal
repayment provisions of long-term capital leases are as follows at June 30,
2008:
  2008
                  
                  $
                  29,7612009
                  
                  
                  71,2982010
                  
                  
                  76,7452011
                  
                  
                  75,0432012
                  
                  
                  67,2802013
                  
                  
                  5,402Total
                  
                  $
                  325,529
 Back to Table of Contents
 11
 Note
7 - Intangible Assets
  Intangible
assets at June 30, 2008 consisted of the following:
  Gross
      Carrying Amount
                      
                      
                      Accumulated
      Amortization
                      
                      
                      
                      Intangibles,
      net
                      
                      Average
      Weighted LivesGoodwill
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      674,539
                      
                      N/APatents
                      
                      $
                      4,564,433
                      
                      
                      $
                      1,029,204
                      
                      
                      $
                      3,535,229
                      
                      12
      yearsTrademarks
                      
                      
                      1,149,199
                      
                      
                      
                      278,413
                      
                      
                      
                      870,786
                      
                      10
      yearsSole
      Source Contract
                      
                      
                      1,144,039
                      
                      
                      
                      396,112
                      
                      
                      
                      747,927
                      
                      7
      yearsPatents,
      Trademarks, and Sole Source Contracts
                      
                      $
                      6,857,671
                      
                      
                      $
                      1,703,729
                      
                      
                      $
                      5,153,942
                      
                      11
      years
 Intangible
assets at December 31, 2007 consisted of the following:
  Gross
      Carrying Amount
                    
                    
                    Accumulated
      Amortization
                    
                    
                    
                    Intangibles,
      net
                    
                    Average
      Weighted LivesGoodwill
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    674,539
                    
                    N/APatents
                    
                    $
                    4,544,498
                    
                    
                    $
                    845,022
                    
                    
                    $
                    3,699,476
                    
                    12
      yearsTrademarks
                    
                    
                    1,149,199
                    
                    
                    
                    220,953
                    
                    
                    
                    928,246
                    
                    10
      yearsSole
      Source Contract
                    
                    
                    1,144,039
                    
                    
                    
                    314,396
                    
                    
                    
                    829,643
                    
                    7
      yearsPatents,
      Trademarks, and Sole Source Contracts
                    
                    $
                    6,837,736
                    
                    
                    $
                    1,380,371
                    
                    
                    $
                    5,457,365
                    
                    11
      years
  Amortization
expense for the three and six months ended June 30, 2008 and 2007 was
$161,800, $166,645, $323,357, and
$333,250 respectively.
  Note
8 - Short-term Notes Payable
  June
      30, 2008
                
                
                December
      31, 2007Note
      payable with interest at 10.5%, interest payments due monthly, principal
      due on demand
                
                $
                89,999
                
                
                $
                89,999Delta
      lawsuit settlement with a payment of $706,623 paid on July
      30, 2008, and monthly payments of $25,000 beginning September 1, 2008
      through August 1, 2009, totaling $300,000, or $275,000 by October 21,
      2008
                
                
                1,006,623
                
                
                
                -Insurance
      note payable with interest at 5.24%, principal and interest due in monthly
      payments of $31,288 through May 1, 2009
                
                
                312,876
                
                
                
                -Insurance
      note payable with interest at 7.86%, principal and interest due in monthly
      payments of $32,493 through May 1, 2008
                
                
                -
                
                
                
                129,971$
                1,409,498
                
                
                $
                219,970
  On July
23, 2008, Delta Seaboard Well Service, Inc., our 51% owned
subsidiary negotiated a settlement in the Fort Apache Energy, Inc. v. Delta
Seaboard Well Service, Inc. lawsuit for $1,450,000, with $1,150,000 due
by July 30, 2008, and monthly payments of $25,000 beginning September 1, 2008
through August 1, 2009, totaling $300,000, or $275,000 if paid by October 21,
2008.  On June 13, 2008, American and Delta's 49% minority owners pledged
certificates of deposit for a letter of credit used to file a bond with the
court in the amount of $904,852.  The note balance of $1,006,623 as of
June 30, 2008, represents the settlement amount of $1,450,000, less the 49%
minority owners' portion of the bond of $443,377.  After minority interest,
the net impact of this settlement on American's net income is
$739,500.  Management
believes that the settlement amount will be recoverable through
insurance.
  Each
of American's subsidiaries that have outstanding notes payable has secured
such notes by that subsidiary’s inventory, accounts receivable, property and
equipment and guarantees from American.
 
 At June
30, 2008 and December 31, 2007, the average annual interest rates of our
short-term borrowings were approximately 8.4% and 8.9%,
respectively.
 Back to Table of Contents
 12
 Note
9 - Long-term Debt
  Long-term
debt consisted of the following:
  June
      30, 2008
                
                
                December
      31, 2007Note
      payable to a bank, interest due quarterly at prime plus 1%, principal
      balance due January 1, 2010, secured by real property
                
                $
                1,000,000
                
                
                $
                1,000,000Note
      payable to bank, which allows Hammonds to borrow up to $2,000,000,
      interest due quarterly at prime plus 1%, principal balance due January 1,
      2010, secured by assets of Hammonds' subsidiary, Hammonds Technical
      Services, Inc.
                
                
                1,992,189
                
                
                
                1,992,189Note
      payable to a bank, which allows Delta to borrow up to $3,000,000, due in
      monthly payments of interest only, with interest at prime floating rate,
      with the principal balance due in June 2009, secured by assets
      of Delta Seaboard Well Service, Inc.
                
                
                2,241,631
                
                
                
                1,876,631Note
      payable to bank due in monthly installments of interest only, principal
      balance due June 13, 2010 with interest at 1% above the prime
      rate secured by real property
                
                
                943,500
                
                
                
                -Note
      payable with interest at 5.8% due monthly, principal balance due January
      1, 2010, secured by certificates of deposit
                
                
                830,000Note
      payable to bank due in monthly installments of principal and interest
      through July 2025 with interest at prime floating rate secured by real
      property
                
                
                -
                
                
                
                423,967Note
      payable to a bank, due in monthly installments of $6,170, including
      interest at 6.6% through May 2018, secured by real
property
                
                
                533,456
                
                
                
                552,312Note
      payable to a bank, which allows Northeastern Plastics to borrow
      up to $5,000,000, interest due monthly at the prime rate, principal
      balance due July 31, 2010, secured by assets of Northeastern Plastics,
      Inc.
                
                
                2,316,000
                
                
                
                1,254,000Note
      payable to a bank, due in monthly installments of interest only at prime
      plus 1%, with a principal balance due on January 1, 2010, secured by
      assets of Hammonds' subsidiary, Hammonds Technical Services,
      Inc.
                
                
                400,000
                
                
                
                400,000Note
      payable to a bank, due in quarterly installments of interest only at 7.5%,
      with a principal balance due on January 1, 2010, secured by a certificate
      of deposit
                
                
                1,000,000
                
                
                
                1,000,000Note
      payable to a bank, due in monthly installments of principal and interest
      of $2,120 through April 3, 2011, secured by assets of Hammonds'
      subsidiary, Hammonds Technical Services, Inc.
                
                
                60,742
                
                
                
                72,389Note
      payable to a bank, with interest at 9.25%, due in monthly installments of
      principal and interest of $4,054 through February 26, 2012, secured by
      assets of Hammonds' subsidiary, Hammonds Technical Services,
      Inc.
                
                
                204,932
                
                
                
                220,338Note
      payable to a bank, due in quarterly payments of interest only, with
      interest at 8.0%, with a principal balance due on June 1, 2009, secured by
      real property
                
                
                1,740,000
                
                
                
                1,740,000Note
      payable to a bank, due in monthly payments of $6,120, including interest
      at 8.25%, through August 9, 2012, secured by assets of Delta
      Seaboard Well Service, Inc.
                
                
                253,547
                
                
                
                279,204Other
      secured notes with various terms
                
                
                114,967
                
                
                
                141,24913,630,964
                
                
                
                10,952,279Less
      current portion
                
                
                (1,919,930
                )
                
                
                (185,328
                )$
                11,711,034
                
                
                $
                10,766,951
  Each
of American's subsidiaries that have outstanding notes payable has secured
such notes by that subsidiary’s inventory, accounts receivable, property and
equipment and guarantees from American.
 Back to Table of Contents
 13
 Principal
repayment provisions of long-term debt are as follows at June 30,
2008:
  2008
                
                $
                87,0452009
                
                
                4,172,6042010
                
                
                8,676,2422011
                
                
                184,2492012
                
                
                184,521Thereafter
                
                
                326,303Total
                
                $
                13,630,964
  Note
10 - Related Party Notes Payable and Accounts Receivable
  Transactions
related to accounts receivable from related parties arise from compensation
arrangements, expense allowances and other similar items conducted in the
ordinary course of business.
  Note
11 - Capital Stock and Stock Options
  American is
authorized to issue up to 1,000,000 shares of Preferred Stock, $0.001 par value
per share, of which no shares are presently outstanding. The Preferred Stock may
be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by
stockholders, and may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion, redemption rights and sinking fund provisions.
  American is
authorized to issue up to 10,000,000 shares of Common Stock, $.001 par value per
share, of which 864,000 are reserved for issuance pursuant to the exercise of
options pursuant to an employment agreement with American's Chairman
and CEO. On March 30, 2007, American issued 144,000 stock options
to American's Chairman and CEO, with an exercise price of $7.00 per
share, expiring in 2 years, valued at $70,685 to American.  In connection
with American's 20% stock dividend to all shareholders on September 19, 2007,
the terms of these options were adjusted to reflect the dividend,
resulting in the option being exercisable to buy 172,800 shares for $5.83 per
share.
    American estimates
the fair value of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 2008 and 2007 as follows:
 
 March
      30, 2008
                
                
                March
      30, 2007Dividend
      yield
                
                
                0.00
                %
                
                
                0.00
                %Expected
      volatility
                
                
                38.64
                %
                
                
                38.68
                %Risk
      free interest
                
                
                2.5
                %
                
                
                6.25
                %Expected
      lives
                
                2
      years
                
                
                2
      years
  A summary
of the status of American's stock options to employees as of June 30, 2008
is presented below:
 
 Shares
                
                
                Weighted
      Average Exercise Price
                  June
      30, 2008Outstanding
      at beginning of period
                
                
                172,800
                
                
                $
                5.83Granted
                
                
                172,800
                
                
                
                5.83Exercised
                
                
                -
                
                
                
                N/ACanceled
                
                
                -
                
                
                
                N/AOutstanding
      and exercisable at end of period
                
                
                345,600
                
                
                $
                5.83Weighted
      average fair value of options granted during the period
                
                
                172,800
                
                
                $
                5.83
  Back to Table of Contents
 14
 The
following table summarizes information about fixed stock options to employees
outstanding at June 30, 2008:
  Exercise
      Price
                
                
                Number
      Outstanding and Exercisable at June 30, 2008$
                5.83
                
                
                
                345,600
 Note
12 - Preferred Stock of Subsidiary
  In August
and September 2006, Hammonds entered into stock purchase agreement with
Vision Opportunity Master Fund Limited (“VOMF”), an institutional investor,
pursuant to which Hammonds sold to VOMF 833,333 shares of Series A
Preferred Stock and 833,333 shares of Series B Preferred Stock, respectively.
(the “2006 Private Financing Transactions” respectively) and issued VOMF: (i)
Series A Warrants to purchase 8,333,333 shares of common stock at $0.18 per
share, expiring in August 2011; and (ii) Series B Warrants to purchase an
additional 8,333,333 shares of common stock at $0.18 per share, expiring in
August 2007. In connection with the sale of the Series B Convertible Preferred
Stock, Hammonds issued VOMF: (i) Series C Warrants to purchase an
additional 8,333,333 shares of common stock at $0.50 per share, expiring in
September 2011; and (ii) Hammonds agreed to extend the expiration dates on
the Series B Warrants issued in the 2006 Private Financing Transactions from
August 2007 to August 2008.
  On
September 20, 2007, Hammonds  and VOMF agreed to amend the Series
A, B and C Warrants to: (i) adjust the exercise price of all of the
Warrants to $0.10; and (ii) provide for the issuance of a total of 2,102,960
shares of Hammond's newly designated Series C Convertible Preferred Stock in
lieu of 21,029,599 shares of common stock. On September 21, 2007, VOMF delivered
a notice of exercise of all 21,029,599 Series A, B and C Warrants at an exercise
price of $0.10 per Warrant from which Hammonds received net proceeds of $981,162
and VOMF cancelled a short-term promissory note in the amount of $1,000,000,
representing a loan made by VOMF to Hammonds on August 17, 2007.  As a
result of this agreement, there are no warrants outstanding related to the
Series A, B and C Convertible Preferred Stock.
 Hammonds
reviewed the following accounting standards to determine the appropriate
accounting for these issuances:
 - SFAS
No. 133: Accounting for
Derivative Instruments and Hedging Activities
 -
SFAS No. 150: Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity
 -
EITF 00-19: Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock
 -
EITF 98-5: Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios
 -
EITF 00-27: Application of Issue No. 98-5 to Certain Convertible
Instruments
 -
EITF Topic D-98: Classification and Measurement of Redeemable
Securities
 -
ASR No. 268: Redeemable Preferred Stocks
  We
concluded that all components of these issuances should be classified as equity,
because the only way for the value of the conversion feature to be realized is
through the issuance of shares. Hammonds has sufficient authorized and
unissued shares available to settle the contracts after considering all other
commitments that may require the issuance of stock.
  Hammonds
valued the warrants using the Black-Scholes model and allocated t he
proceeds from the preferred share issuances based on the relative fair values of
the securities issued.
  Hammonds determined
that a beneficial conversion feature exists for the Series A, B and C
Convertible Preferred Stock issuances. Based on our review of the "Emerging
Issues Task Force" EITF 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and
EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments,
the amount of proceeds allocated to the Series A and Series B Convertible
Preferred Stock should be assigned to the embedded conversion feature with a
corresponding amount recorded as a "deemed dividend" to the preferred
shareholders. This is based on paragraph 6 of EITF 98-5, which states that "the
discount assigned to the beneficial conversion feature is limited to the amount
of the proceeds allocated to the convertible instrument."
  We
allocated the following amounts to the embedded conversion feature and recorded
a deemed dividend to the preferred shareholders:
  Preferred
      A – August 8, 2006
                  
                  $
                  387,499Preferred
      A – August 23, 2006
                  
                  
                  176,643Preferred
      B – September 30, 2006
                  
                  
                  726,756Preferred C
      – September 20, 2007
                  
                  
                  1,981,162Total
      deemed dividend
                  
                  $
                  3,272,060
 Back to Table of Contents
 15
 On July
25, 2007, Hammonds and VOMF entered into an agreement pursuant to which VOMF
waived the cash dividends of $150,425 on the Series A and Series B Convertible
Preferred Stock accrued from August and September 2006, respectively, through
June 30, 2008.  Additionally, VOMF agreed that future accrued dividends may
be paid, at Hammonds' option, in cash or in restricted shares of Hammond's
common stock. The number of shares of common stock to be issued as payment of
accrued and unpaid dividends shall be determined by dividing (i) the total
amount of accrued and unpaid dividends to be converted into common stock by (ii)
eighty percent (80%) of the average of the VWAP for the twenty (20) Trading Days
immediately preceding the dividend payment date. The term "VWAP" means, for any
date, (i) the daily volume weighted average price of the common stock for such
date on the OTC Bulletin Board as reported by Bloomberg Financial L.P. (based on
a trading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if
the common stock is not then listed or quoted on the OTC Bulletin Board and if
prices for the common stock are then reported in the "Pink Sheets" published by
the Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
common stock so reported; or (iii) in all other cases, the fair market value of
a share of common stock as determined by an independent appraiser selected in
good faith by the Investor and reasonably acceptable to Hammonds.
 Note
13 - Concentration of Credit Risk
  American maintains
its cash in commercial accounts at major financial institutions. Although the
financial institutions are considered creditworthy, at June 30, 2008, American's
cash balances exceeded the $100,000 limit covered by the Federal Deposit
Insurance Corporation. The terms of these deposits are on demand to minimize
risk. American has not incurred losses related to these
deposits.
 Trade
accounts receivable subject American to the potential for credit risk with
customers in the retail and distribution sectors. To reduce credit
risk, American performs ongoing evaluations of its customer’s financial
condition but generally does not require collateral. During the six months ended
June 30, 2008, American had no customers on a consolidated basis that
accounted for greater than 10% of American's revenues.
 Note
14 - Texas Emissions Reduction Plan Grant
  Delta
Seaboard Well Service, Inc. is the recipient of a Texas Emissions Reduction Plan
("TERP") grant from the Texas Commission on Environmental Quality in the amount
of $1,157,273. TERP is a comprehensive set of incentive programs aimed at
improving air quality in Texas. Through this grant, Delta’s rig engines are
being replaced with engines certified to emit 25% less nitrogen oxide (“NOx”)
than required under the current federal standard for the horsepower of the
engines. The old engines must be destroyed or rendered permanently
inoperable.
  International
Accounting Standard No. 20 (IAS 20): Accounting for Government Grants and
Disclosure of Government Assistance provides guidance on recognizing,
measuring and disclosing government grants, which requires that grants related
to assets be presented in the balance sheet either by setting up the grant as
deferred income or by deducting the grant in arriving at the carrying amount of
the asset. However, IAS 20 is under review because it is inconsistent with the
"Framework" for International Accounting Standards. The "Framework" states that
"Income is increases in economic benefits during the accounting period in the
form of inflows or enhancements of assets . . ., other than those relating to
contributions from equity participants." The International Accounting Standards
Board (IASB) noted that recognizing an amount in the balance sheet as a deferred
credit is inconsistent with the "Framework" in that the entity has no liability.
The IASB has decided to replace the guidance in IAS 20 for accounting for
government grants with the guidance in IAS 41: Agriculture. Also, the IASB
noted that SFAS No. 116: Accounting for Contributions
Received and Contributions Made, while exempting government grants to
business entities from its scope, provides an accounting model that can be
applied to government grants and that is consistent with the "Framework." In
both IAS 41 and SFAS No. 116, the guidance calls for establishing an asset and
recording the grant (contribution) as income. American applied this
guidance and during the six months ended June 30, 2008, Delta increased
machinery and equipment and recognized other income for this grant in the amount
of $57,589.
  TERP
grant recipients are required to monitor and track the total NOx emission
reductions and cost-effectiveness. The grant contract includes provisions for
the return of a prorated share of the grant if the NOx emission reductions
originally projected are not achieved. American has not recorded any liabilities
in connection with this matter because management has determined that return of
any grant receipts is not likely.  Based on the advice of the State of
Texas authorities who administer the grant, the taxability of this grant has not
been determined and the advice of the Internal Revenue Service has been
inconsistent.  American is still determining the effect this will
have, but believes it will not materially affect American because of the
tax loss carryforwards explained in note 16 below.
 Back to Table of Contents
 16
 Note
15 - Property Dividend Distribution Gain and Property Dividend
Payable
  On April
16, 2008, American declared a special dividend of shares of common stock of
its subsidiary, Hammond Industries, Inc. (OTCBB: “HMDI”) to American's
shareholders.  American's shareholders will be issued one share of
HMDI common stock for each share of American's common stock owned and held
on the record date.  American is working with its transfer agent on the
administrative procedures related to the dividends and will announce the record
and distribution dates once these issues are resolved.  As a result of this
declaration, American recorded a property dividend distribution gain of
$2,945,133 and a payable in the amount of $654,364.  The amount of the gain
was determined as the difference between the market price of HMDI common stock
on April 16, 2008 of $0.42 per share and American's book value per share of
$0.076 for the approximately 8,570,231 shares of American's common
stock outstanding on June 30, 2008, plus the 20% stock dividend
on American's stock.  The payable amount represents American's
book value for these shares.
  Note
16 - Income Taxes
  The
provision for income taxes consists of the following:
  June
      30, 2008
                  
                  
                  June
      30, 2007Current
      taxes
                  
                  $
                  (105,059
                  )
                  
                  $
                  (736,685
                  )Deferred
      tax benefit
                  
                  
                  (1,393,103
                  )
                  
                  
                  -Benefits
      of operating loss carryforwards
                  
                  
                  1,498,162
                  
                  
                  
                  736,685Current
      Federal Taxes
                  
                  
                  -
                  
                  
                  
                  -Refund
      due Delta Seaboard Well Service, Inc. for 2005 overpayment of Federal
      Taxes
                  
                  
                  (93,616
                  )
                  
                  
                  -Prior
      year Texas franchise taxes paid
                  
                  
                  6,361
                  
                  
                  
                  -Actual
      vs. accrued Texas Margin Tax - 2007
                  
                  
                  (37,807
                  )
                  
                  
                  -Texas
      Margin Tax estimate - 2008
                  
                  
                  29,708
                  
                  
                  
                  -Income
      tax expense (benefit)
                  
                  $
                  (95,354
                  )
                  
                  $
                  -
  The tax
provision differs from amounts that would be calculated by applying federal
statutory rates to income before income taxes primarily
because:
  -
American consolidates subsidiaries for financial statements which cannot be
consolidated for income tax purposes; therefore, some subsidiaries may pay
federal income tax despite the accumulated net operating losses of American
as a whole;
 - no tax
benefits have been recorded for nondeductible expenses totaling $489,169
and
 - the
valuation allowance for deferred tax assets increased by $740,157.
  The
following table sets forth a reconciliation of statutory income
taxes:
 
 Three
      Months Ended June 30,
                  
                  
                  
                  Six
      Months Ended June 30,2008
                  
                  
                  2007
                  
                  
                  
                  2008
                  
                  
                  2007Net
      loss before taxes
                  
                  $
                  (232,481
                  )
                  
                  $
                  (491,252
                  )
                  
                  $
                  (3,638,527
                  )
                  $
                  (1,736,115
                  )Income
      tax benefit computed at statutory rate
                  
                  $
                  (54,425
                  )
                  
                  $
                  (233,704
                  )
                  
                  $
                  (1,046,243
                  )
                  $
                  (673,290
                  )Permanent
      differences
                  
                  
                  (75,631
                  )
                  
                  
                  -
                  
                  
                  
                  (134,267
                  )
                  
                  84,600Net
      effects of temporary differences
                  
                  
                  1
                  
                  
                  
                  178,677
                  
                  
                  
                  105,059
                  
                  
                  (147,995
                  )Effect
      of federal graduated rates
                  
                  
                  (324,022
                  )
                  
                  
                  -
                  
                  
                  
                  1,035,403
                  
                  
                  -Tax
      credits
                  
                  
                  (700,109
                  )
                  
                  
                  -
                  
                  
                  
                  (700,109
                  )
                  
                  -Increase
      in valuation allowance
                  
                  
                  1,154,186
                  
                  
                  
                  55,027
                  
                  
                  
                  740,157
                  
                  
                  736,685Refund
      due Delta Seaboard Well Service, Inc. for 2005 overpayment of Federal
      Taxes
                  
                  
                  (93,616
                  )
                  
                  
                  -
                  
                  
                  
                  (93,616
                  )
                  
                  -Prior
      year Texas franchise taxes paid
                  
                  
                  6,361
                  
                  
                  
                  -
                  
                  
                  
                  6,361
                  
                  
                  -Difference
      between actual and estimated 2007 Texas Margin Tax
                  
                  
                  (37,807
                  )
                  
                  
                  -
                  
                  
                  
                  (37,807
                  )
                  
                  -Texas
      Margin Tax estimated for 2008
                  
                  
                  6,700
                  
                  
                  
                  -
                  
                  
                  
                  29,708
                  
                  
                  -Income tax benefit
                  
                  $
                  (118,362
                  )
                  
                  $
                  -
                  
                  
                  $
                  (95,354
                  )
                  $
                  -
  
 Back to Table of Contents
 17
 American has
loss carryforwards totaling $21,510,557 available at June 30, 2008 that may be
offset against future taxable income.  If not used, the carryforwards
will expire as follows:
 
 Operating
      LossesAmount
                  
                  Expires$
                  1,761,086
                  
                  2013$
                  1,462,959
                  
                  2014$
                  2,086,064
                  
                  2015$
                  860,006
                  
                  2017$
                  566,409
                  
                  2018$
                  1,028,302
                  
                  2019$
                  1,551,019
                  
                  2020$
                  2,587,701
                  
                  2021$
                  5,200,652
                  
                  2022$
                  4,406,359
                  
                  2023
 Note
17 - Earnings Per Share
  Basic
earnings per share are calculated on the basis of the weighted average number of
common shares outstanding. Diluted earnings per share, in addition to the
weighted average determined for basic loss per share, include common stock
equivalents, which would arise from the conversion of the preferred stock to
common shares.
 Three
      Months Ended June 30,
                  
                  
                  
                  Six
      Months Ended June 30,2008
                  
                  
                  2007
                  
                  
                  
                  2008
                  
                  
                  2007Basic
      income (loss) per share:Net
      income (loss)
                  
                  $
                  176,265
                  
                  
                  $
                  (687,366
                  )
                  
                  $
                  (3,004,547
                  )
                  $
                  (1,980,266
                  )Weighted
      average common shares outstanding
                  
                  
                  7,135,012
                  
                  
                  
                  5,486,981
                  
                  
                  
                  7,123,635
                  
                  
                  5,474,038Weighted
      average common shares outstanding for diluted net income (loss) per
      share
                  
                  
                  7,135,012
                  
                  
                  
                  5,486,981
                  
                  
                  
                  7,123,635
                  
                  
                  5,474,038Net
      income (loss) per share - basic
                  
                  $
                  0.02
                  
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.42
                  )
                  $
                  (0.36
                  )Net
      income (loss) per share - diluted
                  
                  $
                  0.02
                  
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.42
                  )
                  $
                  (0.36
                  )
 Note
18 - Commitments and Contingencies
  Various
key officials of American have entered into employment agreements
with American. In March 2007, the CEO of American entered into a five-year
employment agreement which provides for a monthly salary of $10,000 plus a bonus
as determined by the Board of Directors. Also, the agreement provides for the
grant of 144,000 options (172,800 options after the effect of the 20% stock
dividend) per year with an exercise price of $7.00, beginning March 15, 2007.
Additionally, beginning January 2008, the CEO will receive an additional 2,000
shares of American common stock on a monthly basis for the remaining term of the
agreement.  The CFO of American entered into a three-year employment
agreement beginning June 1, 2008, which provides for an annual salary of $95,000
plus a bonus as determined by the Board of Directors. The president of NPI
previously entered into an at-will employment agreement that provides an annual
salary of $158,000 plus a bonus based upon operating results of this subsidiary.
The employment agreement also grants the president of NPI an option to purchase
NPI common stock equal to 5% of NPI's equity at an exercise price of 5% of the
total stockholder's equity, if NPI conducts an initial public offering of its
common stock during the time of his employment. Delta’s president and vice
president entered into an employment agreement that provides for an annual base
salary of $150,000 each. The employment agreement for Hammonds’ president
provides for an annual base salary of $90,000.
 On July
23, 2008, Delta Seaboard Well Service, Inc., our 51% owned
subsidiary negotiated a settlement in the Fort Apache Energy, Inc. v. Delta
Seaboard Well Service, Inc. lawsuit for $1,450,000, with $1,150,000 due
by July 30, 2008, and monthly payments of $25,000 beginning September 1, 2008
through August 1, 2009, totaling $300,000, or $275,000 if paid by October 21,
2008.  On June 13, 2008, American and Delta's 49% minority owners
pledged certificates of deposit for a letter of credit used to file a bond with
the court in the amount of $904,852.  American's financial
statements reflect a note balance of $1,006,623 as of June 30, 2008,
which represents the settlement amount of $1,450,000, less the 49% minority
owners' portion of the bond of $443,377.  After minority interest, the net
impact of this settlement on American's net income is $739,500.  Management
believes that the settlement amount will be recoverable through insurance as
described below.
  Back to Table of Contents
 18
 Gemini Insurance Company v. Delta Seaboard Well
Service, Inc., Delta had a CGL insurance policy with Gemini Insurance
Company ("Gemini") for 2003, naming Delta as an insured, which policy was in
effect at such time as Delta began the plugging operation referenced in the
first lawsuit. Delta made a claim under the policy for a defense in the Fort
Apache case; however, Gemini has filed suit against Delta seeking a declaratory
judgment that it owes no defense under the policy. In connection with such
declaration, Delta has filed a counterclaim seeking to have the policy declared
applicable as to the claims of Fort Apache against Delta and claims for breach
of contract, violations of the Texas Deceptive Trade and Practices Act,
violations of the Insurance Code and bad faith on the part of Gemini in refusing
coverage.  Written discovery has been exchanged between both Gemini
and Delta.  No depositions have been taken in this
matter.  The discovery deadline in this litigation is September 19,
2008, and a trial date has not yet been reset.  Management is
vigorously defending this matter and asserting its affirmative
claims.  An evaluation cannot be made at this time in connection with
the outcome of the Gemini litigation.
  Delta Seaboard Well Service, Inc. v. Houstoun,
Woodard, Eason, Gentle Tomforde and Anderson, Inc., D/B/A Insurance Alliance and
Robert Holman, Delta’s position is that if there is not coverage under
the Gemini policy, its broker failed to obtain appropriate insurance coverage
and misrepresented the coverage it did obtain through the Gemini
policy.  The parties agreed to refrain from actively working on the
Broker Lawsuit pending the outcome of the Fort Apache lawsuit and the Gemini
lawsuit because the results of those two lawsuits could render the Broker
Lawsuit unnecessary.  One of the broker’s defenses is that all claims
in the Broker Lawsuit are barred by the March 2007 settlement reached in Gemini
Insurance Company, Houstoun, Woodard, Easton, Gentle Tomforde and Anderson,
Inc., D/B/A Insurance Alliance and Robert Holman for a rig damaged in Hurricane
Katrina, mentioned above.  On April 15, 2008, the broker filed a
motion for summary judgment asserting that this release applies to the claims in
the Broker Lawsuit and thus, the broker is entitled to judgment as a matter of
law.  The court
has denied to the broker the motion for summary judgment and has ordered the
parties to mediation.  Delta’s claim in this lawsuit is dependent
upon Delta not prevailing in the Gemini Insurance Company v. Delta
Seaboard Well Service, Inc.lawsuit.  Delta’s attorneys are
pursuing a joint mediation in these two lawsuits.As a result, it is
premature to analyze the potential outcome of the Broker Lawsuit.
  As part
of the attorney’s work on the Broker Lawsuit, Delta
filed a claim for coverage with AIG Specialty Lines Insurance Company
(AIG).  While AIG denied coverage, Delta’s attorneys believe they
should prevail against the grounds AIG used to deny the
claim.
 Delta
Seaboard Well Service, Inc. is the recipient of a TERP grant from the Texas
Commission on Environmental Quality in the amount of $1,157,273, of which
$561,711 has been recognized through June 30, 2008. TERP grant recipients are
required to monitor and track the total NOx emission reductions and
cost-effectiveness. The grant contract includes provisions for the return of a
prorated share of the grant if the NOx emission reductions originally projected
are not achieved. American has not recorded any liabilities in connection
with this matter because management has determined that return of any grant
receipts is not likely.
 The
Hammonds Companies lease office space under an operating lease which expires in
October 2016. Future minimum lease payments under the operating lease are as
follows:
 
 Year
      December 31,
                
                Amount2008
                
                $
                436,3802009
                
                
                436,3802010
                
                
                436,3802011
                
                
                436,3802012
                
                
                436,380Thereafter
                
                
                1,745,520$
                3,927,420
  Delta
leases space under a commercial lease which expires in June 2010. Future minimum
lease payments are as follows:
  Year
      December 31,
                
                Amount2008
                
                $
                55,5002009
                
                
                111,0002010
                
                
                55,500$
                222,000
 
 Back to Table of Contents
 19
 Note
19  - Segment Information
 We have
five reporting segments and corporate overhead:
  - Hammonds Technical Services-
a business engaged in fuel handling equipment for the United States military and
industrial customers, a provider of fuel injection services for the aviation
industry, and the designer of a new line of omni directional vehicles (ODV®) for
a wide variety of uses;
 - Hammonds Fuel Additives –
produces and markets motor and aviation fuel additives;
 - Hammonds Water Treatment–
manufactures patented systems which provide water disinfection for a wide range
of potable and waste water applications;
 - Northeastern Plastics - a
supplier of products to retailers and wholesalers in the automotive after-market
and in the consumer durable electrical products markets;
 - Delta Seaboard- an onshore
rig-based well servicing contracting company providing service to the oil and
gas industry;
 - Corporate overhead- American's investment holdings including financing current
operations and expansion of its current holdings as well as evaluating the
feasibility of entering into additional businesses.  Corporate overhead
also includes Brenham Oil & Gas, a division that owns an oil, gas and
mineral royalty interest in Washington County, Texas, which is carried
on American's balance sheet at $0.  Through Brenham Oil &
Gas, American is engaged in negotiations with financial institutions for
the purpose of financing potential acquisitions of existing oil and gas
properties and reserves.  American is seeking to enter into
arrangements with third-party owners and potential partners with proven oil and
gas reserves, but who lack the financial resources and/or the technical
expertise possessed by American, to assist them with the resources required to
develop their reserves.
 
 The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. American evaluates performances
based on profit or loss from operations before income taxes, not including
nonrecurring gains and losses and foreign exchange gains and
losses.
  American's reportable
segments are strategic business units that offer different technology and
marketing strategies. Most of the businesses were acquired as subsidiaries and
the management at the time of the acquisition was retained.
  American's areas
of operations are principally in the United States. No single foreign country or
geographic area is significant to the consolidated financial
statements.
 Consolidated
revenues from external customers, operating income / (losses), and identifiable
assets were as follows:


Three months ended June
      30,
              
              
              Six months ended June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenue:Hammonds
      Technical Services
              
              $
              1,291,104
              
              
              $
              1,325,929
              
              
              $
              2,442,976
              
              
              $
              1,976,412Hammonds
      Fuel Additives
              
              
              235,806
              
              
              
              234,414
              
              
              
              508,403
              
              
              
              543,422Hammonds
      Water Treatment
              
              
              893,861
              
              
              
              857,433
              
              
              
              1,674,549
              
              
              
              1,517,341Northeastern
      Plastics
              
              
              1,905,441
              
              
              
              1,524,089
              
              
              
              3,333,397
              
              
              
              3,857,014Delta
      Seaboard
              
              
              5,169,849
              
              
              
              3,085,429
              
              
              
              7,252,798
              
              
              
              5,745,675Total revenue
              
              $
              9,496,061
              
              
              $
              7,027,294
              
              
              $
              15,212,123
              
              
              $
              13,639,864Income
      (loss) from operations:Hammonds
      Technical Services
              
              $
              (570,060
              )
              
              $
              (350,128
              )
              
              $
              (1,246,388
              )
              
              $
              (1,111,529
              )Hammonds
      Fuel Additives
              
              
              (31,439
              )
              
              
              23,786
              
              
              
              (16,962
              )
              
              
              63,948Hammonds
      Water Treatment
              
              
              28,363
              
              
              
              29,123
              
              
              
              57,629
              
              
              
              49,421Northeastern
      Plastics
              
              
              (114,872
              )
              
              
              (98,035
              )
              
              
              (254,797
              )
              
              
              (149,330
              )Delta
      Seaboard
              
              
              1,026,166
              
              
              
              179,337
              
              
              
              487,982
              
              
              
              260,464Corporate
              
              
              (599,408
              )
              
              
              (564,251
              )
              
              
              (1,402,153
              )
              
              
              (1,337,964
              )Total loss from operations
              
              
              (261,250
              )
              
              
              (780,168
              )
              
              
              (2,374,689
              )
              
              
              (2,224,990
              )Other
      income (expense)
              
              
              28,769
              
              
              
              288,916
              
              
              
              (1,263,838
              )
              
              
              488,875Net
      loss before income tax
              
              $
              (232,481
              )
              
              $
              (491,252
              )
              
              $
              (3,638,527
              )
              
              $
              (1,736,115
              )June
      30, 2008
              
              
              
              December 31,
      2007Identifiable
      assets:Hammonds
      Technical Services
              
              
              
              
              
              
              
              
              
              $
              9,078,951
              
              
              $
              8,925,595Hammonds
      Fuel Additives
              
              
              
              
              
              
              
              
              
              
              1,993,412
              
              
              
              2,025,761Hammonds
      Water Treatment
              
              
              
              
              
              
              
              
              
              
              915,450
              
              
              
              772,179Northeastern
      Plastics
              
              
              
              
              
              
              
              
              
              
              6,967,944
              
              
              
              6,592,980Delta
      Seaboard
              
              
              
              
              
              
              
              
              
              
              6,847,329
              
              
              
              5,974,714Corporate
              
              
              
              
              
              
              
              
              
              
              17,509,221
              
              
              
              20,295,325Total identifiable assets
              
              
              
              
              
              
              
              
              
              $
              43,312,307
              
              
              $
              44,586,554


Back to Table of Contents
 20


Note 20 - Subsequent
Events








On July
16, 2008, American distributed a 20% stock dividend to its
shareholders.  The total number of shares distributed was
1,431,172.


Back to Table of Contents
 21


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATION




Forward-Looking
Statements; Market Data
  As used
in this Quarterly Report, the terms "we", "us", "our" and the "Company"means American International Industries, Inc., a Nevada corporation, and
its subsidiaries. To the extent that we make any forward-looking statements in
the "Management's Discussion
and Analysis of Financial Condition and Results of Operations"in this
Quarterly Report, we emphasize that forward-looking statements involve risks and
uncertainties and our actual results may differ materially from those expressed
or implied by our forward-looking statements. Our forward-looking statements in
this Quarterly Report reflect our current views about future events and are
based on assumptions and are subject to risks and uncertainties. Generally,
forward-looking statements include phrases with words such as "expect", "anticipate", "intend",
"plan", "believe", "seek", "estimate"and similar expressions to identify
forward-looking statements.
  Overview
  American
International Industries, Inc., organized under the laws of the State of Nevada
in September 1994, is a diversified corporation with interests in industrial
companies, oil and gas interests, oilfield supply and service companies, and
interests in undeveloped real estate in the Galveston Bay, TX area. The
Company’s business strategy is to acquire controlling equity interests in
undervalued companies and take an active role in its new subsidiaries to improve
their growth, by providing its subsidiaries with access to capital, leveraging
synergies and providing its subsidiaries with the Company's management
expertise. The Company is sometimes referred to as "we", "us", "our", and other
such phrases as provided in Regulation F-D (Fair Disclosure).
  American
International Industries, Inc. is a holding company and has five reporting
segments and corporate overhead:
  - Hammonds Technical Services-
a business engaged in fuel handling equipment for the United States military and
industrial customers, a provider of fuel injection services for the aviation
industry, and the designer of a new line of omni directional vehicles (ODV®) for
a wide variety of uses;
 - Hammonds Fuel Additives –
produces and markets motor and aviation fuel additives;
 - Hammonds Water Treatment–
manufactures patented systems which provide water disinfection for a wide range
of potable and waste water applications;
 - Northeastern Plastics - a
supplier of products to retailers and wholesalers in the automotive after-market
and in the consumer durable electrical products markets;
 - Delta Seaboard- an onshore
rig-based well servicing contracting company providing service to the oil and
gas industry;
 - Corporate overhead- the
Company's investment holdings including financing current operations and
expansion of its current holdings as well as evaluating the feasibility of
entering into additional businesses.  Corporate overhead also includes
Brenham Oil & Gas, a division that owns an oil, gas and mineral royalty
interest in Washington County, Texas, which is carried on the Company's balance
sheet at $0.  Through Brenham Oil & Gas, the Company is engaged in
negotiations with financial institutions for the purpose of financing potential
acquisitions of existing oil and gas properties and reserves.  The Company
is seeking to enter into arrangements with third-party owners and potential
partners with proven oil and gas reserves, but who lack the financial resources
and/or the technical expertise possessed by the Company, to assist them with the
resources required to develop their reserves.
 
 Hammonds
Industries, Inc. (OTCBB: "HMDI"), our 48% subsidiary, is a public
reporting company, which owns 100% of Hammonds Technical Services, Inc.,
Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc.
(collectively "Hammonds"). The Company consolidates Hammonds although its
ownership is less than 51%, because the Company appoints the members of
Hammonds' board of directors. Since Hammonds is incurring losses and the
minority interest has no recorded common stock equity value, the Company
recognizes 100% of Hammonds' losses.
 
 The
historical financial statements of the Company include the acquisitions of
acquired companies as of the effective dates of the acquisitions, and the
results of those companies subsequent to closing, as these transactions were
accounted for under the purchase method of accounting.
  Our
long-term strategy is to expand the operations of each of our subsidiaries in
their respective fields by providing managerial and financial support to our
subsidiaries. As part of our business model, we explore mergers, acquisitions
and dispositions of businesses and assets from time to time, based upon the
reasonable discretion of management and the value added of each potential
transaction.
  We
encounter substantial competition in each of our subsidiaries product and
service areas. Such competition is expected to continue. Depending on the
particular market involved, our subsidiaries compete on a variety of factors,
such as price, quality, delivery, customer service, performance, product
innovation and product recognition. Other competitive factors for certain
products include breadth of product line, research and development efforts and
technical and managerial capability.
  Corporate
overhead includes our investment activities for financing current operations and
expansion of our current holdings, as well as evaluating the feasibility of
acquiring additional businesses.
 Back to Table of Contents
 22


Results of
Operations




Three and six months Ended
June 30, 2008 Compared to Three and six months Ended June 30,
2007.




The
following is derived from, and should be read in conjunction with, our unaudited
condensed consolidated financial statements, and related notes for the three and
six months ended June 30, 2008 and 2007.


Net revenues. For the
three months ended June 30, 2008, revenues were $9,496,061, compared to
$7,027,294 for the three months ended June 30, 2007, representing an increase of
$2,468,767, or 35%. For the six month period ended June 30, 2008, revenues were
$15,212,123, compared to $13,639,864 for the same period in 2007, representing
an increase of $1,572,259, or 12%.




Hammonds’
generated revenues for the three months ended June 30, 2008 of $2,420,771,
compared to $2,417,776 for the three months ended June 30, 2007, representing an
increase of $2,995. Revenues for the six months ended June 30, 2008 were
$4,625,928, compared to $4,037,175 for the same period in 2007, representing an
increase of $588,753, or 15%. The increase was due to higher demand for Hammonds
Water Treatment products and increased sales of Hammonds Technical Services’
transport mounted injection systems and Hammonds’ line of Omni Directional
Vehicles (ODVs®). For the six months ended June 30, 2008 compared to 2007,
Hammonds Water Treatment revenues increased by $157,208, or 10%, and Hammonds
Technical Services revenues increased by $466,564, or 24%. Hammonds projected
backlog of orders at June 30, 2008 is $3.1 million, compared to a backlog of
orders of $5.0 million at June 30, 2007. The
backlog is principally comprised of orders for injectors and
skids.  All of the projected backlog at June 30, 2008 is expected
to be delivered over the next twelve months.




Delta
reported revenues of $5,169,849 for the three months ended June 30, 2008,
compared to $3,085,429 for the same period in 2007, representing an increase of
$2,084,420, or 68%. The increase in revenues at Delta is due to an increase in
pipe sales of $2,210,152, offset by a decrease in rig service revenues of
$125,732.  Delta’s revenues for the six months ended June 30, 2008
were $7,252,798, compared to $5,745,675 for the six months ended June 30, 2007,
representing an increase of $1,507,123, or 26%.  The increase in revenues
at Delta is primarily due to an increase in pipe sales of $1,859,748, offset by
a decrease in rig service revenues of $352,625.  Pipe sales revenues
have increased due to increased
drilling activity creating a greater demand for pipe. Rig
service revenues are lower due to a rig being taken out of service for extensive
maintenance in February 2008.  This rig was put back into service in
May 2008.




Revenues
at NPI during the three months ended June 30, 2008 were $1,905,441, compared to
$1,524,089 for the three months ended June 30, 2007, representing an
increase of $381,352, or 25%.  The increase in revenues is primarily
due to an order for a large customer that was expected for the first quarter,
but was delayed to the second quarter because the shipping vessel was
overbooked.  Revenues at NPI during the six months ended June 30, 2008
were $3,333,397, compared to $3,857,014, respectively, for the same period in
2007, representing a decrease of $523,617, or 14%.  The decrease in
revenues is primarily due to an overstock position from the 2007 holiday season
from one large customer.  Sales under the MOTOR TREND® and Good
Choice® programs have remained steady or grown slightly during the six months
ended June 30, 2008.  A new 2008 "big box" customer has been ordering
consistently and NPI received its first order from another new 2008 "big box"
customer in the second quarter, which is ahead of NPI's
forecast.  NPI's business is seasonal and historically, most of NPI’s
revenues have been generated in the third and fourth quarters.  NPI is
targeting one or two additional large accounts and adding more mid-size
accounts.  NPI's projected backlog of orders at June 30, 2008 is $3.6
million, compared to a backlog of orders of $5.7 million at June 30,
2007.




Net loss from operations.Our
consolidated net loss from operations for the three months ended June 30, 2008
was $261,250, compared to $780,168 for the three months ended June 30, 2007,
representing an improvement of $518,918, or 67%.  The decrease in net
loss from operations was due to the increase in revenues and a decrease in
selling, general and administration costs as a percentage of revenues to 39% for
the three months ended June 30, 2008, compared to 49% for 2007. Consolidated net
loss from operations for the six months ended June 30, 2008 was $2,374,689,
compared to a net loss of $2,224,990 during the same period in
2007.  Margins increased to 35% for the six months ended June 30,
2008, compared to 34% for 2007.  Selling, general and administration costs
as a percentage of revenues improved to 50% for the six months ended June 30,
2008, compared to 51% for 2007.


Back to Table of Contents
 23


Other income.Other income
was $28,769 for the three months ended June 30, 2008, compared to other
income of $288,916 for the three months ended June 30, 2007. Other expense
was $1,263,838 for the six months ended June 30, 2008, compared to other
income of $488,875 for the six months ended June 30, 2007.  Other expense
for the three and six months ended June 30, 2008 included $2,945,133 for
recognition of the property dividend distribution gain associated with the
declaration of the Hammonds’ stock dividend (see note 15) and the recognition of
$1,450,000 for the Delta lawsuit settlement (see notes 8 and
18).  After minority interest, the net impact of this settlement on
the Company's net income is $739,500.  Net realized/unrealized loss on
trading securities was $1,250,565 and $2,610,845 for the three and six months
ended June 30, 2008, respectively, compared to a loss of $30,847 and a gain
of $13,366 for the three and six months ended June 30, 2007, respectively. 
The
net unrealized loss on trading securities of $2,581,984 for the six months ended
June 30, 2008, was due primarily to declines in the market values of our
investments in OI Corporation and Rubicon Financial Incorporated of $2,277,806
(see note 2).




The
following table represents the potential decrease in fair values of our
marketable equity securities that are sensitive to changes in the stock market.
Fair value deteriorations of 50%, 35% and 15% were selected for illustrative
purposes because none is more likely to occur than another.
  50%
              
              
              
              35%
              
              
              
              15%Marketable
      equity securities
              
              $
              (2,147,414
              )
              
              $
              (1,503,189
              )
              
              $
              (644,224
              )




Delta
recognized other income from a Texas Emissions Reduction Plan (TERP) grant
in the amount of $57,589 for the six months ended June 30, 2008 compared to
$347,160 for the six months ended June 30, 2007.  For further disclosure
regarding the TERP grant, see note 14.




Net income / loss.Net income
was $176,265 and net loss was $3,004,547, respectively, for the three and six
months ended June 30, 2008, compared to net losses of $687,366 and $1,980,266,
respectively, for the same periods in 2007.




Liquidity
and Capital Resources




Total assets/working capital.Total assets at June 30, 2008 were $43,312,307, compared to $44,586,554
at December 31, 2007, representing a decrease of $1,274,247.  At
June 30, 2008, consolidated working capital was $22,432,889, compared to working
capital of $27,790,372 at December 31, 2007, representing a decrease of
$5,357,483.  The primary reason for the decrease in working capital was a
non-cash unrealized loss on trading securities of $2,581,984 and the recognition
of a short-term note payable of $1,006,623 for the Delta lawsuit settlement (see
note 8).  Additionally, working capital was used to fund operations
and for the purchase of plant and equipment.




Cash flow from operations.For the six months ended June 30, 2008, we had negative cash flow from
operations of $4,079,781, compared to negative cash flow from operations of
$2,861,690 during 2007. The decrease in cash flow from
operations was the result of an increase in our net loss from
$1,980,266 for six months ended June 30, 2007 to $3,004,547 for the six
months ended June 30, 2008. Our net loss for the six months ended June 30, 2008
included non-cash income of $2,945,133 for recognition of the property dividend
distribution gain associated with the declaration of the Hammonds’ stock
dividend (see note 15) and non-cash expenses of $5,040,443, including
unrealized losses on the sale of trading securities of $2,581,984, recognition
of $1,450,000 for the Delta lawsuit settlement (see notes 8 and 18),
depreciation and amortization of $691,635, and non-cash compensation of
$316,824.  Our net loss for the six months ended June 30, 2007 included
non-cash expenses of $988,807, including depreciation and amortization of
$576,347, and non-cash compensation of $412,460.  Our
inventories increased by $696,647 for the six months ended June 30,
2008, compared to an increase of $970,538 during the six months ended June 30,
2007.  We increased our investments in trading securities by $95,289 during
the six months ended June 30, 2008, compared to a decrease of $268,175 during
the same period in 2007.  Accounts receivable increased by $1,159,063
during the six months ended June 30, 2008, compared to a decrease of $494,574
during the same period in 2007.  Prepaid expenses increased by
$1,207,806, other assets decreased by $14,846, and accounts payable
increased by $775,969 for the six months ended June 30, 2008.  For the six
months ended June 30, 2007, prepaid expenses increased by $523,512, other assets
increased by $517,812, and accounts payable decreased by $461,199.




Cash flow from investing activities.Our investing activities used $155,470 during the six month period ended
June 30, 2008, as a result of purchases of property, equipment, and expenditures
related to securing additional patents of $339,870, the issuance of a note
receivable of $225,000, offset by a net increase in investments in certificates
of deposit of $184,579, and proceeds from the sale of drilling rig equipment of
$200,000.  This is compared to cash used by investing activities during the
same period in the prior year in the amount of $83,848 during the six month
period ended June 30, 2007, as a result of purchases of property, equipment, and
expenditures related to securing additional patents of $527,096, offset by a net
reduction in investment in certificates of deposit of $114,000 and receipts of
principal payments on notes receivable of $340,498.


Back to Table of Contents
 24


Cash flow from financing activities.During the six months ended June 30, 2008, our financing activities
provided $2,702,950 compared to $2,588,920 during the same period in 2007.
During the 2008 period, we received proceeds from line-of-credit agreements
of $1,427,000, from short-term borrowings of $344,163, and long-term borrowings
of $1,773,500.  We decreased our borrowings on margin loans by
$107,795 and made payments of $683,074 on debt during the six
month period ended June 30, 2008.  During the 2007 period, we received net
proceeds from the issuance of common stock of our subsidiary in the amount of
$694,672, from short-term borrowings in the amount of $657,420, from long-term
debt of $362,185, and from line-of-credit agreements of $1,518,218. We made
payments of $387,368 on debt during the six month period ended June 30,
2007.




Real estate.During the
second quarter of 2007, the Company purchased for investment a 174 acre
tract of land in Waller County, Texas for $1,684,066. This property is listed
for sale with a real estate broker.  This property is not going to be
developed by nor is it being held as inventory by the Company.  The Company
continues to own 287 undeveloped acres of waterfront property on Dickinson Bayou
and Galveston Bay in Galveston County, Texas. The book value for this property
is $225,000.  In November 2005, the Company signed a contract for sale
of the property for a cash consideration of $16,000,000 with Lakeland Partners
III. In January 2007, 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. Westfield deposited $95,000 in earnest
money with the title company upon assignment of the contract, which had an
initial feasibility period of one year.  On July 14, 2008, the contract was
amended to extend the feasibility period to October 31, 2008.  No revenue
has been recognized for this transaction because the development of the property
requires permits from the City of Texas City and the U. S. Army Corp of
Engineers, which the developer believes they can obtain timely within the terms
of the contract.  As a result, the transaction has not had all the elements
necessary for it to be considered a completed revenue recognition
event.

















Back to Table of Contents
 25
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
  Interest Rate Risk.The
carrying amounts for cash and cash equivalents, accounts receivable, notes
payable and accounts payable and accrued liabilities shown in the Condensed
Consolidated Balance Sheets approximate fair value at June 30, 2008, due to the
generally short maturities of these items. At June 30, 2008, our
investments were primarily in short-term dollar denominated bank deposits with
maturities of a few days, or in longer-term deposits where funds can be
withdrawn on demand without penalty. We have the ability and expect to hold our
investments to maturity.  The
Company’s outstanding long-term debt as of June 30, 2008, is at fixed interest
rates, prime plus 1%, or prime floating rate. The Company does not believe that
a change of 100 basis points in interest rates would have a material effect on
the Company’s financial condition.
 Equity Investments. We are
exposed to equity price risk on our portfolio of trading securities. As of June
30, 2008, our total equity holdings in publicly traded companies were valued at
$4,294,827, compared to $6,810,382 as of December 31,
2007.  On September 12, 2007, the Company acquired 170,345
shares, or approximately 7%, of OI Corporation's common stock for
a $1,000,000 cash payment and the issuance of 240,000 restricted shares of
the Company’s common stock for a total purchase price of $2,212,000. The closing
market price on the date of this transaction for OICO was $13.23 per common
share.  During the six months ended June 30, 2008, the Company has
purchased an additional 2,100 shares at an average purchase price of $12.02 per
share.  On November 27, 2007, the Company acquired 1,000,000 restricted
shares, or approximately 9% of Rubicon Financial Incorporated’s common stock for
a $1,000,000 cash payment and the issuance of 200,000 restricted shares of the
Company’s common stock for a total purchase price of $1,980,000.  The
closing market price on the date of this transaction for RBCF was $2.87 per
common share.  The
market value of the trading securities for these two companies was
$3,648,638 at June 30, 2008, or 85% of our portfolio of trading
securities.  The
market value of the trading securities for these two companies was $5,901,198 at
December 31, 2007, or 87% of our portfolio of trading
securities. Equity
markets can experience significant volatility and therefore are subject to
changes in value. Based upon the current volatile nature of the U.S. securities
markets and the decline in the U.S. economy, we believe that it is possible,
that the market values of our marketable equity securities could decline in the
near term. We have a policy in place to review our equity holdings on a regular
basis. Our policy includes, but is not limited to, reviewing each company’s cash
position, earnings/revenue outlook, stock price performance, liquidity and
management/ownership. The Company seeks to manage exposure to adverse equity
returns by maintaining diversified securities portfolios.
 The
following table represents the potential decrease in fair values of our
marketable equity securities that are sensitive to changes in the stock market.
Fair value deteriorations of 50%, 35% and 15% were selected for illustrative
purposes because none is more likely to occur than another.  50%
                      
                      
                      
                      35%
                      
                      
                      
                      15%Marketable
      equity securities
                      
                      $
                      (2,147,414
                      )
                      
                      $
                      (1,503,189
                      )
                      
                      $
                      (644,224
                      )
  ITEM 4T. CONTROLS AND PROCEDURES
  Evaluation of disclosure controls
and procedures.As of June 30, 2008, the Company's chief executive
officer and chief financial officer conducted an evaluation 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 the
evaluation of these controls and procedures, our chief executive officer and
chief financial officer concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this report.
  Changes in internal controls.During the quarterly period covered by this report, no changes occurred
in our internal control over financial reporting that materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
  Back to Table of Contents
 26
 PART
II - OTHER INFORMATION
  ITEM 1. LEGAL PROCEEDINGS
  Fort Apache Energy, Inc. v. Delta
Seaboard Well Service, Inc.
 On July
23, 2008, Delta Seaboard Well Service, Inc., our 51% owned
subsidiary negotiated a settlement in the Fort Apache Energy, Inc. v. Delta
Seaboard Well Service, Inc. lawsuit for $1,450,000, with $1,150,000 due
by July 30, 2008, and monthly payments of $25,000 beginning September 1, 2008
through August 1, 2009, totaling $300,000, or $275,000 if paid by October 21,
2008.  On June 13, 2008, the Company and Delta's 49% minority owners
pledged certificates of deposit for a letter of credit used to file a bond with
the court in the amount of $904,852.  The Company's financial
statements reflect a note balance of $1,006,623 as of June 30, 2008,
which represents the settlement amount of $1,450,000, less the 49% minority
owners' portion of the bond of $443,377.
 Gemini Insurance Company v. Delta
Seaboard Well Service, Inc.
 There have been no material developments in this case
since December 31, 2007.
  Delta Seaboard Well Service, Inc. v.
Houstoun, Woodard, Eason, Gentle Tomforde and Anderson, Inc., D/B/A Insurance
Alliance and Robert Holman
 The court
has denied to the broker the motion for summary judgment and has ordered the
parties to mediation.  Delta’s claim in this lawsuit is dependent
upon Delta not prevailing in the Gemini Insurance Company v. Delta
Seaboard Well Service, Inc.lawsuit.  Delta’s attorneys are
pursuing a joint mediation in these two lawsuits.
  ITEM 1A. RISK FACTORS
  There
have been no material changes from Risk Factors as previously disclosed in the
Registrant’s annual report for the year ended December 31, 2007.
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
    ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  None.
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  None.
  ITEM 5. OTHER INFORMATION
  None.
  ITEM 6. EXHIBITS
  (a) The
following documents are filed as exhibits to this report on Form 10-Q or
incorporated by reference herein. Any document incorporated by reference is
identified by a parenthetical reference to the SEC filing that included such
document.
  Exhibit
      No.
              Description31.1
              Certification
      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 200232.1
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to the Sarbanes-Oxley Act of 200232.2
              Certification
      of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act
      of 2002
  (b)
Reports on Form 8-K During the Period Covered by this Report: The
Registrant filed a Form 8-K on April 16, 2008 with disclosure under Item 8.01,
"Other Events" and Item 9.01, "Financial Statements and Exhibits." The
Registrant filed a Form 8-K on June 6, 2008 with disclosure under
Item 4.01, "Changes in Registrant's Certifying Accountants."  The
Registrant filed a Form 8-K/A on June 10, 2008 with disclosure under Item
2.03, "Creation of a Direct Financial Obligation or an Obligation Under and
Off-Balance Sheet Arrangement."


Back to Table of Contents
 27




SIGNATURES






Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.






/s/ DANIEL
DROR


CEO, PRESIDENT AND CHAIRMAN


Dated:August 14,
2008






/s/ SHERRY L.
COUTURIER


CHIEF FINANCIAL OFFICER


Dated:August 14,
2008