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, 2009




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, 2009, the Registrant had 8,764,615 shares of common stock
outstanding.





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
      OPERATIONS
            25ITEM
      3.
            QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISKS
            28ITEM
      4.
            CONTROLS AND PROCEDURES
            28PART II -
      OTHER INFORMATIONITEM
      1.
            LEGAL PROCEEDINGS
            29ITEM
      1A.
            RISK FACTORS
            29ITEM
      2.
            UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
            29ITEM
      3.
            DEFAULT UPON SENIOR SECURITIES
            29ITEM
      4.
            SUBMISSION OF MATERS TO A VOTE OF SECURITY
      HOLDERS
            29ITEM
      5.
            OTHER INFORMATION
            29ITEM
      6.
            EXHIBITS
            29






2


PART I - FINANCIAL
INFORMATION






ITEM 1. FINANCIAL
STATEMENTS




Consolidated
      Financial StatementsUnauditedConsolidated
      Balance Sheets - June 30, 2009 and December 31,
      2008
            4Unaudited Consolidated Statements of
      Operations - Three and Six Months Ended June 30, 2009 and
      2008
            5Unaudited Consolidated Statements of Cash Flows - Six
      Months Ended June 30, 2009 and 2008
            6Notes to Unaudited Consolidated Financial
      Statements
            8
















3


AMERICAN INTERNATIONAL INDUSTRIES, INC. AND
      SUBSIDIARIESConsolidated
      Balance Sheets (Unaudited)June
      30, 2009
                
                
                December
      31, 2008AssetsCurrent
      assets:Cash and cash equivalents
                
                $
                2,057,339
                
                
                $
                3,114,575Certificate of deposit
                
                
                2,765,000
                
                
                
                4,315,000Trading securities
                
                
                643,937
                
                
                
                718,442Accounts receivable, less allowance for doubtful accountsof $149,071 and $138,217, respectively
                
                
                4,392,475
                
                
                
                4,956,941Current portion of notes receivable
                
                
                4,640,194
                
                
                
                4,392,211Accounts and notes receivable from related parties
                
                
                320,545
                
                
                
                98,606Inventories
                
                
                5,633,120
                
                
                
                3,889,052Real estate held for sale
                
                
                2,449,066
                
                
                
                2,449,066Deposits for pipe inventory purchases
                
                
                1,275,737
                
                
                
                2,221,932Prepaid expenses and other current assets
                
                
                393,497
                
                
                
                205,096Total current assets
                
                
                24,570,910
                
                
                
                26,360,921Long-term
      notes receivable, less current portion
                
                
                77,703
                
                
                
                95,522Property
      and equipment, net of accumulated depreciation and
      amortization
                
                
                7,537,135
                
                
                
                7,769,833Goodwill
                
                
                674,539
                
                
                
                674,539Intangible
      assets, net of amortization
                
                
                664,645
                
                
                
                717,817Other
      assets
                
                
                148,690
                
                
                
                359,312Total assets
                
                $
                33,673,622
                
                
                $
                35,977,944Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts payable and accrued expenses
                
                $
                3,055,302
                
                
                $
                2,395,721Short-term notes payable
                
                
                283,047
                
                
                
                1,213,332Current installments of long-term capital lease obligations
                
                
                76,614
                
                
                
                71,680Current installments of long-term debt
                
                
                3,889,807
                
                
                
                4,484,161Total current liabilities
                
                
                7,304,770
                
                
                
                8,164,894Long-term
      debt, less current installments
                
                
                9,738,401
                
                
                
                9,653,598Long-term
      capital lease obligations, less current installments
                
                
                127,227
                
                
                
                166,762Total liabilities
                
                
                17,170,398
                
                
                
                17,985,254Commitments
      and contingencies
                
                
                -
                
                
                
                -Equity:Preferred stock, $0.001 par value, 1,000,000 authorized: none
      issued
                
                
                -
                
                
                
                -Common stock, $0.001 par value, 50,000,000
    authorized:8,763,771
      and 8,738,771 shares issued, respectively8,489,715
      and 8,676,461 shares outstanding, respectively
                
                
                8,489
                
                
                
                8,676Additional paid-in capital
                
                
                33,105,187
                
                
                
                33,063,750Accumulated deficit
                
                
                (17,957,145
                )
                
                
                (16,911,758
                )Less
      treasury stock, at cost274,056 and
      62,310 shares, respectively
                
                
                (446,226
                )
                
                
                (253,551
                )Total American International Industries, Inc. equity
                
                
                14,710,305
                
                
                
                15,907,117Noncontrolling interest
                
                
                1,792,919
                
                
                
                2,085,573Total
      equity
                
                
                16,503,224
                
                
                
                17,992,690Total
      liabilities and equity
                
                $
                33,673,622
                
                
                $
                35,977,944The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements.
 Back to Table of Contents
 4
 AMERICAN
      INTERNATIONAL INDUSTRIES, INC. AND
  SUBSIDIARIESConsolidated Statements of
      Operations(Unaudited)
 Three Months
      Ended
                  
                  
                  Six Months
      EndedJune 30,
      2009
                  
                  
                  June 30,
      2008
                  
                  
                  June 30,
      2009
                  
                  
                  June 30,
      2008Revenues
                  
                  $
                  6,232,115
                  
                  
                  $
                  7,075,290
                  
                  
                  $
                  12,427,129
                  
                  
                  $
                  10,586,195Costs
      and expenses:Cost of sales
                  
                  
                  4,004,522
                  
                  
                  
                  4,282,658
                  
                  
                  
                  7,998,524
                  
                  
                  
                  6,407,407Selling, general and administrative
                  
                  
                  2,746,616
                  
                  
                  
                  2,425,927
                  
                  
                  
                  5,399,702
                  
                  
                  
                  5,238,927Total
      operating expenses
                  
                  
                  6,751,138
                  
                  
                  
                  6,708,585
                  
                  
                  
                  13,398,226
                  
                  
                  
                  11,646,334Operating
      profit (loss)
                  
                  
                  (519,023
                  )
                  
                  
                  366,705
                  
                  
                  
                  (971,097
                  )
                  
                  
                  (1,060,139
                  )Other
      income (expenses):Interest and dividend income
                  
                  
                  111,136
                  
                  
                  
                  156,883
                  
                  
                  
                  242,575
                  
                  
                  
                  333,333Delta lawsuit settlement
                  
                  
                  -
                  
                  
                  
                  (1,450,000
                  )
                  
                  
                  -
                  
                  
                  
                  (1,450,000
                  )Realized gains (losses) on the sale of trading securities
                  
                  
                  (266,289
                  )
                  
                  
                  26,566
                  
                  
                  
                  (349,231
                  )
                  
                  
                  71,139Unrealized gains (losses) on trading securities
                  
                  
                  302,060
                  
                  
                  
                  (1,277,131
                  )
                  
                  
                  398,874
                  
                  
                  
                  (2,653,670
                  )Interest expense
                  
                  
                  (263,672
                  )
                  
                  
                  (297,462
                  )
                  
                  
                  (482,279
                  )
                  
                  
                  (410,492
                  )Texas Emissions Reduction Plan Grant
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  57,589Gain
      on property dividend distribution
                  
                  
                  -
                  
                  
                  
                  2,945,133
                  
                  
                  
                  -
                  
                  
                  
                  2,945,133Other income
                  
                  
                  3,201
                  
                  
                  
                  4,665
                  
                  
                  
                  198,347
                  
                  
                  
                  26,103Total other income (expense)
                  
                  
                  (113,564
                  )
                  
                  
                  108,654
                  
                  
                  
                  8,286
                  
                  
                  
                  (1,080,865
                  )Income (loss) before income tax
                  
                  
                  (632,587
                  )
                  
                  
                  475,359
                  
                  
                  
                  (962,811
                  )
                  
                  
                  (2,141,004
                  )Income tax expense (benefit)
                  
                  
                  12,546
                  
                  
                  
                  (88,572
                  )
                  
                  
                  25,230
                  
                  
                  
                  (74,440
                  )Income (loss) from continuing operations, net of income
      taxes
                  
                  
                  (645,133
                  )
                  
                  
                  563,931
                  
                  
                  
                  (988,041
                  )
                  
                  
                  (2,066,564
                  )Loss from discontinued operations, net of income taxes
                  
                  
                  (350,000
                  )
                  
                  
                  (678,050
                  )
                  
                  
                  (350,000
                  )
                  
                  
                  (1,476,609
                  )Net loss
                  
                  
                  (995,133
                  )
                  
                  
                  (114,119
                  )
                  
                  
                  (1,338,041
                  )
                  
                  
                  (3,543,173
                  )Net income attributable to the noncontrolling interest
                  
                  
                  142,885
                  
                  
                  
                  290,384
                  
                  
                  
                  292,654
                  
                  
                  
                  538,626Net income (loss) attributable to American International Industries,
      Inc.
                  
                  $
                  (852,248
                  )
                  
                  $
                  176,265
                  
                  
                  $
                  (1,045,387
                  )
                  
                  $
                  (3,004,547
                  )Net
      income (loss) per common share - basic and diluted:Continuing operations
                  
                  $
                  (0.06
                  )
                  
                  $
                  0.12
                  
                  
                  $
                  (0.08
                  )
                  
                  $
                  (0.21
                  )Discontinued operations
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.10
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.21
                  )Total
                  
                  $
                  (0.10
                  )
                  
                  $
                  0.02
                  
                  
                  $
                  (0.12
                  )
                  
                  $
                  (0.42
                  )Weighted
      average common shares - basic and diluted
                  
                  
                  8,530,865
                  
                  
                  
                  7,135,012
                  
                  
                  
                  8,609,530
                  
                  
                  
                  7,123,635The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements.


Back to Table of Contents
 5


AMERICAN INTERNATIONAL INDUSTRIES, INC. AND
      SUBSIDIARIESConsolidated
      Statements of Cash Flows(Unaudited)
  Six
      Months Ended June 30,2009
              
              
              2008Cash
      flows from operating activities:Net
      loss
              
              $
              (1,338,041
              )
              
              $
              (3,543,173
              )Loss from discontinued operations
              
              
              (350,000
              )
              
              
              (1,476,609
              )Loss from continuing operations
              
              
              (988,041
              )
              
              
              (2,066,564
              )Adjustments to reconcile net loss from continuing operations to net
      cash used in operating activities from continuing
    operations:Property dividend distribution gain
              
              
              -
              
              
              
              (2,945,133
              )Delta lawsuit settlement
              
              
              -
              
              
              
              1,450,000Depreciation and amortization
              
              
              591,485
              
              
              
              237,399Share-based compensation
              
              
              41,250
              
              
              
              253,624Realized (gains) losses on the sale of trading securities
              
              
              349,231
              
              
              
              (71,139
              )Unrealized (gains) losses on trading securities
              
              
              (398,874
              )
              
              
              2,653,670Texas
      Emissions Reduction Plan Grant
              
              
              -
              
              
              
              (57,589
              )Change
      in operating assets and liabilities:Accounts receivable
              
              
              564,466
              
              
              
              (563,564
              )Trading securities
              
              
              124,148
              
              
              
              (95,289
              )Inventories
              
              
              (797,874
              )
              
              
              (464,076
              )Prepaid expenses and other current assets
              
              
              (188,401
              )
              
              
              (1,196,578
              )Other assets
              
              
              38,830
              
              
              
              9,861Accounts payable and accrued expenses
              
              
              659,580
              
              
              
              241,337Net
      cash used in operating activities from continuing
      operations
              
              
              (4,200
              )
              
              
              (2,614,041
              )Cash
      flows from investing activities from continuing
operations:Purchase of property and equipment
              
              
              (133,821
              )
              
              
              (142,194
              )Proceeds from sale of drilling rigs
              
              
              -
              
              
              
              200,000Investment in rigs held for sale
              
              
              -
              
              
              
              (14,123
              )Redemption of certificate of deposit
              
              
              4,000,000
              
              
              
              3,600,000Investment in certificate of deposit
              
              
              (2,450,000
              )
              
              
              (3,415,421
              )Purchase
      of note receivable from bank
              
              
              (300,000
              )
              
              
              -Issuance of note receivable
              
              
              -
              
              
              
              (225,000
              )Proceeds from notes receivable
              
              
              69,836
              
              
              
              121,520Loans to related parties
              
              
              (221,939
              )
              
              
              (80,000
              )Net
      cash provided by investing activities from continuing
      operations
              
              
              964,076
              
              
              
              44,782Cash
      flows from financing activities from continuing
operations:Principal payments under capital lease obligations
              
              
              (34,600
              )
              
              
              -Proceeds from issuance of debt
              
              
              283,851
              
              
              
              2,117,663Payments on margin loans
              
              
              -
              
              
              
              (107,795
              )Dividend distribution to Delta's noncontrolling interest owners
              
              
              -
              
              
              
              (235,200
              )Net borrowings (repayments) under lines of credit agreements and
      short-term notes
              
              
              (28,382
              )
              
              
              1,427,000Principal payments on debt
              
              
              (1,695,306
              )
              
              
              (652,380
              )Payments for acquisition of treasury stock
              
              
              (192,675
              )
              
              
              (19,790
              )Net
      cash provided by (used in) financing activities from continuing
      operations
              
              
              (1,667,112
              )
              
              
              2,529,498
 Back to Table of Contents
 6
 Six
      Months Ended June 30,2009
              
              
              2008Net
      decrease in cash and cash equivalents from continuing
      operations
              
              $
              (707,236
              )
              
              $
              (39,761
              )Net
      decrease in cash and cash equivalents from discontinued
    operations
              
              
              (350,000
              )
              
              
              -Cash
      and cash equivalents at beginning of period from continuing
      operations
              
              
              3,114,575
              
              
              
              2,293,795Cash
      and cash equivalents at end of period from continuing
      operations
              
              $
              2,057,339
              
              
              $
              2,254,034Discontinued
      operations:Net cash used in operating activities
              
              $
              -
              
              
              $
              (1,230,540
              )Net cash used in investing activities
              
              
              -
              
              
              
              (197,676
              )Net cash used in financing activities
              
              
              -
              
              
              
              (64,324
              )Net
      decrease in cash and cash equivalents from discontinued
      operations
              
              
              -
              
              
              
              (1,492,540
              )Cash
      and cash equivalents at beginning of period from discontinued
      operations
              
              
              -
              
              
              
              1,597,361Cash
      and cash equivalents at end of period from discontinued
    operations
              
              $
              -
              
              
              $
              104,821Supplemental
      schedule of cash flow information:Interest paid
              
              $
              494,059
              
              
              $
              423,651Taxes
      paid
              
              $
              -
              
              
              $
              6,361Non-cash
      transactions from discontinued operations:Acquisition of fixed assets under capital lease obligations
              
              $
              -
              
              
              $
              203,516The
      accompanying notes are an integral part of these unaudited 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 consolidated 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 consolidated financial statements and notes
thereto contained in American's latest Annual Report filed with the SEC on Form
10-K for the year ended December 31, 2008. 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 unaudited interim consolidated financial statements
that would substantially duplicate the disclosures 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. ("American"), a Nevada corporation, operates as a
diversified holding company with a number of wholly-owned subsidiaries and one
majority-owned subsidiary. 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 subsidiaries, Northeastern Plastics, Inc. and Shumate Energy
Technologies, Inc., and its majority owned subsidiary, Delta Seaboard Well
Service, Inc.  All significant intercompany transactions and balances have
been eliminated in consolidation.
 Certain
reclassifications have been made to amounts in prior periods to conform with the
current period presentation.  All reclassifications have been applied
consistently to the periods presented.
 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.  SET
receives purchase orders for machining of oil field drilling parts, components
and tools.  Customers have the right to inspection and acceptance for
generally up to five days after taking delivery.  Returns are not accepted
due to the custom specifications of each product, but rework on items is
necessary if the product was not within the original order specifications. 
Customer requests for rework and customer rejection of shipments has been
historically low.NPI has 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.
 Net
Income (Loss) Per Share
 The
basic net income (loss) per common share is computed by dividing the net income
(loss) by the weighted average number of shares outstanding during a period.
Diluted net income (loss) per common share is computed by dividing the net
income (loss), 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, 2009 and 2008, potential dilutive
securities that had an anti-dilutive effect were not included in the calculation
of diluted net income (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 consolidated 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
  Effective
January 1, 2008, American adopted the framework for measuring fair
value that establishes a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy are described below:
  Basis of Fair Value
Measurement
  Level 1
                  
                  Observable
      inputs that reflect quoted prices (unadjusted) for identical assets or
      liabilities in active markets.Level 2
                  
                  Inputs
      reflect quoted prices for identical assets or liabilities in markets that
      are not active; quoted prices for similar assets or liabilities in active
      markets; inputs other than quoted prices that are observable for the asset
      or the liability; or inputs that are derived principally from or
      corroborated by observable market data by correlation or other
      means.Level 3
                  
                  Unobservable
      inputs reflecting American's own assumptions incorporated in valuation
      techniques used to determine fair value. These assumptions are required to
      be consistent with market participant assumptions that are reasonably
      available.
 
 American
believes that the fair value of its financial instruments comprising cash,
certificates of deposit, accounts receivable, notes receivable, accounts
payable, and notes payable approximate their carrying amounts.  The
interest rates payable by American on its notes payable approximate market
rates.  The fair values of American's Level 1 financial assets,
trading securities that primarily include shares of common stock in various
companies, are based on quoted market prices of the identical underlying
security.  As of June 30, 2009, American did not have any
significant Level 2 or 3 financial assets or liabilities.  The following
table provides fair value measurement information for American's trading
securities:
  As
      of June 30, 2009Fair
      Value Measurements Using:Carrying
                      Amount
                    
                    
                    Total
                      Fair
      Value
                    
                    
                    Quoted
      Prices
                      in
      Active Markets
                      (Level
      1)
                    
                    
                    Significant
      Other
                      Observable
      Inputs
                      (Level
      2)
                    
                    
                    Significant
                      Unobservable
      Inputs
                      (Level
      3)Financial
      Assets:Trading
      Securities
                    
                    $
                    643,937
                    
                    
                    $
                    643,937
                    
                    
                    $
                    643,937
                    
                    
                    $
                    -
                    
                    
                    $
                    -
 Recent
Accounting Pronouncements
  Effective
January 1, 2009, American began implementation of SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51”.
SFAS No. 160 required American to:
 
 ·
                        Recharacterize
      minority interests, previously classified within liabilities, as
      noncontrolling interests reported as a component of consolidated equity on
      the balance sheet,
 ·
                        Include
      total income in net income, with separate disclosure on the face of the
      consolidated income statement of the attribution of income between
      controlling and noncontrolling interests,
and
 ·
                        Account
      for increases and decreases in noncontrolling interests as equity
      transactions with any difference between proceeds of a purchase or
      issuance of noncontrolling interests being accounted for as a change to
      the controlling entity’s equity instead of as current period gains/losses
      in the consolidated income statement. Only when the controlling entity
      loses control and deconsolidates a subsidiary will a gain or loss be
      recognized.
 
 SFAS No.
160 was effective prospectively for fiscal years beginning on or after December
15, 2008 except for its specific transition provisions for retroactive adoption
of the balance sheet and income statement presentation and disclosure
requirements for existing minority interests that are reflected in these
consolidated financial statements for all periods presented.  As a
result of the implementation of SFAS No. 160, which required retrospective
application of presentation requirements, total equity at December 31, 2008
increased by $2,085,573 representing noncontrolling interest, and total
liabilities at December 31, 2008 decreased by $2,085,573 as a result of the
elimination of minority interest.  Also as a result of the adoption of
SFAS No. 160, for the three and the six months ended June 30, 2008,
respectively, Income (loss) from continuing operations, net of income taxes
decreased by $290,384 and $538,626 and net earnings attributable to the
noncontrolling interest increased by $290,384 and $538,626.
 In
addition to the pronouncements noted above, there were various other accounting
standards and interpretations issued recently, none of which are expected to a
have a material impact on our consolidated financial position, operations or
cash flows.
 Back to Table of Contents
 9
 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.  For the six months ended
June 30, 2009 and 2008, American had unrealized trading gains of $398,874 and
losses of $2,653,670, respectively, related to securities held on those
dates.  The unrealized losses for the six months ended June 30, 2008, were
due primarily to the decline in value of American's 1,000,000 shares of Rubicon
Financial Incorporated's (OTCBB: RBCF.OB) common stock of $2,050,000.  At
June 30, 2008 and December 31, 2007, our investment in the 1,000,000 shares
of RBCF common stock, classified as trading securities on the balance sheet, was
valued at $1,650,000, or $1.65 per share, and $3,700,000, or $3.70 per share,
respectively, based upon the closing market prices on those dates,
respectively.  American recorded realized losses of $349,231 for
the six months ended June 30, 2009 and realized gains of $71,139 for the
six months ended June 30, 2008.
 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 increase the diversity our securities
portfolios.
 
 Note 3 - Acquisition of the assets of
Shumate Machine Works by Shumate Energy Technologies
 On
October 8, 2008, a subsidiary of American completed the purchase of 100% of the
assets and
assumed certain liabilities of Shumate Machine Works Corporation, a subsidiary
of Shumate Industries, Inc. ("SHMT").  The terms of the agreement
provided for a purchase price of $5.0 million funded by the simultaneous closing
of a $5.0 million term note by Shumate Machine Works and the receipt of SHMT
common stock with a value equivalent to any negative working capital at the
closing date of the transaction.  In connection with the negative
working capital provision of the agreement, American received 1,401,170
restricted shares of SHMT common stock valued at $0.30 per share for a
total value of $420,351.  These shares represented approximately 6.4%
of SHMT’s outstanding shares as of October 8, 2008.   The assets
are now owned by a wholly-owned American subsidiary, Shumate Energy
Technologies, Inc.
 American's
subsidiary recorded the acquisition using the purchase method of accounting with
the purchase price allocated to the acquired assets and liabilities based on
their respective estimated fair values at the acquisition date. The purchase
price of $5,000,000 has been allocated at follows:
  Current
      assets
                          
                          $
                          1,066,864Property
      and equipment, net
                          
                          
                          4,472,130Intangible
      assets
                          
                          
                          744,403Trading
      securities - Restricted common shares of Shumate Industries, Inc. received
      for negative working capital assumed
                          
                          
                          420,351Total assets acquired
                          
                          
                          6,703,748Current
      liabilities
                          
                          
                          (1,487,215
                          )Equipment
      notes payable
                          
                          
                          (216,533
                          )Total liabilities acquired
                          
                          
                          (1,703,748
                          )Net
      assets acquired
                          
                          $
                          5,000,000
  The
$744,403 of acquired intangible assets includes $729,000 assigned to CNC
programs and $15,403 assigned to the acquired name and logo.  These
intangible assets have a weighted average useful life of 7 years.
  Revenues
and expenses of Shumate Energy Technologies, Inc. are included
in American's statement of operations from October 8, 2008 through June 30,
2009.
 Back to Table of Contents
 10
 Note 4
- Inventory and Deposits for Pipe Inventory Purchases
  Inventories
consisted of the following:
  June
      30, 2009
                  
                  
                  December
      31, 2008Work
      in process
                  
                  $
                  1,216,491
                  
                  
                  $
                  549,954Finished
      goods
                  
                  
                  4,511,862
                  
                  
                  
                  3,434,361Less
      reserve
                  
                  
                  (95,233
                  )
                  
                  
                  (95,263
                  )$
                  5,633,120
                  
                  
                  $
                  3,889,052
  During
the year ended December 31, 2008, American entered into various agreements to
purchase pipe inventory from vendors.  At June 30, 2009 and December
31, 2008, American had cash deposits of $1,275,737 and $2,221,932,
respectively, for inventory purchases under these agreements that had not
been received.





Note 5
- Real Estate Transactions
 During
the fourth quarter of 2008, American received a 1.705 acre tract of land in
Galveston County appraised at $540,000 as a guarantor's fee.  In connection
with this fee, American has pledged $1,750,000 in certificates of
deposit for a $4,000,000 loan to Dawn Condominiums L.P. at Texas Community
Bank.  As the principal of the loan is reduced, the bank will release
portions of the pledged certificates of deposit until the loan is paid in
full.
  During
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.  American continues to own 287 undeveloped acres of
waterfront property on Dickinson Bayou and Galveston Bay in Galveston County,
Texas. American is carrying this property on the balance sheet at its historical
book value of $225,000.  American has engaged an independent broker on
an exclusive basis to sell the property.  These properties are not
going to be developed by nor are they being held as inventory by
American.
 Back to Table of Contents
 11
 Note 6
- Long-term Notes Receivable
  Long-term
notes receivable consists of the following:
 June
      30, 2009
                  
                  
                  December
      31, 2008Net
      note receivable from sale of real estate, principal balance due on or
      before July 30, 2009, secured by property lien (a)
                  
                  $
                  3,020,044
                  
                  
                  $
                  3,020,044Unsecured
      note receivable for sale of former subsidiary, Marald, Inc., principal and
      interest due monthly through June 5, 2012
                  
                  
                  112,729
                  
                  
                  
                  126,617Unsecured
      note receivable for sale of former subsidiary, Marald, Inc., principal and
      interest due monthly through July 2012 (b)
                  
                  
                  200,000
                  
                  
                  
                  200,000Unsecured
      note receivable for sale of drilling rig, principal and interest due
      monthly through December 31, 2009
                  
                  
                  58,061
                  
                  
                  
                  114,009Unsecured
      note receivable, principal balance due on April 30, 2008, interest at 6%
      through maturity and at 10% thereafter (c)
                  
                  
                  552,063
                  
                  
                  
                  552,063Unsecured
      note receivable, principal balance due on December 31, 2008, interest at
      10% through maturity and at 15% thereafter (c)
                  
                  
                  250,000
                  
                  
                  
                  250,000Note
      secured by property and shares of stock, interest due monthly at 18%,
      principal payment due on or before May 9, 2009 (d)
                  
                  
                  225,000
                  
                  
                  
                  225,000Unsecured
      note receivable purchased from Texas Community Bank, interest at 8% due
      monthly, principal due January 2009 (e)
                  
                  
                  300,000
                  
                  
                  
                  -Notes
      receivable
                  
                  
                  4,717,897
                  
                  
                  
                  4,487,733Less
      current portion
                  
                  
                  (4,640,194
                  )
                  
                  
                  (4,392,211
                  )Long-term
      notes receivable
                  
                  $
                  77,703
                  
                  
                  $
                  95,522
  (a) Net note receivable from sale of
real estate, principal payment due on or before July 30,
2009.  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
required.  Principal payments have reduced the note balance to $3.0
million as of June 30, 2009.  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 borrower did not make the payment due
on July 30, 2009.  The borrower and American have tentatively agreed
that American will acquire the deed to the property in lieu of payment of the
debt.  The property securing this note was appraised for $9,175,000 by
an independent appraiser.
 (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 face value and
payments are currently being made on the other note receivable with Marald in
accordance with note terms, American believes payment terms will be successfully
negotiated and no further discounting of the loan was deemed necessary as of
June 30, 2009.
 (c) Unsecured notes receivable due April
30 and December 31, 2008.  These delinquent notes were due from
Hammonds Industries, Inc.  The assets of the Hammonds' companies were sold
on April 16, 2009 (see note 20).  On August 13, 2009, Hammonds Industries,
Inc., American International Industries, Inc., Delta Seaboard Well Service,
Inc., and the minority interest owners of Delta entered into an agreement to
commence a reverse merger of Delta into Hammonds. This agreement includes a
provision to issue common shares for these unsecured notes.
  Note secured by property and
shares of stock, interest due monthly at 18%, principal payment due on or before
May 9, 2009.  This note is in default and
American has obtained the shares of stock and a portion of the real property
securing this note.  On July 13, 2009, American received title to
2,000,000 shares of Momentum Biofuels, Inc., valued at $100,000, or $0.05 per
share, based upon the closing market price on that date.  On August 5,
2009, American foreclosed on real property valued at $376,000 by the Galveston
County Appraisal District.
  (e)Note purchased from Texas Community Bank with a face
amount of $300,000.  This delinquent note was purchased on March 31,
2009 and new payment terms are being negotiated for this note receivable with
the debtors, Las Vegas Premium Gold.  This note was purchased as an
investment to receive the interest income from the note.  Management has
assessed this note for impairment and feels that collectability is reasonably
possible based on the personal guarantees of the principals.
 Interest
income on notes receivable is recognized principally by the simple interest
method.  During the three and six months ended June 30, 2009 and
2008, American recognized interest income of $62,820, $82,270, $135,632, and
$163,627, respectively.
 Back to Table of Contents
 12
 Note 7
- Property and Equipment
  Major
classes of property and equipment together with their estimated useful lives,
consisted of the following:
  Years
                  
                  June
      30, 2009
                  
                  
                  December
      31, 2008Land
                  
                  
                  $
                  892,945
                  
                  
                  $
                  892,945Building
      and improvements
                  20
                  
                  
                  1,002,140
                  
                  
                  
                  933,200Machinery
      and equipment
                  7-15
                  
                  
                  7,613,767
                  
                  
                  
                  7,386,789Office
      equipment and furniture
                  7
                  
                  
                  390,138
                  
                  
                  
                  384,893Automobiles
                  5
                  
                  
                  771,712
                  
                  
                  
                  768,15110,670,702
                  
                  
                  
                  10,365,978Less
      accumulated depreciation and amortization
                  
                  
                  
                  (3,133,567
                  )
                  
                  
                  (2,596,145
                  )Net
      property and equipment
                  
                  
                  $
                  7,537,135
                  
                  
                  $
                  7,769,833
 
 During
the six months ended June 30, 2009, $171,793 of equipment that was classified as
other assets as of December 31, 2008, was placed in service and reclassified to
property and equipment.
  SET has
entered into a capital lease agreement for the acquisition of machinery and
equipment.  The assets acquired under such financing arrangement included
in property and equipment is as follows:
  June
      30, 2009Machinery
      and equipment
                      
                      $
                      301,000Less
      accumulated depreciation and amortization
                      
                      
                      (22,575
                      )Net
      property and equipment
                      
                      $
                      278,425
 Principal
repayment provisions of this long-term capital lease are as follows at June 30,
2009:
  2009
                    
                    $
                    37,0792010
                    
                    
                    81,7582011
                    
                    
                    85,004Total
                    
                    $
                    203,841
 Back to Table of Contents
 13
 Note 8
- Intangible Assets
  Intangible
assets at June 30, 2009 consisted of the following:
  Gross
      Carrying Amount
                        
                        
                        Accumulated
      Amortization
                        
                        
                        
                        Intangibles,
      net
                        
                        Average
      Weighted LivesGoodwill
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        674,539
                        
                        N/ACNC
      Programs
                        
                        $
                        729,000
                        
                        
                        $
                        78,108
                        
                        
                        $
                        650,892
                        
                        7
      yearsName and
      logo
                        
                        
                        15,403
                        
                        
                        
                        1,650
                        
                        
                        
                        13,753
                        
                        7
      yearsIntangible
      assets
                        
                        $
                        744,403
                        
                        
                        $
                        79,758
                        
                        
                        $
                        664,645
                        
                        7 years
 Intangible
assets at December 31, 2008 consisted of the following:
  Gross
      Carrying Amount
                          
                          
                          Accumulated
      Amortization
                          
                          
                          
                          Intangibles,
      net
                          
                          Average
      Weighted LivesGoodwill
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          674,539
                          
                          N/ACNC
      Programs
                          
                          $
                          729,000
                          
                          
                          $
                          26,036
                          
                          
                          $
                          702,964
                          
                          7
      yearsName and
      logo
                          
                          
                          15,403
                          
                          
                          
                          550
                          
                          
                          
                          14,853
                          
                          7
      yearsIntangible
      assets
                          
                          $
                          744,403
                          
                          
                          $
                          26,586
                          
                          
                          $
                          717,817
                          
                          7 years
 Amortization
expense for the three and six months ended June 30, 2009 and 2008 was
$26,586, $0, $53,172, and $0, respectively.
 
 Note 9
- Short-term Notes Payable
  June
      30, 2009
                    
                    
                    December
      31, 2008Delta
      lawsuit settlement with no interest,  principal due in
      monthly payments of $25,000 through August 1, 2009
                    
                    $
                    25,000
                    
                    
                    $
                    175,000Insurance
      note payable with interest at 4.99%, principal and interest due in monthly
      payments of $25,805 through May 1, 2010
                    
                    
                    258,047
                    
                    
                    
                    -Insurance
      note payable with interest at 5.24%, principal and interest due in monthly
      payments of $31,288 through May 1, 2009
                    
                    
                    -
                    
                    
                    
                    125,150Note
      payable with interest at 6%, principal and interest due monthly, with a
      balloon payment due April 2009
                    
                    
                    -
                    
                    
                    
                    913,182$
                    283,047
                    
                    
                    $
                    1,213,332
  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, 2009 and December 31, 2008, the average annual interest rates of our
short-term borrowings were approximately 4.99% and 5.91%,
respectively.
 Back to Table of Contents
 14
 Note
10 - Long-term Debt
  Long-term
debt consisted of the following:
  June
      30, 2009
                
                
                December
      31, 2008Note
      payable to a bank, due in monthly installments of interest only of $25,000
      for the first three months, principal and interest of $44,000 due in
      monthly installments thereafter, interest at the greater of prime plus 1%
      or 6%, but no greater than 7%, with a principal balance due on September
      30, 2013, secured by the assets of Shumate Energy Technologies,
      Inc.
                
                $
                4,918,208
                
                
                $
                5,000,000Note
      payable to a bank, interest due quarterly at prime plus 1%, principal
      balance due August 26, 2009, secured by real property (a)
                
                
                1,000,000
                
                
                
                1,000,000Note
      payable to a bank, which allows Delta to borrow up to $2,000,000, due in
      monthly payments of interest only, with interest at prime floating rate,
      with the principal balance due in April 2010, secured by assets
      of Delta Seaboard Well Service, Inc. (b)
                
                
                1,385,066
                
                
                
                1,379,106Note
      payable to a 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
                
                
                
                943,500Note
      payable to a bank, due in quarterly installments of interest only at 7%,
      with a principal balance due on October 8, 2010, secured by a certificate
      of deposit
                
                
                500,000
                
                
                
                500,000Note
      payable to a bank, due in monthly installments of interest only at the
      greater of prime plus 1% or 6%, but no greater than 7%, with a principal
      balance due on September 30, 2010, secured by the assets of Shumate Energy
      Technologies, Inc.
                
                
                732,745
                
                
                
                625,087Note
      payable to a bank, due in monthly installments of $6,170, including
      interest at 6.6% through May 2018, secured by real
property
                
                
                493,929
                
                
                
                514,165Note
      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.
                
                
                977,000
                
                
                
                1,119,000Note
      payable to a bank, due in quarterly installments of interest only at 7.5%,
      with a principal balance due February 2009, secured by a certificate of
      deposit
                
                
                -
                
                
                
                1,000,000Note
      payable to a bank, due in quarterly payments of interest only, with
      interest at 6%, with a principal balance due on May
      2011, secured by real property (c)
                
                
                1,566,000
                
                
                
                1,740,000Note
      payable due in monthly payments of $19,373, including interest at 6%,
      through March 2013, secured by assets of Delta Seaboard Well Service, Inc.
      (c)
                
                
                838,562
                
                
                
                -Note
      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.
                
                
                199,005
                
                
                
                226,929Other
      secured notes with various terms
                
                
                74,193
                
                
                
                89,97213,628,208
                
                
                
                14,137,759Less
      current portion
                
                
                (3,889,807
                )
                
                
                (4,484,161
                )$
                9,738,401
                
                
                $
                9,653,598
 Back to Table of Contents
 15
 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.
 
 Principal
repayment provisions of long-term debt are as follows at June 30,
2009:
  2009
                  
                  $
                  1,278,0312010
                  
                  
                  5,112,0082011
                  
                  
                  2,169,9742012
                  
                  
                  592,2402013
                  
                  
                  4,198,456Thereafter
                  
                  
                  277,499Total
                  
                  $
                  13,628,208
  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 50,000,000 shares of Common Stock, $0.001 par value
per share, of which 1,036,800 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.  In connection with American's 20% stock dividends to all
shareholders on September 19, 2007 and July 16, 2008, the terms of these
options were adjusted to reflect the dividends, resulting in the option
being exercisable to buy 207,360 shares for $4.86 per share.  These
options expired during the six months ended June 30, 2009.
    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 as follows:
 March
      30, 2008Dividend
      yield
                  
                  
                  0.00
                  %Expected
      volatility
                  
                  
                  38.64
                  %Risk
      free interest
                  
                  
                  2.5
                  %Expected
      lives
                  
                  2
      years
  A summary
of the status of American's stock options to employees as of June 30, 2009
is presented below:
  Shares
                  
                  
                  Weighted
      Average Exercise Price
                    June
      30, 2009Outstanding
      at beginning of period
                  
                  
                  414,720
                  
                  
                  $
                  4.86Granted
                  
                  
                  -
                  
                  
                  
                  N/AExercised
                  
                  
                  -
                  
                  
                  
                  N/ACanceled
      / Expired
                  
                  
                  (207,360
                  )
                  
                  
                  N/AOutstanding
      and exercisable at end of period
                  
                  
                  207,360
                  
                  
                  $
                  4.86Weighted
      average fair value of options granted during the period
                  
                  
                  207,360
                  
                  
                  $
                  4.86
 Back to Table of Contents
 16
 The
following table summarizes information about fixed stock options to employees
outstanding at June 30, 2009:
 Exercise
      Price
                        
                        
                        Number
      Outstanding and Exercisable at June 30, 2009$
                        4.86
                        
                        
                        
                        207,360
  Stock-based
compensation consists of the following:
  Six
      Months Ended June 30,2009
                    
                    
                    2008Common
      shares issued for services
                    
                    $
                    41,250
                    
                    
                    $
                    165,561Stock
      options issued for services
                    
                    
                    -
                    
                    
                    
                    88,063Stock-based
      compensation
                    
                    $
                    41,250
                    
                    
                    $
                    253,624
 
 Note
12 - Concentration of Credit Risk
 American maintains
its cash and certificates of deposit in commercial accounts at major financial
institutions. Although the financial institutions are considered creditworthy,
at June 30, 2009, American's cash and certificates of deposit balances held in
banks exceeded the limit covered by the Federal Deposit Insurance Corporation by
approximately $2.5 million. 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. As of, and during, the six
months ended June 30, 2009, American had one customer that accounted
for 12% of
trade accounts receivable and 17% of revenues on a consolidated
basis.  Additionally, American had one other customer that accounted for
15% of revenues on a consolidated basis.
 Note
13 - 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 15
below.


Back to Table of Contents
 17
 Note
14 - Related Party Transactions
  At December 31, 2008,
 Note
15 - Income Taxes
  The
provision for income taxes consists of the following:
  Six
      Months Ended
                        
                        
                        Six
      Months EndedJune
      30, 2009
                        
                        
                        June
      30, 2008Current
      taxes
                        
                        $
                        (2,006,212
                        )
                        
                        $
                        (105,059
                        )Deferred
      tax benefit
                        
                        
                        2,006,212
                        
                        
                        
                        (208,838
                        )Benefits
      of operating loss carryforwards
                        
                        
                        -
                        
                        
                        
                        313,897Current
      Federal Taxes
                        
                        
                        -
                        
                        
                        
                        -Refund
      due Delta Seaboard Well Service, Inc. for 2005 overpayment of Federal
      Taxes
                        
                        
                        -
                        
                        
                        
                        (93,616
                        )Texas
      Margin Tax
                        
                        
                        25,230
                        
                        
                        
                        19,176Income
      tax expense (benefit)
                        
                        $
                        25,230
                        
                        
                        $
                        (74,440
                        )
 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 $232,927
and
 - the
valuation allowance for deferred tax assets increased by
$3,028,628.
  The
following table sets forth a reconciliation of statutory income
taxes:
 Three
      Months Ended June 30,
                            
                            
                            
                            Six
      Months Ended June 30,2009
                            
                            
                            2008
                            
                            
                            
                            2009
                            
                            
                            2008Net
      income (loss) before taxes
                            
                            $
                            (632,587
                            )
                            
                            $
                            475,359
                            
                            
                            $
                            (962,811
                            )
                            $
                            (2,141,004
                            )Income
      tax benefit computed at statutory rate
                            
                            $
                            (334,080
                            )
                            
                            $
                            166,216
                            
                            
                            $
                            (446,356
                            )
                            $
                            (557,110
                            )Permanent
      differences
                            
                            
                            (27,730
                            )
                            
                            
                            (85,325
                            )
                            
                            
                            (64,423
                            )
                            
                            (147,150
                            )Net
      effects of temporary differences
                            
                            
                            -
                            
                            
                            
                            1
                            
                            
                            
                            -
                            
                            
                            105,059Effect
      of federal graduated rates
                            
                            
                            361,810
                            
                            
                            
                            474,003
                            
                            
                            
                            510,779
                            
                            
                            1,743,418Tax
      credits
                            
                            
                            -
                            
                            
                            
                            (700,109
                            )
                            
                            
                            -
                            
                            
                            (700,109
                            )Increase
      in valuation allowance
                            
                            
                            -
                            
                            
                            
                            145,214
                            
                            
                            
                            -
                            
                            
                            (444,108
                            )Refund
      due Delta Seaboard Well Service, Inc. for 2005 overpayment of Federal
      Taxes
                            
                            
                            -
                            
                            
                            
                            (93,616
                            )
                            
                            
                            -
                            
                            
                            (93,616
                            )Texas
      Margin - prior year payments and estimate adjustments
                            
                            
                            -
                            
                            
                            
                            (3,593
                            )
                            
                            
                            -
                            
                            
                            (3,593
                            )Texas
      Margin Tax - current year estimate
                            
                            
                            12,546
                            
                            
                            
                            8,637
                            
                            
                            
                            25,230
                            
                            
                            22,769Income tax expense (benefit)
                            
                            $
                            12,546
                            
                            
                            $
                            (88,572
                            )
                            
                            $
                            25,230
                            
                            $
                            (74,440
                            )
 
 Operating
      LossesAmount
                        
                        Expires$
                        128,093
                        
                        2017$
                        566,409
                        
                        2018$
                        1,028,302
                        
                        2019$
                        1,551,019
                        
                        2020$
                        288,855
                        
                        2022$
                        5,900,623
                        
                        2023
 Back to Table of Contents
 18
 Note
16 - Income (Loss) Per Share
  Basic
income (loss) per share is calculated on the basis of the weighted average
number of common shares outstanding. Diluted income (loss) per share, in
addition to the weighted average determined for basic income (loss) per share,
includes 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 30,2009
                            
                            
                            2008
                            
                            
                            
                            2009
                            
                            
                            2008Basic
      income (loss) per share:Income
      (loss) from continuing operations, net of income taxes
                            
                            $
                            (645,133
                            )
                            
                            $
                            563,931
                            
                            
                            $
                            (988,041
                            )
                            $
                            (2,066,564
                            )Loss
      from discontinued operations, net of income taxes
                            
                            
                            (350,000
                            )
                            
                            
                            (678,050
                            )
                            
                            
                            (350,000
                            )
                            
                            (1,476,609
                            )Net loss
                            
                            
                            (995,133
                            )
                            
                            
                            (114,119
                            )
                            
                            
                            (1,338,041
                            )
                            
                            (3,543,173
                            )Net
      income attributable to the noncontrolling interest
                            
                            
                            142,885
                            
                            
                            
                            290,384
                            
                            
                            
                            292,654
                            
                            
                            538,626Net
      income (loss) attributable to American International Industries,
      Inc.
                            
                            $
                            (852,248
                            )
                            
                            $
                            176,265
                            
                            
                            $
                            (1,045,387
                            )
                            $
                            (3,004,547
                            )Weighted
      average common shares outstanding - basic and diluted
                            
                            
                            8,530,865
                            
                            
                            
                            7,135,012
                            
                            
                            
                            8,609,530
                            
                            
                            7,123,635Net
      income (loss) per share - basic and diluted:Continuing operations
                            
                            $
                            (0.06
                            )
                            
                            $
                            0.12
                            
                            
                            $
                            (0.08
                            )
                            $
                            (0.21
                            )Discontinued operations
                            
                            $
                            (0.04
                            )
                            
                            $
                            (0.10
                            )
                            
                            $
                            (0.04
                            )
                            $
                            (0.21
                            )Total
                            
                            $
                            (0.10
                            )
                            
                            $
                            0.02
                            
                            
                            $
                            (0.12
                            )
                            $
                            (0.42
                            )
 Note
17 - Commitments and Contingencies
  Various
key officials of American have entered into employment agreements
with American. In July 2009, the CEO of American entered into a three-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 200,000 restricted shares of American common
stock on July 13, 2009, as an incentive to extend the employment
agreement.  Additionally, beginning January 2008, the CEO will
receive the equivalent of $10,000 in restricted 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 in July 2009,
which provides for an annual salary of $110,000 plus a bonus as determined by
the Board of Directors. Also, the agreement provides for the grant of 50,000
restricted shares of American common
stock on July 13, 2009, as an incentive to extend the employment
agreement.  The president of NPI previously entered into an at-will
employment agreement that provides an annual salary of $195,000 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 employment
agreements that provide for an annual base salary of $150,000 each.  On
October 7, 2008, Larry C. Shumate entered into a three-year employment
agreement with SET to serve as President of SET, which provides for an annual
salary of $185,000 plus a bonus as determined by the Board of Directors. 
The employment agreement provides for health and life insurance coverage and a
vehicle allowance of $800 per month.  After two
consecutive years of Earnings Before Interest, Depreciation and Amortization
(EBITDA) of greater than $1,000,000 for the years ended December 31, 2009 and
2010, based on the financial statements of SET included in the Company’s audited
consolidated financial statements, Mr. Shumate shall be entitled to a
non-qualified option to purchase for $100 unencumbered shares of common stock of
SET equal to 10% percent of all shares outstanding of SET, which option would be
exercisable 30 days after the issuance of the December 31, 2010 audited
financial statements of the Company.
 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. 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
 19
 Delta Seaboard Well Service, Inc. v.
Houstoun, Woodard, Eason, Gentle Tomforde and Anderson, Inc., D/B/A Insurance
Alliance and Robert Holman (“Broker Lawsuit”). Delta is in negotiations
to settle its claims in the Broker Lawsuit for approximately $2,400,000,
including $1,600,000 of actual damages plus interest, attorney’s fees, and
statutory damages. 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 Fort
Apache Lawsuit. Delta made a claim under the policy for a defense in the Fort
Apache case.  In October 2008, in the Gemini Insurance Company v. Delta
Seaboard Well Service, Inc.case,the court granted Gemini's
motion for summary judgment and declared that the insurance policy provides no
coverage for the claims made against Delta in the Fort Apache
case.  Delta’s position is that its broker failed to obtain
appropriate insurance coverage and misrepresented the coverage it did
obtain.  Delta is aggressively pursuing its claims in the Broker
Lawsuit.
 As part
of the attorney’s work on the Broker Lawsuit, Delta filed a claim for coverage
with American Specialty Lines Insurance Company (AISLIC). Delta is suing AISLIC
for denying coverage for the Fort Apache Lawsuit, seeking $445,000 plus interest
and attorney’s fees.  Delta is vigorously pursuing the AISLIC
Lawsuit.
 Karen Duke and as next friend of her
minor son, George Duke v. Delta Seaboard Well Service, Inc. and Jimmy
Newcomb
 
 American International Industries,
Inc. v. William W. Botts.  American filed this lawsuit against
William W. Botts (“Botts”) seeking damages as a result of a Stock Purchase
Agreement and Consulting Agreement that American entered into with Botts on
September 12, 2007.  Under the Stock Purchase Agreement, American gave
Botts $1,000,000 in cash and 288,000 shares of restricted AMIN stock (240,000
original shares plus a 20% stock dividend) for 170,345 shares of OI
Corporation.  As part of the original agreement, Botts had the right
to sell the 288,000 shares back to American for $4.17 per
share.  Under the Consulting Agreement, American agreed to pay Botts
$14,000 per month, plus expenses for performing consulting
services.  On or about November 5, 2008, American paid Botts $100,000
to terminate the Consulting Agreement to stop the accrual of monthly consulting
payments to Botts.  In this suit, American has sued Botts for
$2,500,000 in damages, alleging fraud-misrepresentation, fraud-failure to
disclose material information, violation of Section 27.01 of the Texas Business
and Commerce Code – fraud in a stock transaction, and breach of fiduciary
duty.  Botts has filed a breach of contract counter-claim against
American, alleging damages of $78,000 for consulting fee payments and expenses,
$1,200,000 for stock purchase guarantee option payments, and an unspecified
amount of attorneys fees.  The parties attempted to settle this matter
during December 2008, but were unable to do so.  If the outcome of
this case is unfavorable, then the value of the 288,000 shares of AMIN stock and
of the 576,000 shares of Hammonds Industries, Inc. stock that Botts is entitled
to receive as a stock dividend will be credited against any loss incurred by
American, and American's common shares outstanding will be reduced by 288,000
shares, or approximately 3%.  Because the case is very new, an evaluation
of the outcome of this case cannot be made at this time.  American
expects to prevail in these matters and has not recorded any liabilities in
connection with this lawsuit.
 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
$781,728 has been recognized through June 30, 2009. 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.
  Delta
leases space under a commercial lease which expires in 2010, SET leases space
under a commercial lease which expires in 2013, and American's holding company
leases space under a commercial lease which expires in 2012. SET entered
into a capital lease agreement for the acquisition of machinery and
equipment which expires in 2011. Future minimum lease payments are as
follows:
  Year
      December 31,
                    
                    Amount2009
                    
                    $
                    247,8832010
                    
                    
                    447,8662011
                    
                    
                    395,6122012
                    
                    
                    306,8242013
                    
                    
                    221,000Total
                    
                    $
                    1,619,185
 Back to Table of Contents
 20
 Note
18 - Segment Information
 We have
three reporting segments and corporate overhead:
  · Northeastern Plastics (NPI) -
a wholly-owned subsidiary, is a supplier of automotive after-market products and
consumer durable goods products to retailers and wholesalers in the automotive
after-market and in the consumer durable electrical products
markets;
 · Shumate Energy Technologies, Inc.
(SET) - a wholly-owned subsidiary, manufactures highly specialized
equipment for energy industry customers, including expandable tubing technology
products that are used in field service operations for oil and gas exploration
under extreme environmental conditions. SET manufactures large-diameter products
and close tolerance machined parts that range up to thirty-four feet in length
using state of the art, large part CNC equipment.
 · Delta Seaboard Well Services
(Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing
contracting company providing services 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 (loss), identifiable assets,
depreciation and amortization expense, and capital expenditures were as
follows:
 Three
      months ended June 30,
                            
                            
                            Six
      months ended June 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Revenues:Northeastern
      Plastics
                            
                            $
                            1,993,405
                            
                            
                            $
                            1,905,441
                            
                            
                            $
                            3,637,687
                            
                            
                            $
                            3,333,397Shumate
      Energy Technologies
                            
                            
                            1,907,496
                            
                            
                            
                            -
                            
                            
                            
                            3,994,317
                            
                            
                            
                            -Delta
      Seaboard
                            
                            
                            2,331,214
                            
                            
                            
                            5,169,849
                            
                            
                            
                            4,795,125
                            
                            
                            
                            7,252,798Total revenues
                            
                            $
                            6,232,115
                            
                            
                            $
                            7,075,290
                            
                            
                            $
                            12,427,129
                            
                            
                            $
                            10,586,195Operating
      income (loss) from continuing operations:Northeastern
      Plastics
                            
                            $
                            (38,923
                            )
                            
                            $
                            (114,872
                            )
                            
                            $
                            (63,428
                            )
                            
                            $
                            (254,797
                            )Shumate
      Energy Technologies
                            
                            
                            75,995
                            
                            
                            
                            -
                            
                            
                            
                            240,276
                            
                            
                            
                            -Delta
      Seaboard
                            
                            
                            (197,051
                            )
                            
                            
                            929,576
                            
                            
                            
                            (374,294
                            )
                            
                            
                            399,776Corporate
                            
                            
                            (359,044
                            )
                            
                            
                            (447,999
                            )
                            
                            
                            (773,651
                            )
                            
                            
                            (1,205,118
                            )Operating
      profit (loss) from continuing operations
                            
                            
                            (519,023
                            )
                            
                            
                            366,705
                            
                            
                            
                            (971,097
                            )
                            
                            
                            (1,060,139
                            )Other
      income (expenses) from continuing operations
                            
                            
                            (113,564
                            )
                            
                            
                            108,654
                            
                            
                            
                            8,286
                            
                            
                            
                            (1,080,865
                            )Net
      income (loss) from continuing operations before income
      tax
                            
                            $
                            (632,587
                            )
                            
                            $
                            475,359
                            
                            
                            $
                            (962,811
                            )
                            
                            $
                            (2,141,004
                            )June
      30, 2009
                            
                            
                            
                            December
      31, 2008Identifiable
      assets:Northeastern
      Plastics
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            5,755,630
                            
                            
                            $
                            5,836,635Shumate
      Energy Technologies
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            7,240,181
                            
                            
                            
                            6,871,304Delta
      Seaboard
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            7,091,326
                            
                            
                            
                            7,771,609Corporate
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            13,586,485
                            
                            
                            
                            15,498,396Total identifiable assets
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            33,673,622
                            
                            
                            $
                            35,977,944
 Back to Table of Contents
 21
 Three
      months ended June 30,
              
              
              Six
      months ended June 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Depreciation
      and amortization:Northeastern
      Plastics
              
              $
              15,675
              
              
              $
              16,781
              
              
              $
              31,310
              
              
              $
              32,306Shumate
      Energy Technologies
              
              
              163,194
              
              
              
              -
              
              
              
              326,368
              
              
              
              -Delta
      Seaboard
              
              
              116,840
              
              
              
              101,493
              
              
              
              229,205
              
              
              
              198,336Corporate
              
              
              2,219
              
              
              
              3,403
              
              
              
              4,602
              
              
              
              6,757Depreciation
      and amortization from continuing operations
              
              
              297,928
              
              
              
              121,677
              
              
              
              591,485
              
              
              
              237,399Depreciation
      and amortization from discontinued operations
              
              
              -
              
              
              
              230,861
              
              
              
              -
              
              
              
              454,236Total
      depreciation and amortization
              
              $
              297,928
              
              
              $
              352,538
              
              
              $
              591,485
              
              
              $
              691,635Capital expenditures:Northeastern
      Plastics
              
              $
              682
              
              
              $
              1,896
              
              
              $
              1,209
              
              
              $
              25,958Shumate
      Energy Technologies
              
              
              -
              
              
              
              -
              
              
              
              1,628
              
              
              
              -Delta
      Seaboard
              
              
              81,403
              
              
              
              77,541
              
              
              
              93,441
              
              
              
              114,504Corporate
              
              
              26,190
              
              
              
              1,732
              
              
              
              37,543
              
              
              
              1,732Capital
      expenditures for continuing operations
              
              
              108,275
              
              
              
              81,169
              
              
              
              133,821
              
              
              
              142,194Capital
      expenditures for discontinued operations
              
              
              -
              
              
              
              50,499
              
              
              
              -
              
              
              
              177,742Total
      capital expenditures
              
              $
              108,275
              
              
              $
              131,668
              
              
              $
              133,821
              
              
              $
              319,936
  Note
19 - Property Dividend Distribution Gain
  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,
of one share of HMDI common stock for each share of American's common stock
owned and held on the record date.  As a
result of this declaration, American recorded a property dividend distribution
gain of $2,945,133. The amount of the gain was determined as the difference
between the market price of HMDI common stock of $0.42 per share on April 16,
2008, and American's book value per share of $0.076 for 8,570,231 shares of HMDI
common stock to be
distributed.
 Back to Table of Contents
 22
 
 Note
20 - Discontinued operations
  On
December 31, 2008, the board of directors of American approved the
deconsolidation of Hammonds Industries, Inc. (“Hammonds”) from American. To effect
the deconsolidation of Hammonds, American was required to reduce its ownership
percentage, board membership, and guarantee of Hammonds’ debt. After the
distribution of the special dividend of approximately 17.4 million shares of
Hammonds’ common stock to American's shareholders of record on December 31,
2008, American's ownership is approximately 13% of Hammonds' issued
and outstanding common stock. Effective December 31, 2008, Carl Hammonds was
appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds
accepted the resignations of Daniel Dror, as Chairman of the Board and CEO,
Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller,
as Director, and appointed Richard C. Richardson as a new board member unrelated
to American. As a result, the majority of Hammonds’ board of directors is no
longer controlled by American. Additionally, a reduction of American's
guarantee of Hammonds’ debt to $1,000,000 was obtained from Texas Community
Bank.
   Three
      Months Ended June 30, 2008
                            
                            
                            Six
      Months Ended June 30, 2008Income
      (loss) from continuing operations, net of income
    taxes
                            
                            $
                            563,931
                            
                            
                            $
                            (2,066,564
                            )Loss
      from discontinued operations, net of income taxes
                            
                            
                            (678,050
                            )
                            
                            
                            (1,476,609
                            )Net loss
                            
                            
                            (114,119
                            )
                            
                            
                            (3,543,173
                            )Net
      income attributable to the noncontrolling interest
                            
                            
                            290,384
                            
                            
                            
                            538,626Net
      income (loss) attributable to American International Industries,
      Inc.
                            
                            $
                            176,265
                            
                            
                            $
                            (3,004,547
                            )Weighted
      average common shares outstanding - basic and diluted
                            
                            
                            7,135,012
                            
                            
                            
                            7,123,635Net
      income (loss) per share - basic and diluted:Continuing operations
                            
                            $
                            0.12
                            
                            
                            $
                            (0.21
                            )Discontinued operations
                            
                            $
                            (0.10
                            )
                            
                            $
                            (0.21
                            )Total
                            
                            $
                            0.02
                            
                            
                            $
                            (0.42
                            )


Six
      Months Ended
                    June
      30, 2008Continuing
      operations:Net cash used in operating activities
                
                $
                (2,849,241
                )Net cash provided by investing activities
                
                
                44,782Net cash provided by financing activities
                
                
                2,764,698Net
      decrease in cash and cash equivalents from continuing
      operations
                
                
                (39,761
                )Cash
      and cash equivalents at beginning of period from continuing
      operations
                
                
                2,293,795Cash
      and cash equivalents at end of period from continuing
      operations
                
                $
                2,254,034Discontinued
      operations:Net cash used in operating activities
                
                $
                (1,230,540
                )Net cash used in investing activities
                
                
                (197,676
                )Net cash used by financing activities
                
                
                (64,324
                )Net
      decrease in cash and cash equivalents from discontinued
      operations
                
                
                (1,492,540
                )Cash
      and cash equivalents at beginning of period from discontinued
      operations
                
                
                1,597,361Cash
      and cash equivalents at end of period from discontinued
    operations
                
                $
                104,821
    Three
      Months Ended June 30, 2008
                  
                  
                  Six
      Months Ended June 30, 2008Revenues
                  
                  $
                  2,420,771
                  
                  
                  $
                  4,625,928Loss
      before income tax
                  
                  $
                  (707,840
                  )
                  
                  $
                  (1,497,523
                  )
 Back to Table of Contents
 23
 
 On April 16, 2009, Hammonds entered
into an Asset Purchase Agreement with FabCorp, Inc., a Houston-based
manufacturing company, pursuant to which Hammonds sold all of its assets to a
newly formed Texas company, Hammonds Technologies, LLC., a wholly owned
subsidiary of FabCorp, Inc. Pursuant to the Asset Purchase Agreement, FabCorp
purchased all of the assets in consideration for the payment of Hammonds’ debt
owed to Texas Community Bank in the amount of $2.6 million.  The balance of
Hammonds’ bank debt in the amount of $350,000 was paid by American and was
recorded as a net loss from discontinued operations for the three and six months
ended June 30, 2009.  American was relieved of its $1,000,000 guarantee of
Hammonds’ debt.
  Note 21 - Subsequent
Events
  repurchase 15,100
shares of its common stock.  On July 13, 2009, American granted 200,000 and
50,000 restricted shares of common stock for services to the CEO and CFO,
respectively, representing $250,000 of expense to American.  In July and
August 2009, American granted 40,000 shares of common stock for services,
representing $42,780 of expense to American.
 Back to Table of Contents
 24


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




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 three reporting
segments and corporate overhead:
  · Northeastern Plastics (NPI) -
a wholly-owned subsidiary, is a supplier of automotive after-market products and
consumer durable goods products to retailers and wholesalers in the automotive
after-market and in the consumer durable electrical products
markets;
 · Shumate Energy Technologies, Inc.
(SET) - a wholly-owned subsidiary, manufactures highly specialized
equipment for energy industry customers, including expandable tubing technology
products that are used in field service operations for oil and gas exploration
under extreme environmental conditions. SET manufactures large-diameter products
and close tolerance machined parts that range up to thirty-four feet in length
using state of the art, large part CNC equipment.
 · Delta Seaboard Well Services
(Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing
contracting company providing services 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.
  The
historical financial statements of the Company include the acquisitions of
acquired companies as of the effective dates of the purchases, and the results
of those companies subsequent to closing, as these transactions were accounted
for under the purchase method of accounting.
  We intend
to continue our efforts to grow through the acquisition of additional and
complimentary businesses and by expanding the operations of our existing
businesses, especially in the energy sector. We will evaluate whether additional
and complimentary businesses can be acquired at reasonable terms and conditions,
at attractive earnings multiples and which present opportunity for growth and
profitability. These efforts will include the application of improved access to
financing and management expertise afforded by synergistic relationships between
the Company and its subsidiaries. Potential acquisitions are evaluated to
determine that they would be accretive to earnings and equity, that the
projected growth in earnings and cash flows are attainable and consistent with
our expectations to yield desired returns to investors, and that management is
capable of guiding the growth of operations, working in concert with others in
the group to maximize opportunity. Periodically as opportunities present
themselves, we may sell or merge the subsidiaries in order to bring value to the
holding company and our shareholders and to enable the Company to acquire larger
companies.
  The
Company’s real estate investment policy historically has been to acquire real
estate for resale based upon our view of market conditions. Such properties
are listed on the balance sheet as real estate acquired for resale. 
Real estate is not a segment of the Company's business.
 Back to Table of Contents
 25
 We expect
to face competition for acquisition candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that we will be able to identify, acquire or manage profitably
of additional businesses or to integrate any acquired businesses into the
Company without substantial costs, delays or other operational or financial
problems. Further, acquisitions involve a number of risks, including possible
adverse effects on our operating results, diversion of management's attention,
failure to retain key personnel of the acquired business and risks associated
with unanticipated events or liabilities. Some or all of which could have a
material adverse effect on our business, financial condition and results of
operations. The timing, size and success of our acquisition efforts and the
associated capital commitments cannot be readily predicted. It is our current
intention to finance future acquisitions by using shares of our common stock and
other forms of financing as the consideration to be paid. In the event that the
common stock does not have and maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept common stock as part of
the consideration for the sale of their businesses, we may be required to seek
other forms of financing in order to proceed with our acquisition program. If we
do not have sufficient cash resources, our growth could be limited unless we are
able to obtain additional equity or debt financing at terms acceptable to the
Company.
 
 On
December 31, 2008, the board of directors of the Company approved the
deconsolidation of Hammonds Industries, Inc. (“Hammonds”) from the Company. To
effect the deconsolidation of Hammonds, the Company was required to reduce its
ownership percentage, board membership, and guarantee of Hammonds’ debt. After
the distribution of the special dividend of approximately 17.4 million shares of
Hammonds’ common stock to the Company’s shareholders of record on December 31,
2008, the Company’s ownership is proximately 13% of Hammonds' issued and
outstanding common stock. Effective December 31, 2008, Carl Hammonds was
appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds
accepted the resignations of Daniel Dror, as Chairman of the Board and CEO,
Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller,
as Director, and appointed Richard C. Richardson as a new board member unrelated
to the Company. As a result, the majority of Hammonds’ board of directors is no
longer controlled by the Company. Additionally, a reduction of the Company’s
guarantee of Hammonds’ debt was obtained from Texas Community
Bank.
  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.


Results of
Operations




Three and Six Months
Ended June 30, 2009 Compared to Three and Six Months Ended June 30,
2008.




The
following is derived from, and should be read in conjunction with, our unaudited
consolidated financial statements, and related notes for the three and
six months ended June 30, 2009 and 2008.


Net revenues. For the
three months ended June 30, 2009, revenues from continuing operations were
$6,232,115, compared to $7,075,290 for the three months ended June 30, 2008,
representing a decrease of $843,175, or 11.9%.  Revenues from
continuing operations were $12,427,129 for the six months ended June 30, 2009,
compared to $10,586,195 for the six months ended June 30, 2008, representing an
increase of $1,840,934, or 17.4%.




Delta
reported revenues of $2,331,214 for the three months ended June 30, 2009,
compared to $5,169,849 for the same period in 2008, representing a decrease
of $2,838,635, or 54.9%. For the six months ended June 30, 2009, Delta's
revenues were $4,795,125, compared to $7,252,798 for the six months ended June
30, 2008, representing a decrease of $2,457,673, or 33.9%. 
The decrease in revenues at Delta is due to a decrease in pipe sales for the
three and six months of $2,776,769 and $3,102,223, respectively, to the oil
field service industry. Pipe
sales revenues have decreased due to a decline
in drilling activity creating a decline in demand for pipe.  Rig
service revenues for the three and six months increased by $319,096 and
$263,588, respectively, due to the addition of a new rig.




The
results of SET for the three and six months ended June 30, 2009 are
included in our results of operations. For the three and six months ended June
30, 2009, SET's revenues were $1,907,496 and $3,994,317, respectively, and
net operating income was $75,995 and $240,276, respectively.




Revenues
at NPI during the three months ended June 30, 2009 were $1,993,405, compared to
$1,905,441 for the three months ended June 30, 2008, representing an
increase of $87,964, or 4.6%.  NPI's revenues were $3,637,687 for the
six months ended June 30, 2009, compared to $3,333,397 for the six months ended
June 30, 2008, representing an increase of $304,290, or 9.1%.  NPI's
strategic plan for 2009 includes targeting three or more additional large
accounts and reducing its dependence upon major customers by adding more
mid-size accounts.  During the second quarter of 2009, NPI added two large
accounts and began making shipments to these customers.  NPI is highly
reliant upon a small customer base, with approximately 53% of its sales
being generated through one principal customer. There is significant risk in
having such a large portion of revenues concentrated to this extent and the loss
of one or more principal customers could result in a reduction in NPI’s
revenues.  The sales of NPI have historically been subject to sharp
seasonal variations.


Back to Table of Contents
 26
 Income / loss from
operations.Our operating loss
for the three months ended June 30, 2009 was $519,023, compared to operating
income of $366,705 for the three months ended June 30,
2008.  Our operating loss for the six months ended June 30,
2009 was $971,097, compared to the operating loss of $1,060,139 for the six
months ended June 30, 2008.  For the six months ended June 30, 2009,
selling, general and administration costs increased as a percentage of revenues
to 64.3%, compared to 60.5% for the same period in 2008.  Additionally,
margins declined from 56.5% for the six months ended June 30, 2009,
compared to 50.5% for the same period in 2008, primarily due to the decline in
pipe sales at Delta.  The margins on pipe sales are historically greater
than the margins on our other revenue components.


Total other income/expenses.Other expense was $113,564 for the three months ended June 30, 2009,
compared to other income of $108,654 for the three months ended June 30,
2008.  Other income was $8,286 for the six months ended June 30, 2009,
compared to other expense of $1,080,865 for the six months ended June 30,
2008.  Net
realized/unrealized gains on trading securities were $35,771 for the
three months ended June 30, 2009, compared to net losses of $1,250,565 for the
three months ended June 30, 2008.  Net realized/unrealized gains on
trading securities were $49,643 for the six months ended June 30, 2009, compared
to net losses of $2,582,531 for the six months ended June 30, 2008.The net unrealized losses on trading securities of $2,582,531 for the six
months ended June 30, 2008, were due primarily to the decline in the market
value of our investment in Rubicon Financial Incorporated of $2,050,000 (see
note 2).  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 19)
and the recognition of $1,450,000 for the Delta lawsuit settlement (see note
17).  After minority interest, the net impact of this settlement on the
Company's net income was $739,500.   For the six months ended June 30,
2009, American recognized other income in the amount of $198,347, of
which $175,000 was for providing right-of-way access on the 287 acres
in Galveston County.  Interest
expense was $482,279 for the six months ended June 30, 2009, compared to
$410,492 for the six months ended June 30, 2008.  The increase in
interest expense was due primarily to the $5 million in debt used to fund the
acquisition of the assets of Shumate Machine Works.




Net loss.We had a
net loss from continuing operations of $645,133, or $0.08 per
share, for the three months ended June 30, 2009, compared to net income of
$563,931, or $0.08 per share, for the same period in 2008. We had a
net loss from discontinued operations of $350,000, or $0.04 per share, for the
three months ended June 30, 2009, compared to net a net loss of $678,050, or
$0.10 per share, for the same period in 2008. Our
net loss was $852,248, or $0.10 per share, for the three months ended June
30, 2009, compared to net income of $176,265, or $0.02 per share, for the
three months ended June 30, 2008.  We had a net loss from
continuing operations of $988,041, or $0.11 per share, for the six months ended
June 30, 2009, compared to a net loss of $2,066,564, or $0.29 per share,
for the same period in 2008.  We had a
net loss from discontinued operations of $350,000, or $0.04 per share, for the
six months ended June 30, 2009, compared to net a net loss of $1,476,609, or
$0.21 per share, for the same period in 2008.Our net
loss was $1,045,387, or $0.12 per share, for the six months ended June 30, 2009,
compared to a net loss of $3,004,547, or $0.42 per share, for the six
months ended June 30, 2008.





Liquidity
and Capital Resources




Total assets/working capital.Total assets at June 30, 2009 were $33,673,622, compared to $35,977,944
at December 31, 2008, representing a decrease of $2,304,322.  The
primary reason for the decrease in total assets resulted from the use of
cash and the redemption of certificates of deposit to reduce our debt by
$1,695,306 and to pay for operating expenses.  At June 30, 2009, our
working capital surplus was $17,266,140, compared to a working capital
surplus of $18,196,027 at December 31, 2008,
representing a decrease in working capital of
$929,887.




Cash flow from operations.For the six months ended June 30, 2009, cash flow used in operations
was $4,200, compared to cash flow used in operations of $2,614,041
during the same period in 2008.  Our net loss of $988,041 for the
six months ended June 30, 2009 included non-cash expenses of
$632,735, including depreciation and amortization
of $591,485 and share-based compensation of $41,250.  Our
net loss of $2,066,564 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 19) and non-cash expenses of
$4,594,693, including unrealized losses on trading securities of
$2,653,670, recognition of $1,450,000 for the Delta lawsuit settlement (see note
17), depreciation and amortization of $237,399, share-based compensation of
$253,624.  Our inventories increased by $797,874 for the six
months ended June 30, 2009, compared to an increase of $464,076 during the six
months ended June 30, 2008.  We decreased our investments in trading
securities by $124,148 during the six months ended June 30, 2009, compared to an
increase of $95,289 during the same period in 2008.  Accounts receivable
decreased by $564,466 during the six months ended June 30, 2009, compared to an
increase of $563,564 during the same period in 2008.  Prepaid
expenses increased by $188,401, other assets decreased by
$38,830, and accounts payable increased by $659,580 for the six months
ended June 30, 2009.  For the six months ended June 30, 2008, prepaid
expenses increased by $1,196,578, other assets decreased by $9,861, and accounts
payable increased by $241,337.


Back to Table of Contents
 27


Cash flow from investing activities.Our investing activities provided cash of $964,076 during the six
month period ended June 30, 2009, as a result of a net decrease in investments
in certificates of deposit of $1,550,000, offset by the issuance of a note
receivable of $300,000, loans to related parties of $221,939, and purchases of
property and equipment of $133,821.  This is compared to cash provided by
investing activities during the same period in the prior year in the amount of
$44,782, as a result of a net decrease in investments in certificates of deposit
of $184,579 and proceeds from the sale of drilling rig equipment of $200,000,
offset by the issuance of a note for $225,000 and the purchase of property and
equipment of $142,194.





Cash flow from financing activities.During the six months ended June 30, 2009, our financing
activities used cash of $1,667,112 compared to cash provided of $2,529,498
during the same period in 2008.  During the six month period ended June 30,
2009, we made payments of $1,695,306 on debt and
purchased 211,746 shares of treasury stock at a cost of $192,675. During
the 2008 period, we received net proceeds from the issuance of debt of
$2,117,663 and from line-of-credit agreements of $1,427,000. We made payments of
$760,175 on debt and margin loans during the six month period ended June 30,
2008.





Real estate.During the
fourth quarter of 2008, American received a 1.705 acre tract of land in
Galveston County appraised at $540,000 as a guarantor's fee.  In connection
with this fee, American has pledged $1,750,000 in certificates of
deposit for a $4,000,000 loan to Dawn Condominiums L.P. at Texas Community
Bank.  As the principal of the loan is reduced, the bank will release
portions of the pledged certificates of deposit until the loan is paid in
full.  During 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.  American continues to own 287
undeveloped acres of waterfront property on Dickinson Bayou and Galveston Bay in
Galveston County, Texas. American is carrying this property on the balance sheet
at its historical book value of $225,000.  American
has engaged CBRE on an exclusive basis to sell the property for an increased
listing price of $25,000,000.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
    ITEM 4T. CONTROLS AND PROCEDURES
  Evaluation of disclosure controls
and procedures.As of June 30, 2009, 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
 28
 PART
II - OTHER INFORMATION
  ITEM 1. LEGAL PROCEEDINGS
    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, 2008.
  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
    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: None.


Back to Table of Contents
 29




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, 2009






/s/ SHERRY L.
COUTURIER


CHIEF FINANCIAL OFFICER


Dated:  August14,
2009