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

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

  

For the quarterly period endedSeptember 30, 2006

  

OR

  

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

  

For the transition period from               to              

  

Commission File No.:0-25223

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

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

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

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

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

At September 30,2006, the Registrant had 5,304,502 shares of common stock issued.

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

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

      CONTROLS AND PROCEDURES.
        5   
 

**PART II - OTHER INFORMATION**

ITEM 1.

      LEGAL PROCEEDINGS.
        5  
ITEM 2.

      CHANGES IN SECURITIES.
        5   
ITEM 3.

      DEFAULT UPON SENIOR    SECURITIES.
        5   
ITEM 4.

      SUBMISSION    OF MATERS TO A VOTE OF SECURITY HOLDERS.
        6   
ITEM 5.

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

ITEM 1. FINANCIAL STATEMENTS****Backto Table of Contents

The Registrant's financialstatements for the three and six-month periods ended September 30, 2006 and 2005 areattached to this quarterly report.

FinancialStatements

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

Forward-Looking Statements; Market Data 

As used in this Quarterly Report, the terms *"we","us", "our" and the "Company"* means AmericanInternational Industries, Inc., a Nevada corporation, and its subsidiaries. To the extentthat we make any forward-looking statements in the *"Management's Discussion andAnalysis of Financial Condition and Results of Operations"* in this QuarterlyReport, we emphasize that forward-looking statements involve risks and uncertainties andour actual results may differ materially from those expressed or implied by ourforward-looking statements. Our forward-looking statements in this Quarterly Reportreflect our current views about future events and are based on assumptions and are subjectto risks and uncertainties. Generally, forward-looking statements include phrases withwords such as *"expect", "anticipate", "intend","plan", "believe", "seek", "estimate"* andsimilar expressions to identify forward-looking statements.

**Overview**

We are a holding company and have two reportable segments and corporateoverhead: (1) industrial/commercial and (2) oil and gas. The industrial/commercial segmentincludes: (a) Northeastern Plastics, Inc. ("NPI"), a wholly-owned subsidiary,which is a supplier of automotive after-market and consumer electrical products; and (b)through our 44.9% subsidiary, International American Technologies, Inc. (OTCBB:"IMTG), a public reporting company, which owns 100% of Hammonds Technical Services,Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc.(collectively "Hammonds"). The oil and gas segment includes: (a) Delta SeaboardWell Service, Inc. a 51% owned subsidiary which is engaged in the oil and gas drillingequipment and service business; and (b) an oil, gas and mineral royalty interest inWashington County, Texas, carried on the Company's books at $0. 

The Company consolidates IMTG although its ownership is less than 51%,because the Company controls the IMTG board of directors by having designated two of thethree members of IMTG's board of directors. Since Hammonds is incurring losses and thereis no minority interest, the Company recognizes 100% of Hammond’s losses. TheCompany’s ownership percentage of IMTG was 81.0% until Carl Hammonds, president and adirector of IMTG, converted his 49% minority interest in Hammonds into 16,000,000 sharesof IMTG common stock, at a conversion rate of $0.25 per share. The additional cost hasbeen allocated to patents and is being amortized in a manner equivalent to theamortization used on the intangible assets acquired in IMTG's acquisition of 51% ofHammonds, effective April 28, 2005, in connection with IMTG's August 2006 privatefinancing transaction with Vision Opportunity Fund Limited ("VOMF"), asdiscussed below. As a result of Mr. Hammonds conversion of his 49% minority interest intoIMTG shares, Hammonds has become a wholly-owned subsidiary of IMTG. The Company's equityinterest in IMTG was 81.0% until Mr. Carl Hammonds converted his 49% minority ownership inHammonds into 16,000,000 shares of IMTG common stock.

On August 8, 2006, IMTG entered into a stock purchase agreement withVOMF pursuant to which IMTG agreed to sell up to 833,333 shares of newly designated IMTGSeries A Convertible Preferred Stock, having an 8% dividend, for consideration of$1,500,000. On August 8, 2006, IMTG sold VOMF 555,555 shares of Series A Preferred Stockfor consideration of $1,000,000 and on August 23, 2006, IMTG sold an additional 277,778shares of Series A Preferred Stock for consideration of $500,000. In connection with theAugust 8 and August 23, 2006 private financing transactions, IMTG issued VOMF  aSeries A Warrant exercisable to purchase 8,333,333 shares of IMTG common stock at $.18 pershare, expiring in five years, and a Series B Warrant exercisable to purchase anadditional 8,333,333 shares of IMTG common stock at $.18 per share, expiring in August2007.

On September 30, 2006, IMTG entered into a second stock purchaseagreement with VOMF pursuant to which it sold VOMF 833,333 shares of Series B PreferredStock, having identical terms as the Series A stock purchase agreement except for thedividend rate of 4%, for consideration of $1,500,000 and issued VOMF Series C Warrantsexercisable to purchase 8,333,333 additional shares of common stock at a price of $.50 pershare, expiring in five years. In connection with the Series B stock purchase agreement,IMTG agreed to extend the expiration dates of the Series B Warrants issued in the August2006 private financing transactions from one year to two years. 

Each share of IMTG Series A and Series B Preferred Stock is convertibleinto ten shares of IMTG common stock. The Company’s ownership percentage in IMTG willdecrease when VOMF converts its Series A and Series B Preferred Stock and/or exerciseswarrants issued in the August and September 2006 private financing transactions intoshares of IMTG common stock. The Company's IMTG subsidiary received net proceeds ofapproximately $2,728,000 from the sale of Series A and Series B Preferred Stock and willreceive gross proceeds of $4,166,666 if all of the warrants are exercised by VOMF.

On October 24, 2006, the Company received $750,000 as a partialsettlement in its litigation against SurgiCare, Inc. and UHY Mann Frankfort Stein LippCPA's, LLP. The Company released SurgiCare and its affiliates from any further liabilitiesto the Company. However, the Company is vigorously pursuing its claims against UHY MannFrankfort Stein Lipp CPA's, LLP.

The Company takes an active role in its subsidiaries, in order tofoster growth and profitability by providing its financial resources and managementexpertise. The Company’s industrial/commercial and oil and gas assets and operationsare located in the greater Houston, Texas area. Each of our portfolio companies isexpected to grow in its particular market or industry. By operating as a holding company,we provide both financial assistance and professional business expertise and managementservices to our subsidiaries. Our role is to improve each subsidiaries access to capital,achieve economies of scale through the consolidation of administrative functions, andprovide management expertise from each Company's corporate personnel. 

We encounter substantial competition in each of our subsidiariesproduct and service areas. Such competition is expected to continue. Depending on theparticular market involved, our subsidiaries compete on a variety of factors, such asprice, quality, delivery, customer service, performance, product innovation and productrecognition. Other competitive factors for certain products include breadth of productline, research and development efforts and technical and managerial capability. 

Corporate overhead includes our investment activities includingfinancing current operations and expansion of our current holdings, as well as evaluatingthe feasibility of entering into additional businesses.
**Results of Operations
Three and Nine Months Ended September 30, 2006 Compared to Three andNine Months Ended September 30, 2005.

Net revenues for the three and nine-month periods ended September 30,2006 were $9,936,232 and $24,347,673 respectively, compared to $9,046,634 and $18,032,255, respectively, for the three and nine-month periods ended September 30, 2005,representing an increase of over 9% and 35%, respectively. The increase in revenues is dueprimarily to the increase in drilling pipe sales at Delta, which reported revenues of$10,541,530 for the nine months ended September 30, 2006 compared to $8,429,982 for thesame period of 2005, the increase in nine months revenues during 2006 at NPI to $9,117,451from $7,897,351 during the nine month 2005 period, principally due to NPI’s licenseto sell the MOTORTRENDTM and Good Housekeeping Seal of ApprovalTM products, andincreased revenues generated from the acquisition by the Company’s IMTG subsidiary ofHammonds Technical Services, Inc., effective April 28, 2005, which reported revenues of$4,688,692 for the nine months ended September 30, 2006 compared to $1,704,922 for thesame period of 2005.

Our consolidated net income (loss) for the three and nine-month periodsended September 30, 2006 was $695,762 and $(156,214), respectively, compared toconsolidated net income (loss) of $193,849 and $(1,821,042), respectively during the samethree and nine-month periods in the prior year. The primary reason for the improvement wasdue to the receipt of $2,000,000 from the sale of the Nixon Refinery to settle anoutstanding lawsuit. During the three and nine-month periods ended September 30, 2006,Delta had net income (loss) of $(323,509) and $436,956, respectively, compared to $493,664and $1,009,076 for the same periods of 2005. The decrease was due primarily to a declinein pipe sales and decreased margins on pipe sales resulting from higher material costs.Delta expects a strong business environment during the forth quarter of the 2006 fiscalyear as a result of the strong energy section. NPI had net income of $534,855 and$435,347, respectively, during the three and nine-month periods ended September 30, 2006compared to net income of $443,237 and $302,648 for the same periods of the prior year.NPI's business is seasonal and historically most of NPI’s revenues and income havebeen generated in the third and fourth quarters. We expect a strong performance of NPI inthe forth quarter of this fiscal year due to the fact that NPI currently has a backorderof over $4,500,000. IMTG, our 44.9% owned subsidiary, which owns 100% of Hammonds,reported net losses of $925,489 and $1,558,354, respectively, for the three and nine-monthperiods ended September 30, 2006, compared to net losses of $536,928 and $741,294 duringthe same periods of 2005. We are implementing manufacturing and cost saving procedures forHammonds in order to generate increased revenues with greater cost efficiencies.
**Liquidity and Capital Resources

Total assets at September 30, 2006 were $40,771,191 compared to$30,163,349 at December 31, 2005. Total liabilities at September 30, 2006 were$20,496,456, compared to $17,264,410 at December 31, 2005. At September 30, 2006,consolidated working capital was $13,010,390 compared to working capital of $7,929,567 atDecember 31, 2005. Our consolidated cash position at September 30, 2006 was $4,522,781compared to $2,709,105 at December 31, 2005.

For the nine months ended September 30, 2006, we had negative cash flowfrom operations of $2,231,950, which represents a significant decrease from our negativecash flow from operations of $3,090,301 during the same period of the prior year. Thisimprovement was a result of a significant decrease in our net loss from $1,821,042 fornine months ended September 30, 2005 to $156,214 for the nine months ended September 30,2006. Our inventories decreased by $1,641,628 for the nine months ended September 30, 2006as compared to a decrease of $3,794,365 during the nine months ended September 30, 2005.We reduced accounts receivable during the nine months ended September 30, 2006 by$2,531,781 compared to $2,818,871 during the same nine-month period of the prior year. Ournet loss of $156,214 was offset by non-cash compensation of $824,265, depreciation andamortization expenses of $587,713 and a minority interest in the amount of $214,109.Additionally, we received cash of $1,000,000 and a note of $1,000,000 from the sale of theNixon Refinery to settle an outstanding lawsuit.

Our investing activities used $143,605 during the nine-month periodended September 30, 2006, as a result of a redemption of a certificate of deposit in theamount of $400,000 and notes receivable of $423,689 offset by and investment in newcertificates of deposit of $850,000, loans to related parties of $180,000 and purchases ofproperty and equipment and patents and trademarks of $252,606 and $25,193, respectively.This is compared to cash used by investing activities during the same period in the prioryear in the amount of $508,847, primarily as a result of net cash used in the acquisitionof a subsidiary of $770,194, partially offset by the redemption of a certificate ofdeposit in the amount of $300,000. We used cash in the amount of $89,249 during the threemonths ended September 30, 2006 to purchase property and equipment. 

During the nine months ended September 30, 2006, our financingactivities provided $4,189,231 compared to $3,049,285 during the same period of 2005.During the 2006 period we received proceeds from the issuance of preferred stock in theamount of $2,727,746, from short-term borrowings in the amount of $391,121, from long-termdebt of $2,020,952, and from line-of-credit agreements of $513,110. We made payments of$1,221,931 on short-term notes and principal payments on long-term debt of $109,449 duringthe nine-month period ended September 30, 2006. The Company had $4,522,781 in cash atSeptember 30, 2006.

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

ITEM 3. CONTROLS AND PROCEDURES

*Evaluation of disclosure controls and procedures*. As ofSeptember 30, 2006, the Company's chief executive officer and chief financial officerconducted an evaluation regarding the effectiveness of the Company's disclosure controlsand procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Basedupon the evaluation of these controls and procedures, our chief executive officer andchief financial officer concluded that our disclosure controls and procedures wereeffective as of the end of the period covered by this report.

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

**PART II - OTHER INFORMATION**

ITEM 1. LEGAL PROCEEDINGS****Backto Table of Contents

None.

ITEM 2. CHANGES IN SECURITIES****Back toTable of Contents

On September 18, 2006, the Company issued 10,000 shares of restricted stock to theCompany’s directors for serving on our board of directors. The shares were issuedpursuant to Section 4(2) of the Act.

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

None.

ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS****Backto Table of Contents

On September 28, 2006, the Company's annual meeting ofshareholders was held. At the meeting the shareholders voted for the election of DanielDror, Charles R. Zeller, Robert W. Derrick, Jr., and Thomas J. Craft, Jr. to serve on ourboard until the next annual meeting of shareholders or until their successors are electedand qualified and voted to ratify our selection of John A. Braden & Company, P.C. asindependent auditors for 2006. At the date of the annual meeting, the Company had a totalof 4,417,010 shares of common stock outstanding and a total of 4,137,266 were present andvoted. The following tables sets forth the vote of shareholders with respect to the twoproposals:

Proposal 1. Election of Directors

**Nominees**
**For**
**Withheld**Daniel Dror4,007,296129,970Charles R. Zeller4,008,716128,550Robert W. Derrick, Jr.4,007,441129,825Thomas J. Craft, Jr.4,017,134120,132
Proposal 2. Ratification of John A. Braden &Company, P.C. as Independent Auditors for 2006
**For****Against****Abstain****BNV**4,129,0653,3214,880-
ITEM 5. OTHER INFORMATION****Backto Table of Contents

None.

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

(a) The following documents are filed as exhibits tothis report on Form 10-QSB or incorporated by reference herein. Any document incorporatedby reference is identified by a parenthetical reference to the SEC filing that includedsuch document.
**Exhibit    No.**
**Description**31.1Certification of Chief    Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the    Sarbanes-Oxley Act of 200231.2
Certification    of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 200232.1Certification of Chief    Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the    Sarbanes-Oxley Act of 200232.2Certification of Chief    Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form8-K During the Period Covered by this Report: The Registrant has filed a Form 8-K/A onJuly 5, 2006 with Item 4.01 "Changes in Registrant's Certifying Accountant"disclosure.

**SIGNATURES**

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

/s/ DANIEL DROR   CEO, PRESIDENT AND CHAIRMAN   *Dated: November 10, 2006*

/s/ GARY D. WOERZ   CHIEF FINANCIAL OFFICER   *Dated: November 10, 2006*

 

**FinancialStatements**Back to Table of Contents
Condensed    Consolidated Financial Statements   Consolidated Balance Sheets - September 30,    2006 (Unaudited) and December 31, 2005 (Audited)9   Unaudited Consolidated Statements of    Operations - Three and nine months ended September 30, 2006 and 200510   Unaudited Consolidated Statement of    Cash Flows -Nine months ended September 30, 2006 and 200511Notes to Unaudited Condensed    Consolidated Financial Statements12
 
**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsBack to Table of Contents
September 30,    2006 and December 31, 2005   
**September 30, 2006**
**December 30, 2005**
(Unaudited)
(Audited)
AssetsCurrent    assets:      Cash and cash equivalents
$
4,522,781
$
2,709,105      Certificates of deposit
2,450,000
2,000,000      Trading securities
670,198
1,061,259   Accounts    receivable, less allowance for doubtful accounts of        $320,611 at September 30, 2006 and $322,365 at December 31, 2005
7,675,680
5,143,899      Current portion notes receivable
503,408
249,096      Accounts and notes receivables from related parties
275,000
95,001      Inventories
6,331,028
4,689,399      Real estate acquired for resale
225,000
225,000      Drilling rigs held for sale
187,611
325,753      Prepaid expenses and other current assets
716,654
195,290     Total current assets
23,557,360
16,693,802      Long-term    notes receivable
4,856,046
3,868,686Property    and equipment, net of accumulated depreciation and amortization
5,353,669
6,293,674Goodwill,    less accumulated amortization of $205,295 at September 30, 2006      and December 31, 2005
674,539
674,539Patents    and trademarks, net of amortization
6,253,987
2,536,263Other    assets
75,590
96,385     Total assets
$
40,771,191
$
30,163,349   
Liabilities    and Stockholders’ Equity   Current liabilities:   Accounts payable    and accrued expenses
$
5,710,355
$
3,793,462   Margin loans from    financial institutions
274,365
406,949   Short-term notes    payable
4,125,259
4,257,469   Current    installments of long-term debt
436,991
306,355        Total current liabilities 
10,546,970
8,764,235  Long-term debt, less current    installments
7,628,408
6,393,206Deferred tax liability
503,200
503,200Minority interest
1,817,878
1,603,769        Total liabilities
20,496,456
17,264,410   Stockholders' equity:   Preferred    stock, $.001 par value. authorized 1,000,000 shares: none issued.
-
-   Common stock, $.001    par value. authorized 10,000,000 shares:        5,304,502 shares issued and 5,299,102 shares outstanding     at    September 30, 2006; and 4,318,660 shares issued and        4,313,260 shares outstanding at December 31, 2005
5,304
4,319   Additional paid-in    capital 
35,840,617
28,389,591   Accumulated deficit
(15,623,655)
(15,447,440)   Common stock    issuance obligation
100,000
-  
20,322,266
12,946,470   Less treasury    stock, at cost (5,400 shares)
(47,531)
(47,531)     Total    stockholders' equity
20,274,735
12,898,939        Total liabilities and stockholders' equity 
$
40,771,191
$
30,163,349  See accompanying    notes to unaudited consolidated financial statements.**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND    SUBSIDIARIES**Condensed    Consolidated Statements of Operations****Back    to Table of ContentsThree and nine months ended September, 30 2006 and 2005     
**Three months ended September 30,**
**Nine months ended September 30,****  ****2006****2005**
**2006**
**2005**** **(Restated)**  (Restated)  Revenues $9,936,232$9,046,634
$
24,347,673
$
18,032,255Costs    and expenses:      Cost of sales 7,328,2686,129,144
16,393,018
10,926,031      Selling, general and administrative 4,144,4952,479,305
9,775,004
6,759,276        Total operating expenses 11,472,7638,608,449
26,168,022
17,685,307      Operating income (loss)(1,536,531)438,185
(1,820,349)
346,948      Other    income (expenses):      Settlement proceeds from sale of Nixon Refinery2,000,000-
2,000,000
-      Interest and dividend income 235,984213,877
335,535
334,950      Realized gains (losses) on investments3,045(26,955)
3,045
(438,955)      Unrealized gain and (losses) on trading securities(42,886)(330,333)
(53,600)
(2,021,250)      Gain (loss) on sale of assets(10,466)-
(10,466)
-      Oil and gas royalty income5873,671
3,786
3,671      Interest expense(272,738)(128,744)
(577,804)
(194,841)      Other income (expense)160,24867,280
177,748
588,738        Total other income (expenses)2,073,774(201,204)
1,878,244
(1,727,687)          Net    income (loss) before income tax537,243236,981
57,895
(1,380,739)Provision    for income taxes--
-
-       Net income (loss) from operations before minority interest537,243236,981
57,895
(1,380,739)          Minority interest158,519(43,132)
(214,109)
(440,303)         Net income (loss)$695,762$193,849
$
(156,214)
$
(1,821,042)                Preferred dividend(20,000)-(20,000)-Net earnings (loss) applicable    to common shareholders695,762193,849(176,214)(1,821,042)  Net earnings (loss) applicable    to common shareholder:    Basic$0.15$0.05
$
(0.04)
$
(0.57)  Weighted average common shares:   Basic4,562,7283,620,352
4,423,908
3,204,678  See accompanying    notes to consolidated financial statements.**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash    FlowsBack to Table of    Contents
Nine months ended    September 30, 2006 and 2005
(Unaudited)   
**Nine    month ended**
**Nine    month ended**
**September 30, 2006**
**September 30, 2005**  
(Restated)Cash flows from operating    activities:    Net loss 
$
(156,214)
$
(1,821,042)   Adjustments to    reconcile net earnings (loss) to net cash used in operating activities:         Depreciation and amortization
587,713
180,211     Common    stock issued for services 
824,265
347,800        Realized (gains) losses on the sale of trading securities 
(3,045)
930,593        Unrealized loss on trading securities 
53,600
2,021,250     (Gain)    loss on sale of assets10,466-     Note    receivable for refinery settlement(1,000,000)-     Gain on    restructuring of debt-(466,350)        Minority interest 
214,109
440,303     Escrow    held for sale of property(15,361)-        Miscellaneous write-off(22,684)-   (Increase) decrease    in operating assets, net of acquisition of subsidiary:        Accounts receivable 
(2,531,781)
(2,818,871)     Trading    securities-420,832        Inventories 
(1,641,628)
(3,794,365)     Prepaid    expenses and other current assets 
(521,364)
(951,666)     Other    assets 
20,795
(19,455)   Increase (decrease)    in operating liabilities, net of acquisition of subsidiary:         Accounts payable and accrued expenses 
1,949,179
2,440,459          Net cash used in operating activities 
(2,231,950)
(3,090,301)  Cash flows from investing    activities:    Purchase of    property and equipment
(252,606)
(89,249)   Patents and    trademarks(25,193)-   Cash paid for    acquisition of subsidiary
-
(826,700)   Cash received on    acquisition of subsidiary-56,506   Net changes in    investments340,505-   Investment in    certificate of deposit(850,000)-   Redemption of    certificate of deposit 
400,000
300,000   Notes receivable
423,689
39,021   Loans (to) from    related parties
(180,000)
11,575          Net cash provided by investing activities 
(143,605)
(508,847)  Cash flows from financing    activities:    Proceeds from    exercise of stock options-75,000   Net borrowings    under line-of-credit agreements513,110-   Net repayment under    line-of-credit agreements-(1,245,742)   Proceeds from    short-term debt
391,121
-   Proceeds from    long-term debt
2,020,952
4,992,889   Margin loans(132,584)-   Proceeds from    issuance of preferred stock2,727,746-   Customer deposits266-   Repayment of    borrowing from related parties-(684,654)   Principal payments    on short-term debt
(1,221,931)
-   Principal payments    on long-term debt(109,449)(25,801)   Payment of    dividends on preferred stock -(48,750)   Acquisition of    treasury stock
-
(13,657)          Net cash provided by financing activities 
4,189,231
3,049,285            Net increase (decrease) in cash and cash equivalents
1,813,676
(549,863)  Cash and cash equivalents at    beginning of year 
2,709,105
5,079,873Cash and cash equivalents at end    of period 
$
4,522,781
$
4,530,010  Supplemental schedule of cash    flow information:    Interest paid 
$
577,804
$
194,841   Non-cash    transactions:   Transfer of note    payable for land and building(410,393)-   Issuance of note    payable for office equipment20,524-   Receipt of note    receivable for sale of real estate acquired for resale-3,401,916See accompanying notes to    unaudited consolidated financial statements. 
**American International Industries, Inc.**Backto Table of Contents****Notes to UnauditedCondensed Consolidated Financial Statements
**(1) General**
American International Industries, Inc. (the "Company"),operates as a diversified holding company with a number of wholly-owned subsidiaries andtwo majority-owned subsidiaries.

Principles of Consolidation

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

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

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

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

Revenue is recognized when the earning process is completed, the risksand rewards of ownership have transferred to the customer, which is generally the same dayas delivery or shipment of the product, the price to the buyer is fixed or determinable,and collection is reasonably assured. The Company has no significant sales returns orallowances.
**(4) Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (*"FASB"*)issued Statement of Financial Accounting Standard (*"SFAS"*) No. 154, *AccountingChanges and Error Corrections*. SFAS No. 154 replaces Accounting Principles BoardOpinion No. 20, *Accounting Changes*, and SFAS No. 3, *Reporting Accounting Changesin Internal Financial Statements*, and changes the requirements for the accounting forand reporting of a change in accounting principle. SFAS No. 154 requires retrospectiveapplication of changes in accounting principle to prior periods’ financialstatements, unless it is impracticable to determine either the period-specific effects orthe cumulative effect of the change. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005. We adoptedSFAS No. 154 on January 1, 2006. Any impact on the Company’s consolidated results ofoperations and earnings per share will be dependent on the amount of any accountingchanges or corrections of errors whenever recognized.
**(5) Inventory
**Delta****NPI****IMTG****AMIN**Finished Goods$1,663,487$3,241,327$141,564$5,046,378Work in process47,912-263,972311,884Parts and materials--1,420,3771,420,377Sub Total1,711,3993,241,3271,825,9136,778,639Less: Obsolesces Reserve-(166,169)(281,442)(447,611)Total $1,711,399$3,075,158$1,544,471$6,331,028**(6) Income Taxes

Income taxes for the interim periods were computed using the effectivetax rate estimated to be applicable for the full fiscal year, which is subject to ongoingreview and evaluation by management. The estimated federal income tax expense for thethree and nine month periods ended September 30, 2006 and 2005 is eliminated by netoperating loss carry forwards.
**(7) Short-term Notes Payable To Banks
**September    30, 2006**December    31, 2005
Note payable to    former owner of equity interest in Hammonds payable on July 20, 2005 with accrued interest    at prime plus 4%
173,300
173,300
Note payable with    interest at 10.75%, interest payments due quarterly, with a principal balance due on    December 10, 2006
$
90,000
$
-
  
Other notes with    various terms
26,258
-
$
289,558
$
173,300**(8) Long-term Debt

Long-term debt consisted of the following:
**September    30, 2006**December    31, 2005
Note payable to    bank, interest due monthly at prime plus 2%, principal payment due January 31, 2008,    secured by assets of the Company's subsidiary
1,992,189
1,993,878
  
Note payable to a    bank, due in quarterly installments of interest only at 6.5%, with a principal balance due    on 1/1/2008
300,000
-
Note payable to a    bank, due in quarterly installments of interest only at 7.5%, with a principal balance due    on 1/18/2008
200,000
-
Note payable to a    bank, due in monthly installments of interest only at 9.75%, with a principal balance due    on 10/26/2007
400,000
-
Note payable to a    bank, due in monthly installments of principal and interest of $2,119.65 through 4/3/2011
82,385
Note payable with    interest at 10.75%, interest payments due quarterly, with a principal balance due on    December 10, 2006
-
89,890
  
Other notes with    various terms
-
47,837
  
2,974,574
2,131,605
Less current portion
(157,402)
(2,131,605)
$
2,817,172
$
-
Principal repayment provisions of long-term debt are as follows atSeptember 30, 2006:

4th quarter of 2006
$
4,117
2007
417,503
2008
2,511,477
2009
21,255
2010
20,222
Total
$
2,974,574**(9) Employee Stock Based Compensation

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

The Company has two reportable segments and corporate overhead:industrial/commercial and oil and gas. The industrial/commercial segment includes (1) asupplier of automotive after-market products and (2) a business engaged in watertreatment, fuel handling equipment for the military and industrial customers, a providerof fuel injection services for the aviation industry and the designer of a new omnidirectional vehicle for a wide variety of uses. The oil and gas segment owns an oil, gasand mineral royalty interest in Washington County, Texas, which is carried on theCompany's books at $0, and an onshore rig-based well servicing contracting companyproviding service to the oil and gas industry. The corporate overhead includes theCompany's investment holdings including financing current operations and expansion of itscurrent holdings as well as evaluating the feasibility of entering into additionalbusinesses.

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

Consolidated revenues from external customers, net operating income(loss) for the nine months ended September 30, 2006 and 2005, and identifiable assets asof September 30, 2006 and 2005, were as follows:
**2006**2005
Revenues:
$
$
      Industrial/Commercial
13,806,143
9,602,273
   Oil    and gas
10,541,530
8,429,982
$
24,347,673
$
18,032,255
Operating income    (loss):
      Industrial/Commercial
$
(234,178)
$
(176,439)
   Oil    and gas
577,549
1,573,034
      Corporate
(2,163,720)
(1,049,647)
$
(1,820,349)
$
346,948
Identifiable    assets:
      Industrial/commercial
$
19,320,027
$
15,297,718
   Oil    and gas
6,168,142
7,340,394
      Corporate
15,283,022
12,268,668
$
40,771,191
$
34,906,780
The Company's areas of operations are in the United States.**************************************** |