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 September 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  ̈
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 November 13, 2009, the Registrant had 8,825,615 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 - September 30, 2009 and December 31, 2008
4Unaudited Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2009 and 2008
5Unaudited Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2009 and 2008
6Notes to Unaudited Consolidated Financial Statements
8
















3


AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIESConsolidated Balance Sheets (Unaudited)September 30, 2009


December 31, 2008AssetsCurrent assets:Cash and cash equivalents

$
1,998,424


$
3,114,575Certificate of deposit


2,765,000



4,315,000Trading securities


707,627



718,442Accounts receivable, less allowance for doubtful accountsof $165,592 and $138,217, respectively


6,407,552



4,956,941Current portion of notes receivable


4,377,729



4,392,211Accounts and notes receivable from related parties


-



98,606Inventories


4,879,646



3,889,052Real estate held for sale


2,647,566



2,449,066Deposits for pipe inventory purchases


1,174,361



2,221,932Prepaid expenses and other current assets


294,758



205,096Total current assets


25,252,663



26,360,921Long-term notes receivable, less current portion


68,558



95,522Property and equipment, net of accumulated depreciation and amortization


7,295,161



7,769,833Goodwill


674,539



674,539Intangible assets, net of amortization


638,060



717,817Other assets


160,000



359,312Total assets

$
34,088,981


$
35,977,944Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable and accrued expenses

$
3,607,049


$
2,395,721Short-term notes payable


180,633



1,213,332Accounts and notes payable to related parties


66,300



-Current installments of long-term capital lease obligations


79,112



71,680Current installments of long-term debt


6,200,560



4,484,161Total current liabilities


10,133,654



8,164,894Long-term debt, less current installments


7,909,358



9,653,598Long-term capital lease obligations, less current installments


106,524



166,762Total liabilities


18,149,536



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:9,133,771 and 8,738,771 shares issued, respectively8,834,415 and 8,676,461 shares outstanding, respectively


9,133



8,739Additional paid-in capital


33,499,724



33,063,687Accumulated deficit


(18,868,787
)


(16,911,758
)Less treasury stock, at cost299,356 and 62,310 shares, respectively


(478,884
)


(253,551
)Total American International Industries, Inc. equity


14,161,186



15,907,117Noncontrolling interest


1,778,259



2,085,573Total equity


15,939,445



17,992,690Total liabilities and equity

$
34,088,981


$
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


Nine Months EndedSeptember 30, 2009


September 30, 2008


September 30, 2009


September 30, 2008Revenues

$
8,509,019


$
11,830,033


$
20,936,148


$
22,416,228Costs and expenses:Cost of sales


6,239,214



7,536,375



14,237,738



13,943,782Selling, general and administrative


3,250,212



3,032,608



8,649,914



8,271,535Total operating expenses


9,489,426



10,568,983



22,887,652



22,215,317Operating profit (loss)


(980,407
)


1,261,050



(1,951,504
)


200,911Other income (expenses):Interest and dividend income


82,904



162,676



325,479



496,009Delta lawsuit settlement


-



-



-



(1,450,000
)Realized gains (losses) on the sale of trading securities


191,740



8,414



(157,491
)


79,553Unrealized gains (losses) on trading securities


8,642



(1,578,551
)


407,516



(4,232,221
)Interest expense


(222,985
)


(176,140
)


(705,264
)


(586,632
)Texas Emissions Reduction Plan Grant


-



-



-



57,589Gain on property dividend distribution


-



-



-



2,945,133Other income


7,187



53,084



205,534



79,187Total other income (expense)


67,488



(1,530,517
)


75,774



(2,611,382
)Loss before income tax


(912,919
)


(269,467
)


(1,875,730
)


(2,410,471
)Income tax expense (benefit)


13,383



43,951



38,613



(30,489
)Loss from continuing operations, net of income taxes


(926,302
)


(313,418
)


(1,914,343
)


(2,379,982
)Loss from discontinued operations, net of income taxes


-



(995,348
)


(350,000
)


(2,471,957
)Net loss


(926,302
)


(1,308,766
)


(2,264,343
)


(4,851,939
)Net income (loss) attributable to the noncontrolling interest


14,660



(728,535
)


307,314



(189,909
)Net loss attributable to American International Industries, Inc.

$
(911,642
)

$
(2,037,301
)

$
(1,957,029
)

$
(5,041,848
)Net loss per common share - basic and diluted:Continuing operations

$
(0.10
)

$
(0.12
)

$
(0.19
)

$
(0.34
)Discontinued operations

$
-


$
(0.12
)

$
(0.04
)

$
(0.33
)Total

$
(0.10
)

$
(0.24
)

$
(0.23
)

$
(0.67
)Weighted average common shares - basic and diluted


8,763,043



8,384,417



8,661,263



7,546,963The 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)
 Nine Months Ended September 30,2009


2008Cash flows from operating activities:Net loss

$
(2,264,343
)

$
(4,851,939
)Loss from discontinued operations


(350,000
)


(2,471,957
)Loss from continuing operations


(1,914,343
)


(2,379,982
)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


885,942



360,958Share-based compensation


436,430



633,064Realized (gains) losses on the sale of trading securities


157,491



(79,553
)Unrealized (gains) losses on trading securities


(407,516
)


4,232,221Texas Emissions Reduction Plan Grant


-



(57,589
)Change in operating assets and liabilities:Accounts receivable


(1,464,111
)


(4,411,164
)Trading securities


300,840



14,042Inventories


56,977



467,281Deposits for pipe inventory purchases


-



(1,748,601
)Prepaid expenses and other current assets


(89,662
)


(158,956
)Other assets


27,519



(7,295
)Accounts payable and accrued expenses


1,211,328



2,908,846Net
cash used in operating activities from continuing operations


(799,105
)


(1,721,861
)Cash flows from investing activities from continuing operations:Purchase of property and equipment


(159,720
)


(171,547
)Proceeds from sale of drilling rigs


-



200,000Investment in rigs held for sale


-



(14,123
)Redemption of certificate of deposit


4,000,000



5,795,421Investment in certificate of deposit


(2,450,000
)


(4,575,421
)Issuance of note receivable


(300,000
)


(432,424
)Proceeds from notes receivable


116,446



144,937Loans from (to) related parties


164,906



(1,606
)Net
cash provided by investing activities from continuing operations


1,371,632



945,237Cash flows from financing activities from continuing operations:Principal payments under capital lease obligations


(52,805
)


-Proceeds from issuance of debt


283,851



3,567,663Payments on margin loans


-



(124,312
)Capital contributions from noncontrolling interest


-



449,473Dividend distribution to Delta's noncontrolling interest owners


-



(235,200
)Net borrowings under lines of credit agreements and short-term notes


568,479



1,045,000Principal payments on debt


(1,912,871
)


(2,672,901
)Payments for acquisition of treasury stock


(225,332
)


(19,790
)Net
cash provided by (used in) financing activities from continuing operations


(1,338,678
)


2,009,933
 Back to Table of Contents
 6
 Nine Months Ended September 30,2009


2008Net increase (decrease) in cash and cash equivalents from continuing operations

$
(766,151
)

$
1,233,309Net 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

$
1,998,424


$
3,527,104Discontinued operations:Net cash used in operating activities

$
-


$
(1,587,101
)Net cash used in investing activities


-



(272,220
)Net cash provided by financing activities


-



365,617Net decrease in cash and cash equivalents from discontinued operations


-



(1,493,704
)Cash and cash equivalents at beginning of period from discontinued operations


-



1,597,361Cash and cash equivalents at end of period from discontinued operations

$
-


$
103,657Supplemental schedule of cash flow information:Interest paid

$
706,212


$
503,220Taxes paid

$
-


$
56,527Non-cash transactions from continuing operations:Real property received in foreclosure on note receivable

$
198,500


$
-Trading securities received in foreclosure on note receivable

$
40,000


$Accrued property dividend payable

$
-


$
654,364Stock dividend

$
-


$
1,431Non-cash transactions from discontinued operations:Acquisition of fixed assets under capital lease obligations

$
-


$
203,516Accrued debt discount for common shares of subsidiary to be issued

$
-


$
29,000The 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, 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. ("NPI") and Shumate Energy Technologies, Inc. ("SET"), and its majority owned subsidiary, Delta Seaboard Well Service, Inc. ("Delta").  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 Loss Per Share
 The basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted net loss per common share is computed by dividing the net 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 nine months ended September 30, 2009 and 2008, potential dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net 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 September 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 September 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

$
707,627


$
707,627


$
707,627


$
-


$
-
 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 (ASC 810 Consolidation) 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 nine months ended September 30, 2008,
respectively, loss from continuing operations, net of income taxes increased by $728,535 and $189,909 and net losses attributable to the noncontrolling interest increased by $728,535 and $189,909.
 Back to Table of Contents
 9
 In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168” or ASC 105-10). SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles
recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009, and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact American’s results of operations or financial condition.  The Codification did not change GAAP; however, it
did change the way GAAP is organized and presented. As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. American implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
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.
 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 nine months ended September 30, 2009 and 2008, American had unrealized trading gains of $407,516 and losses of $4,232,221, respectively, related to securities held on those dates.  The unrealized losses for the nine months ended September 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 $3,349,510. 
At September 30, 2009 and December 31, 2008, our investment in shares of RBCF common stock, classified as trading securities on the balance sheet, was valued at $139,607, or $0.13 per share, and $311,670, or $0.30 per share, respectively, based upon the closing market prices on those dates, respectively.  American recorded realized losses of $157,491 and realized gains of $79,553 for the nine months ended September 30, 2009 and 2008, respectively.
 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
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 10
 The $744,403 of acquired intangible assets includes $729,000 assigned to Computer Numerical Control ("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 statements of operations from October 8, 2008 through September 30, 2009.
 
 Note 4 - Inventory and Deposits for Pipe Inventory Purchases
  Inventories consisted of the following:
  September 30, 2009


December 31, 2008Work in process

$
285,467


$
549,954Finished goods


4,689,397



3,434,361Less reserve


(95,218
)


(95,263
)$
4,879,646


$
3,889,052
  Periodically, American enters into agreements to purchase pipe inventory from vendors.  At September 30, 2009 and December 31, 2008, American had cash deposits of $1,174,361 and $2,221,932, respectively, for inventory purchases under these agreements that had not been received.





Note 5 - Real Estate Transactions
 During the third quarter of 2009, American foreclosed on real property which was security for a note receivable owed to American, which was in default.  American is carrying this property on the balance sheet for $198,500, which represents the portion of the principal and accrued interest allocated to the property received
at the time of default, see Note 6. On October 28, 2009, American entered into a settlement with the purchaser of this property.  The title company involved in the purchase transaction will pay $150,000 on or about November 18, 2009 in exchange for American's deed of trust for the property.  Upon receipt of the $150,000, American will remove the property from its balance sheet and create a receivable for the difference of $48,500.  This receivable is secured by real property from the original $225,000
note receivable.
 
 During the third quarter of 2009, and in connection with the guarantor’s fee described below, American has pledged $250,000 in certificates of deposit for a $3,850,000 loan to Southwest Gulf Coast Properties, Inc. at Texas Community Bank.  Additionally, this loan is secured by American's 287 acres on Dickinson Bayou
and the Dawn Condominiums with an appraised value of over $3,900,000.
 
 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. During the third quarter of 2009,
the principal balance of the loan was repaid and the bank released the pledged certificates of deposit to American.
  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 also owns 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:
 September 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


104,201



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


19,979



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)


-



225,000Unsecured note receivable purchased from Texas Community Bank, interest at 8% due monthly, principal due January 2009 (e)


300,000



-Notes receivable


4,446,287



4,487,733Less current portion


(4,377,729
)


(4,392,211
)Long-term notes receivable

$
68,558


$
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 September 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 September 30, 2009.
 (c) Unsecured notes receivable due April 30 and December 31, 2008.  These delinquent notes were due from Hammonds Industries, Inc. ("Hammonds").  The assets of the Hammonds' companies were sold on April 16, 2009 (see note 19).  On August 13, 2009, Hammonds, American,
Delta, and the noncontrolling 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.  American anticipates closing on this transaction by December 31, 2009.
  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 $40,000, or $0.02 per share. As of November 4, 2009, American has sold all of these shares on the open market for $25,411. On August 5, 2009, American foreclosed on real property valued at $376,000 by the Galveston County Appraisal District.  American is carrying this property on the balance sheet for $198,500, which represents the portion of the principal and accrued interest allocated to the property received at the time of default. On October 28,
2009, American entered into a settlement with the purchaser of this property.  The title company involved in the purchase transaction will pay $150,000 on or about November 18, 2009 in exchange for American's deed of trust for the property.  Upon receipt of the $150,000, American will remove the property from its balance sheet and create a receivable for the difference of $48,500.  This receivable is secured by real property from the original $225,000 note receivable. Back to Table of Contents
 12
 (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 nine months ended September 30, 2009 and 2008, American recognized interest income of $44,804, $52,387, $180,436, and $216,014, respectively.
  Note 7 - Property and Equipment
  Major classes of property and equipment together with their estimated useful lives, consisted of the following:
  Years

September 30, 2009


December 31, 2008Land


$
892,945


$
892,945Building and improvements
20


1,003,361



933,200Machinery and equipment
7-15


7,640,388



7,386,789Office equipment and furniture
7


388,193



384,893Automobiles
5


771,712



768,15110,696,599



10,365,978Less accumulated depreciation and amortization



(3,401,438
)


(2,596,145
)Net property and equipment


$
7,295,161


$
7,769,833
 
 During the nine months ended September 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:
  September 30, 2009Machinery and equipment

$
301,000Less accumulated depreciation and amortization


(30,100
)Net property and equipment

$
270,900
 Principal repayment provisions of this long-term capital lease are as follows at September 30, 2009:
  2009

$
18,8742010


81,7582011


85,004Total

$
185,636
 Back to Table of Contents
 13
 Note 8 - Intangible Assets
  Intangible assets at September 30, 2009 consisted of the following:
  Gross Carrying Amount


Accumulated Amortization



Intangibles, net

Average Weighted LivesGoodwill









$
674,539

N/ACNC Programs

$
729,000


$
104,143


$
624,857

7 yearsName and logo


15,403



2,200



13,203

7 yearsIntangible assets

$
744,403


$
106,343


$
638,060

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 nine months ended September 30, 2009 and 2008 was $26,586, $0, $79,757, and $0, respectively.
 
 Note 9 - Short-term Notes Payable
  September 30, 2009


December 31, 2008Delta lawsuit settlement with no interest,  principal due in monthly payments of $25,000 through August 1, 2009

$
-


$
175,000Insurance note payable with interest at 4.99%, principal and interest due in monthly payments of $25,805 through May 1, 2010


180,633



-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$
180,633


$
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 September 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:
  September 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 SET.

$
4,861,362


$
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



1,000,000Revolving line of credit 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. (b)


1,369,907



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 SET.


356,765



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.


483,694



514,165Note payable to a bank, which allows NPI to borrow up to $5,000,000, interest due monthly at the prime rate, principal balance due July 31, 2010, secured by assets of NPI. (d)


1,965,000



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. (c)


808,256



-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.


189,530



226,929Other secured notes with various terms


65,904



89,97214,109,918



14,137,759Less current portion


(6,200,560
)


(4,484,161
)$
7,909,358


$
9,653,598
 On October 30, 2009, NPI received a notice that it is in technical default of the fixed charge coverage ratio covenant on its line of credit with Wachovia.  The principal balance of this note is due July 31, 2010. NPI is not in payment default and has been current with all of its debt and interest payments since
the inception of the line of credit.  The interest rate on NPI’s line of credit will increase from prime to prime plus 3% and NPI will be required to submit financial statements and a borrowing base certificate to the bank on a monthly rather than quarterly basis, as was previously required.  Wells Fargo acquired Wachovia and due to the bank’s new policies, the special assets management lending group requested that the asset based lending group review NPI for a new loan.  This
group declined the loan and the bank has recommended another lender.  NPI is negotiating a new line of credit with another financial institution and management is confident that new financing in support of NPI’s business will be obtained. At September 30, 2009, NPI’s line of credit balance was $1,965,000 and as of this filing, the balance has been reduced by $470,000 to $1,495,000.  NPI’s current assets at September 30, 2009 were $6,606,233, and included $3,633,821 and $2,685,384
in accounts receivable and inventory, respectively.
 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 September 30, 2009:
  2009

$
1,140,5342010


5,705,9222011


2,168,3432012


598,1242013


4,219,255Thereafter


277,740Total

$
14,109,918
  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 nine months ended September 30, 2009.
    American estimated 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 September 30, 2009 is presented below:
  Shares


Weighted Average Exercise Price
September 30, 2009Outstanding at beginning of period


414,720


$
4.86Granted


-



N/AExercised


-



N/ACanceled / Expired


(207,360
)


4.86Outstanding 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 September 30, 2009:
 Exercise Price


Number Outstanding and Exercisable
at September 30, 2009$
4.86



207,360
  Stock-based compensation consists of the following:
  Nine Months Ended September 30,2009


2008Common shares issued for services

$
436,430


$
545,001Stock options issued for services


-



88,063Stock-based compensation

$
436,430


$
633,064
 
 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 September 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 $3.2 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 nine months ended September
30, 2009, American had one customer that accounted for 37% of trade accounts receivable and 22% of revenues on a consolidated basis.  Additionally, American had one other customer that accounted for 20% of revenues on a consolidated basis.
 Note 13 - Texas Emissions Reduction Plan Grant
  Delta 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 nine months ended September 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 14 below.


Back to Table of Contents
 17
 Note 14 - Income Taxes
 The provision for income taxes consists of the following:
  Nine Months Ended


Nine Months EndedSeptember 30, 2009


September 30, 2008Current taxes

$
(2,006,212
)

$
(94,118
)Deferred tax benefit


2,006,212



105,059Benefits of operating loss carryforwards


-



-Current Federal Taxes


-



10,941Refund due Delta for 2005 overpayment of Federal Taxes


-



(93,616
)Prior year taxes paid


-



15,289Texas Margin Tax - actual vs. estimate for prior year


(2,600
)


(9,954
)Texas Margin Tax - current year estimate


41,213



46,851Income tax expense (benefit)

$
38,613


$
(30,489
)
 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 $154,247 and
 - the valuation allowance for deferred tax assets increased by $4,828,288.
  The following table sets forth a reconciliation of statutory income taxes:
 Three Months Ended September 30,



Nine Months Ended September 30,2009


2008



2009


2008Net loss before taxes

$
(912,919
)

$
(296,467
)

$
(1,875,730
)
$
(2,410,471
)Income tax benefit computed at statutory rate

$
(310,392
)

$
(326,816
)

$
(756,748
)
$
(883,926
)Permanent differences


30,383



259,755



(34,040
)

112,605Net effects of temporary differences


-



-



-


105,059Effect of federal graduated rates


280,009



428,521



790,788


2,171,939Tax credits


-



(36,622
)


-


(736,731
)Increase in valuation allowance


-



(313,897
)


-


(758,005
)Refund due Delta Seaboard Well Service, Inc. for 2005 overpayment of Federal Taxes


-



-



-


(93,616
)Texas Margin - prior year payments and estimate adjustments


(2,600
)


8,928



(2,600
)

5,335Texas Margin Tax - current year estimate


15,983



24,082



41,213


46,851Income tax expense (benefit)

$
13,383


$
43,951


$
38,613

$
(30,489
)
 
 Operating LossesAmount

Expires$
$1,761,086

2013$
$1,462,959

2014$
$2,086,064

2015$
$860,006

2017$
$566,409

2018$
$1,028,302

2019$
$1,551,019

2020$
$73,187

2021$
$288,855

2022$
$3,626,977

2023$
$4,874,010

2024
 Back to Table of Contents
 18
 Note 15 - Loss Per Share
 Basic loss per share is calculated on the basis of the weighted average number of common shares outstanding. Diluted loss per share, in addition to the weighted average determined for basic loss per share, includes common stock equivalents, which would arise from the conversion of the preferred stock to common shares.
 Three Months Ended September 30,



Nine Months Ended September 30,2009


2008



2009


2008Basic loss per share:Loss from continuing operations, net of income taxes

$
(926,302
)

$
(313,418
)

$
(1,914,343
)
$
(2,379,982
)Loss from discontinued operations, net of income taxes


-



(995,348
)


(350,000
)

(2,471,957
)Net loss


(926,302
)


(1,308,766
)


(2,264,343
)

(4,851,939
)Net income (loss) attributable to the noncontrolling interest


14,660



(728,535
)


307,314


(189,909
)Net loss attributable to American International Industries, Inc.

$
(911,642
)

$
(2,037,301
)

$
(1,957,029
)
$
(5,041,848
)Weighted average common shares outstanding - basic and diluted


8,763,043



8,384,417



8,661,263


7,546,963Net loss per share - basic and diluted:Continuing operations

$
(0.10
)

$
(0.12
)

$
(0.19
)
$
(0.34
)Discontinued operations

$
-


$
(0.12
)

$
(0.04
)
$
(0.33
)Total

$
(0.10
)

$
(0.24
)

$
(0.23
)
$
(0.67
)
 Note 16 - 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, 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 American'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 American.
 On July 23, 2008, Delta, 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 noncontrolling 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.
 
 Delta is a co-defendant in a personal injury lawsuit, Karen Duke and as next friend of her minor son, George Duke v. Delta Seaboard Well Service, Inc. and Jimmy Newcomb. This lawsuit arises out of a motor vehicle accident that occurred on July 31, 2006. The plaintiffs
are claiming an unspecified amount of claimed actual and consequential economic damages (for medical expenses and lost wages / diminished earnings capacity), plus an unspecified amount of claimed damages for their alleged “pain & suffering.” This case went to trial and the jury rendered a verdict on September 17, 2009, awarding the plaintiff $263,410 plus court costs in damages. The attorneys for Delta’s insurance company have filed a motion to disregard certain jury findings and for a judgment
notwithstanding the verdict, on the basis that there is no evidence to support the jury’s findings that Delta was negligent or to support the jury’s damage awards. In the event that this motion is denied, the attorneys plan a motion for a new trial. The attorneys believe that there will be an opportunity to enter into a settlement agreement. Delta has liability insurance policy with applicable policy limits of $1,000,000. Management believes that Delta has a more than adequate amount of available
liability insurance coverage to fund any settlement that might be reached in this case, or to respond to any judgment that might be entered. Delta intends to vigorously defend this case, unless some reasonable settlement can be reached before then. An evaluation of the outcome of this case cannot be made at this time. Delta expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
 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 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 September 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 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

$
124,2762010


447,8662011


395,6122012


306,8242013


221,000Total

$
1,495,578
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 20
 Note 17 - 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 Service (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 September 30,


Nine Months ended September 30,2009


2008


2009


2008Revenues:Northeastern Plastics

$
4,123,329


$
5,160,059


$
7,761,016


$
8,493,456Shumate Energy Technologies


2,234,510



-



6,228,827



-Delta Seaboard


2,151,180



6,669,974



6,946,305



13,922,772Total revenues

$
8,509,019


$
11,830,033


$
20,936,148


$
22,416,228Operating income (loss) from continuing operations:Northeastern Plastics

$
194,632


$
311,368


$
131,204


$
66,765Shumate Energy Technologies


(109,367
)


-



130,908



-Delta Seaboard


40,994



1,606,713



(333,299
)


2,006,489Corporate


(1,106,666
)


(657,031
)


(1,880,317
)


(2,274,165
)Operating profit (loss) from continuing operations


(980,407
)


1,261,050



(1,951,504
)


200,911Other income (expenses) from continuing operations


67,488



(1,530,517
)


75,774



(2,611,382
)Net loss from continuing operations before income tax

$
(912,919
)

$
(269,467
)

$
(1,875,730
)

$
(2,410,471
)September 30, 2009



December 31, 2008Identifiable assets:Northeastern Plastics









$
8,172,725


$
5,836,635Shumate Energy Technologies










5,830,834



6,871,304Delta Seaboard










6,856,064



7,771,609Corporate










13,229,358



15,498,396Total identifiable assets









$
34,088,981


$
35,977,944
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 21
 Three months ended September 30,


Nine Months ended September 30,2009


2008


2009


2008Depreciation and amortization:Northeastern Plastics

$
15,755


$
16,780


$
47,065


$
49,086Shumate Energy Technologies


163,231



-



489,599



-Delta Seaboard


113,250



103,266



342,456



301,602Corporate


2,221



3,513



6,822



10,270Depreciation and amortization from continuing operations


294,457



123,559



885,942



360,958Depreciation and amortization from discontinued operations


-



233,638



-



687,874Total depreciation and amortization

$
294,457


$
357,197


$
885,942


$
1,048,832Capital expenditures:Northeastern Plastics

$
-


$
190


$
1,209


$
26,148Shumate Energy Technologies


2,219



-



3,847



-Delta Seaboard


24,403



28,619



117,844



143,123Corporate


(723
)


544



36,819



2,276Capital expenditures for continuing operations


25,899



29,353



159,720



171,547Capital expenditures for discontinued operations


-



51,508



-



229,250Total capital expenditures

$
25,899


$
80,861


$
159,720


$
400,797
  Note 18 - 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.
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 22
 
 Note 19 - 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
September 30, 2008


Nine Months Ended
September 30, 2008Loss from continuing operations, net of income taxes

$
(313,418
)

$
(2,379,982
)Loss from discontinued operations, net of income taxes


(995,348
)


(2,471,957
)Net loss


(1,308,766
)


(4,851,939
)Net loss attributable to the noncontrolling interest


(728,535
)


(189,909
)Net loss attributable to American International Industries, Inc.

$
(2,037,301
)

$
(5,041,848
)Weighted average common shares outstanding - basic and diluted


8,384,417



7,546,963Net loss per share - basic and diluted:Continuing operations

$
(0.12
)

$
(0.34
)Discontinued operations

$
(0.12
)

$
(0.33
)Total

$
(0.24
)

$
(0.67
)


Three Months Ended
September 30, 2008


Nine Months Ended
September 30, 2008Revenues

$
1,802,229


$
6,428,157Loss before income tax

$
(994,421
)

$
(2,491,944
)
  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 nine months ended September 30, 2009.  American was relieved of its $1,000,000 guarantee of Hammonds’ debt.
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 23
 Note 20 - Subsequent Events
  repurchase 8,800 shares of its common stock.
    On October 30, 2009, NPI received a notice that it is in technical default of the fixed charge coverage ratio covenant on its line of credit with Wachovia as discussed in Note 10.
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 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 Service (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.
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 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 Nine Months Ended September 30, 2009 Compared to Three and Nine Months Ended September 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 nine months ended September 30, 2009 and 2008.


Net revenues. For the three months ended September 30, 2009, revenues from continuing operations were $8,509,019, compared to $11,830,033 for the three months ended September 30, 2008,
representing a decrease of $3,321,014, or 28%.  Revenues from continuing operations were $20,936,148 for the nine months ended September 30, 2009, compared to $22,416,228 for the nine months ended September 30, 2008, representing a decrease of $1,480,080, or 7%.




Delta reported revenues of $2,151,180 for the three months ended September 30, 2009, compared to $6,669,974 for the same period in 2008, representing a decrease of $4,518,794, or 68%. For the nine months ended September 30, 2009, Delta's revenues were $6,946,305, compared to $13,922,772 for the nine months ended
September 30, 2008, representing a decrease of $6,976,467, or 50%.  The decrease in revenues at Delta is due to a decrease in pipe sales for the three and nine months of $4,346,732 and $7,123,501, 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.




The results of SET for the three and nine months ended September 30, 2009 are included in our results of operations. SET began operations on October 8, 2008.  For the three and nine months ended September 30, 2009, SET's revenues were $2,234,510 and $6,228,827, respectively. For the three and nine months
ended September 30, 2009, SET's net operating loss was $109,367 and net operating income was $130,908, respectively.




Revenues at NPI during the three months ended September 30, 2009 were $4,123,329, compared to $5,160,059 for the three months ended September 30, 2008, representing a decrease of $1,036,730, or 20%.  NPI's revenues were $7,761,016
for the nine months ended September 30, 2009, compared to $8,493,456 for the nine months ended September 30, 2008, representing a decrease of $732,440, or 9%.  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 60% 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.


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 26
 Income / loss from operations.Our operating loss for the three months ended September 30, 2009 was $980,407, compared to operating income of $1,261,050 for the three
months ended September 30, 2008.  Our operating loss for the nine months ended September 30, 2009 was $1,951,504, compared to the operating income of $200,911 for the nine months ended September 30, 2008.  For the nine months ended September 30, 2009, selling, general and administration costs increased as a percentage of revenues to 41%, compared to 37% for the same period in 2008.  Additionally, margins declined to 32% for the nine months ended September 30,
2009, compared to 38% 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 income was $67,488 for the three months ended September 30, 2009, compared to other expense of $1,530,517 for the three months ended September 30, 2008.  Other income was $75,774 for the nine months ended September
30, 2009, compared to other expense of $2,611,382 for the nine months ended September 30, 2008.  Net realized/unrealized gains on trading securities were $200,382 for the three months ended September 30, 2009, compared to net losses of $1,570,137 for the three months ended September 30, 2008.  Net realized/unrealized gains on trading securities were $250,025 for the nine months ended September 30, 2009,
compared to net losses of $4,152,668 for the nine months ended September 30, 2008.The net unrealized losses on trading securities of $4,232,221 for the nine months ended September 30, 2008, were due primarily to the decline in the market value of our investment in Rubicon Financial Incorporated of $3,349,510 (see note 2).  Other expense for the nine months ended September 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 18) and the recognition of $1,450,000 for the Delta lawsuit settlement (see note 16).  After noncontrolling interest, the net impact of this settlement on our net income was $739,500.   For the nine months ended September 30, 2009, American recognized other income in the amount of $205,534, of which $175,000 was for providing right-of-way access on the 287 acres in Galveston County.  Interest
expense was $705,264 for the nine months ended September 30, 2009, compared to $586,632 for the nine months ended September 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 $926,302 for the three months ended September 30, 2009, compared to a net loss of $313,418 for the same period in 2008. We
had a net loss from discontinued operations of $995,348, or $0.12 per share for the three months ended September 30, 2008. Our net loss was $911,642, or $0.10 per share, for the three months ended September 30, 2009, compared to a net loss of $2,037,301, or $0.12 per share, for the three months ended September 30, 2008.  We had a net loss from continuing operations of $1,914,343 for the nine
months ended September 30, 2009, compared to a net loss of $2,379,982 for the same period in 2008.  We had a net loss from discontinued operations of $350,000, or $0.04 per share, for the nine months ended September 30, 2009, compared to a net loss of $2,471,957, or $0.33 per share, for the same period in 2008.Our net loss was $1,957,029,
or $0.23 per share, for the nine months ended September 30, 2009, compared to a net loss of $5,041,848, or $0.67 per share, for the nine months ended September 30, 2008.





Liquidity and Capital Resources




Total assets/working capital.Total assets at September 30, 2009 were $34,088,981, compared to $35,977,944 at December 31, 2008, representing a decrease of $1,888,963.  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 $1,344,392 and to pay for operating expenses.  At September 30, 2009, our working capital surplus was $15,119,009, compared to a working capital surplus of $18,196,027 at December 31, 2008, representing a decrease in working capital of $3,077,018.  Delta's and NPI's lines of credit with their banks of $1,369,907 and $1,965,000, respectively,
were reclassified from long-term to current during the period.  These lines of credit have historically been renewed prior to the due date for a period of 18 to 24 months.




Cash flow from operations.For the nine months ended September 30, 2009, cash flow used in operations was $799,105, compared to cash flow used in operations of $1,721,861 during the same period in 2008.  Our net loss of $1,914,343 for
the nine months ended September 30, 2009 included non-cash expenses of $1,322,372, including depreciation and amortization of $885,942 and share-based compensation of $436,430.  Our net loss of $2,379,982 for the nine months ended September 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 18) and non-cash expenses of $6,676,243, including
unrealized losses on trading securities of $4,232,221, recognition of $1,450,000 for the Delta lawsuit settlement (see note 16), depreciation and amortization of $360,958, share-based compensation of $633,064.  Our inventories decreased by $56,977 for the nine months ended September 30, 2009, compared to a decrease of $467,281 during the nine months ended September 30, 2008.  We decreased our investments in trading securities by $300,840 during the nine months ended September
30, 2009, compared to a decrease of $14,042 during the same period in 2008.  Accounts receivable increased by $1,464,111 during the nine months ended September 30, 2009, compared to an increase of $4,411,164 during the same period in 2008.  Prepaid expenses increased by $89,662, other assets decreased by $27,519, and accounts payable increased by $1,211,328 for the nine months ended September 30, 2009.  For the nine months ended September 30, 2008, prepaid expenses increased
by $158,956, deposits for pipe inventory purchases increased by $1,748,601, other assets increase by $7,295, and accounts payable increased by $2,908,846.


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 27


Cash flow from investing activities.Our investing activities provided cash of $1,371,632 during the nine month period ended September 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.  This is compared to cash provided by investing activities during the same period in the prior year in the amount of $945,237, as a result of a net decrease in investments in certificates of deposit of $1,220,000 and proceeds from the sale of drilling rig equipment of $200,000, offset by the issuance of notes for $432,424 and the purchase of property and equipment of $171,547.





Cash flow from financing activities.During the nine months ended September 30, 2009, our financing activities used cash of $1,338,678 compared to cash provided of $2,009,933 during the same period in 2008.  During the nine month period ended September 30, 2009, we received net proceeds
from the issuance of debt of $283,851 and from line-of-credit agreements of $568,479.  We made payments of $1,912,871 on debt, and purchased 237,046 shares of treasury stock at a cost of $225,332. During the 2008 period, we received net proceeds from the issuance of debt of $3,567,663 and from line-of-credit
agreements of $1,045,000. We made payments of $2,797,213 on debt and margin loans during the nine month period ended September 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.  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.





NPI's line of credit. On October 30, 2009, NPI received a notice that it is in technical default of the fixed charge coverage ratio covenant on its line of credit with Wachovia.  The principal balance of this note is due July 31, 2010. NPI is not in payment default and has been current with all of
its debt and interest payments since the inception of the line of credit.  The interest rate on NPI’s line of credit will increase from prime to prime plus 3% and NPI will be required to submit financial statements and a borrowing base certificate to the bank on a monthly rather than quarterly basis, as was previously required.  Wells Fargo acquired Wachovia and due to the bank’s new policies, the special assets management lending group requested that the asset based lending group
review NPI for a new loan.  This group declined the loan and the bank has recommended another lender.  NPI is negotiating a new line of credit with another financial institution and management is confident that new financing in support of NPI’s business will be obtained. NPI has a consistent and growing base of business with large seasonal sales received in the third and fourth quarters.  Historically, during this period every year, NPI receives a large order from its primary
customer and briefly exceeds its borrowing base to make the inventory purchases necessary to fill that order.  For the past 10 years, this has not been a problem and NPI's representative at the bank has always been willing to work with NPI.  At September 30, 2009, NPI’s line of credit balance was $1,965,000 and as of this filing, the balance has been reduced by $470,000 to $1,495,000.  NPI’s current assets at September 30, 2009 were $6,606,233, and included $3,633,821
and $2,685,384 in accounts receivable and inventory, respectively.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
    ITEM 4T. CONTROLS AND PROCEDURES
  Evaluation of disclosure controls and procedures.As of September 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.
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 PART II - OTHER INFORMATION
  ITEM 1. LEGAL PROCEEDINGS
  Delta is a co-defendant in a personal injury lawsuit, Karen Duke and as next friend of her minor son, George Duke v. Delta Seaboard Well Service, Inc. and Jimmy Newcomb. This lawsuit arises out of a motor vehicle accident that occurred on July 31, 2006. The plaintiffs are claiming
an unspecified amount of claimed actual and consequential economic damages (for medical expenses and lost wages / diminished earnings capacity), plus an unspecified amount of claimed damages for their alleged “pain & suffering.” This case went to trial and the jury rendered a verdict on September 17, 2009, awarding the plaintiff $263,410 plus court costs in damages. The attorneys for Delta’s insurance company have filed a motion to disregard certain jury findings and for a judgment notwithstanding
the verdict, on the basis that there is no evidence to support the jury’s findings that Delta was negligent or to support the jury’s damage awards. In the event that this motion is denied, the attorneys plan a motion for a new trial. The attorneys believe that there will be an opportunity to enter into a settlement agreement. Delta has liability insurance policy with applicable policy limits of $1,000,000. Management believes that Delta has a more than adequate amount of available liability insurance
coverage to fund any settlement that might be reached in this case, or to respond to any judgment that might be entered. Delta intends to vigorously defend this case, unless some reasonable settlement can be reached before then. An evaluation of the outcome of this case cannot be made at this time. Delta expects to prevail in these matters and has not recorded any liabilities in connection with this lawsuit.
 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.


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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:  November 13, 2009






/s/ SHERRY L. COUTURIER


CHIEF FINANCIAL OFFICER


Dated:  November 13, 2009