Summary of AMERICAN INTERNATIONAL INDUSTRIES INC

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

Forward-Looking Statements; Market Data

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

Overview

American International Industries, Inc., organized under the laws of the State of Nevada in September 1994, is a diversified corporation with interests in industrial companies, oil and gas interests, oilfield supply and service companies, and interests in undeveloped real estate in the Galveston Bay, TX area. The Company's business strategy is to acquire controlling equity interests in undervalued companies and take an active role in its new subsidiaries to improve their growth, by providing its subsidiaries with access to capital, leveraging synergies and providing its subsidiaries with the Company's management expertise. The Company is sometimes referred to as "we", "us", "our", and other such phrases as provided in Regulation F-D (Fair Disclosure).

American International Industries, Inc. is a holding company and has three reporting segments and corporate overhead:

· Northeastern Plastics (NPI) - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
· Shumate Energy Technologies, Inc. (SET) - a wholly-owned subsidiary, manufactures highly specialized equipment for energy industry customers, including expandable tubing technology products that are used in field service operations for oil and gas exploration under extreme environmental conditions. SET manufactures large-diameter products and close tolerance machined parts that range up to thirty-four feet in length using state of the art, large part CNC equipment.
· Delta Seaboard Well Services (Delta) - a 51% owned subsidiary, is an onshore rig-based well-servicing contracting company providing services to the oil and gas industry;
· Corporate overhead - the Company's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses. Corporate overhead also includes Brenham Oil & Gas, a division that owns an oil, gas and mineral royalty interest in Washington County, Texas, which is carried on the Company's balance sheet at $0. Through Brenham Oil & Gas, the Company is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves. The Company is seeking to enter into arrangements with third-party owners and potential partners with proven oil and gas reserves, but who lack the financial resources and/or the technical expertise possessed by the Company, to assist them with the resources required to develop their reserves.

The historical financial statements of the Company include the acquisitions of acquired companies as of the effective dates of the purchases, and the results of those companies subsequent to closing, as these transactions were accounted for under the purchase method of accounting.

We intend to continue our efforts to grow through the acquisition of additional and complimentary businesses and by expanding the operations of our existing businesses, especially in the energy sector. We will evaluate whether additional and complimentary businesses can be acquired at reasonable terms and conditions, at attractive earnings multiples and which present opportunity for growth and profitability. These efforts will include the application of improved access to financing and management expertise afforded by synergistic relationships between the Company and its subsidiaries. Potential acquisitions are evaluated to determine that they would be accretive to earnings and equity, that the projected growth in earnings and cash flows are attainable and consistent with our expectations to yield desired returns to investors, and that management is capable of guiding the growth of operations, working in concert with others in the group to maximize opportunity. Periodically as opportunities present themselves, we may sell or merge the subsidiaries in order to bring value to the holding company and our shareholders and to enable the Company to acquire larger companies.

The Company's real estate investment policy historically has been to acquire real estate for resale based upon our view of market conditions. Such properties are listed on the balance sheet as real estate acquired for resale. Real estate is not a segment of the Company's business.

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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 Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008.

The following is derived from, and should be read in conjunction with, our unaudited consolidated financial statements, and related notes for the three months ended March 31, 2009 and 2008.

Net revenues. For the three months ended March 31, 2009, revenues from continuing operations were $6,195,014, compared to $3,510,905 for the three months ended March 31, 2008, representing an increase of $2,684,109, or 76%.

Delta reported revenues of $2,463,911 for the three months ended March 31, 2009, compared to 2,082,949 for the same period in 2008, representing an increase of $380,962, or 18%. The increase in revenues at Delta is due to an increase in pipe sales of $325,453 to the oil field service industry. Pipe sales revenues have increased due to increased drilling activity creating a greater demand for pipe.

The results of SET for the three months ended March 31, 2009 are included in our results of operations. For the period ended March 31, 2009, SET's revenues were $2,086,821, gross margin was 20%, and net operating income was $164,281.

Revenues at NPI during the three months ended March 31, 2009 were $1,644,282, compared to $1,427,956 for the three months ended March 31, 2008, representing an increase of $216,326, or 15%. During the three months ended March 31, 2008, NPI experienced a decline in revenues of 39%, compared to its revenues for the same period in 2007, due to an overstock position from the 2007 holiday season and the delay of a large order from the first quarter to the second quarter of 2008. NPI's revenues for the three months ended March 31, 2009 were 30% lower than its revenues for the same period in 2007, due to the decline in the economy. 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. NPI is highly reliant upon a small customer base, with approximately 52% 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.

Loss from operations. Our operating loss for the three months ended March 31, 2009 was $452,074, compared to the operating loss of $1,426,844 for the three months ended March 31, 2008, representing an improvement of $974,770, or 68%. The improvement was due to the increase in revenues and a decrease in selling, general and administration costs as a percentage of revenues to 43% for the three months ended March 31, 2009, compared to 80% for the same period in 2008.

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Total other income/expenses. Other income was $121,850 for the three months ended March 31, 2009, compared to other expenses of $1,189,519 for the three months ended March 31, 2008, representing an improvement of $1,311,369. Net realized/unrealized gains on trading securities were $13,874 for the three months ended March 31, 2009, compared to net losses of $1,331,966 for the three months ended March 31, 2008. The net unrealized losses on trading securities of $1,376,539 for the three months ended March 31, 2008, were due primarily to declines in the market values of our investments in OI Corporation and Rubicon Financial Incorporated of $1,191,080 (see note 2). For the three months ended March 31, 2009, American recognized other income in the amount of $195,146, of which $175,000 was for providing right-of-way access on the 287 acres in Galveston County. Interest expense was $218,608 for the three months ended March 31, 2009, compared to $113,030 for the three months ended March 31, 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 $193,139, or $0.02 per share, for the three months ended March 31, 2009, compared to a net loss of $2,382,253, or $0.33 per share, for the same period in 2008. We had a net loss from discontinued operations of $798,559, or $0.11 per share, for the three months ended March 31, 2008. Our net loss was $193,139, or $0.02 per share, for the three months ended March 31, 2009, compared to a net loss of $3,180,812, or $0.45 per share, for the three months ended March 31, 2008.

Liquidity and Capital Resources

Total assets/working capital. Total assets at March 31, 2009 were $34,482,164, compared to $35,977,944 at December 31, 2008, representing a decrease of $1,495,780. 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 $1,280,010. At March 31, 2009, consolidated working capital was $21,685,675, compared to working capital of $18,196,027 at December 31, 2008, representing an increase of $3,489,648, primarily due to the reclassification of debt from short-term to long-term.

Cash flow from operations. For the three months ended March 31, 2009, we had cash flow provided by operations of $370,015, compared to negative cash flow from operations of $898,388 during the same period in 2008. Our net loss of $193,139 for the three months ended March 31, 2009 included non-cash expenses of $334,807, including depreciation and amortization of $293,557 and share-based compensation of $41,250. Our net loss of $2,382,253 for the three months ended March 31, 2008 included non-cash expenses of $1,632,094, including depreciation and amortization of $115,722, share-based compensation of $139,833, and unrealized losses on trading securities of $1,376,539. Our inventories increased by $268,216 for the three months ended March 31, 2009, compared to an increase of $672,872 during the three months ended March 31, 2008. We decreased our investments in trading securities by $95,443 during the three months ended March 31, 2009, compared to an increase of $225,479 during the same period in 2008. Accounts receivable decreased by $353,624 during the three months ended March 31, 2009, compared to a decrease of $1,288,312 during the same period in 2008. Prepaid expenses decreased by $49,060, other assets decreased by $17,970, and accounts payable increased by $144,109 for the three months ended March 31, 2009. For the three months ended March 31, 2008, prepaid expenses decreased by $98,893, other assets decreased by $9,861, and accounts payable decreased by $61,340.

Cash flow from investing activities. Our investing activities used cash of $233,440 during the three month period ended March 31, 2009, as a result of a the issuance of a note receivable of $300,000 and loans to related parties of $241,200, offset by a net decrease in investments in certificates of deposit of $300,000. This is compared to cash provided by investing activities during the same period in the prior year in the amount of $1,438,590 during the three month period ended March 31, 2008, as a result of a net decrease in investments in certificates of deposit of $1,255,200 and proceeds from the sale of drilling rig equipment of $200,000.

Cash flow from financing activities. During the three months ended March 31, 2009, our financing activities used cash of $1,338,232 compared to cash provided of $297,844 during the same period in 2008. During the three month period ended March 31, 2009, we made payments of $1,283,122 on debt and purchased 33,032 shares of treasury stock at a cost of $41,237. During the 2008 period, we received net proceeds from line-of-credit agreements of $598,000. We made payments of $280,366 on debt and margin loans during the three month period ended March 31, 2008.

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Real estate. During the fourth quarter of 2008, American received a 1.705 acre tract of land in Galveston County appraised at $540,000 as a guarantor's fee. In connection with this fee, American has pledged $1,750,000 in certificates of deposit for a $4,000,000 loan to Dawn Condominiums L.P. at Texas Community Bank. As the principal of the loan is reduced, the bank will release portions of the pledged certificates of deposit until the loan is paid in full. This property is pledged as collateral for loans owed by Hammonds Industries, Inc. to Texas Community Bank. 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.