American International Industries (AMIN) 10-Q 2010 Q1 Quarterly report

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 March 31, 2010

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨ 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 ¨No x

At May 17, 2010, the Registrant had 10,025,069 shares of common stock outstanding.

TABLE OF CONTENTS

Item	Description	Page
	PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS	22
ITEM 4.	CONTROLS AND PROCEDURES	22
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	23
ITEM 1A.	RISK FACTORS	23
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
ITEM 3.	DEFAULT UPON SENIOR SECURITIES	23
ITEM 4.	SUBMISSION OF MATERS TO A VOTE OF SECURITY HOLDERS	23
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS	23

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Financial Statements
Unaudited Consolidated Balance Sheets - March 31, 2010 and December 31, 2009	4
Unaudited Consolidated Statements of Operations - Three Months Ended March 31, 2010 and 2009	5
Unaudited Consolidated Statements of Cash Flows - Three Months Ended March 31, 2010 and 2009	6
Notes to Unaudited Consolidated Financial Statements	7

3

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

	March 31, 2010			December 31, 2009
Assets
Current assets:
Cash and cash equivalents	$	2,576,808		$	1,727,388
Certificate of deposit		1,205,428			1,199,187
Trading securities		989,690			1,490,472
Accounts receivable, less allowance for doubtful accounts
of $244,121 and $244,121, respectively		3,090,407			3,268,141
Current portion of notes receivable		371,909			1,173,334
Accounts and notes receivable from related parties		325,712			194,609
Inventories		5,089,590			4,446,215
Real estate held for sale		7,060,299			7,060,299
Deposits for pipe inventory purchases		-			1,336,244
Prepaid expenses and other current assets		245,854			247,304
Total current assets		20,955,697			22,143,193
Long-term notes receivable, less current portion		249,781			259,252
Property and equipment, net of accumulated depreciation and amortization		7,088,720			7,144,218
Goodwill		674,539			674,539
Intangible assets, net of amortization		584,888			611,474
Other assets		177,843			179,493
Total assets	$	29,731,468		$	31,012,169
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	2,884,947		$	2,300,007
Short-term notes payable		1,804,494			1,881,908
Accounts and notes payable to related parties		-			296,300
Current installments of long-term capital lease obligations		108,863			81,819
Current installments of long-term debt		4,308,282			4,441,708
Total current liabilities		9,106,586			9,001,742
Long-term debt, less current installments		7,096,488			7,264,562
Long-term capital lease obligations, less current installments		180,584			85,004
Total liabilities		16,383,658			16,351,308
Commitments 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;
10,291,325 and 9,191,325 shares issued, respectively
9,969,069 and 8,871,369 shares outstanding, respectively		10,291			9,192
Additional paid-in capital		33,795,725			33,571,064
Common stock subscription receivable		(262,600	)		-
Accumulated deficit		(20,968,255	)		(19,863,846	)
Less treasury stock, at cost
293,857 and 291,557 shares, respectively		(509,048	)		(505,774	)
Total American International Industries, Inc. equity		12,066,113			13,210,636
Noncontrolling interest		1,281,697			1,450,225
Total equity		13,347,810			14,660,861
Total liabilities and equity	$	29,731,468		$	31,012,169
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
		2010			2009
Revenues		$	4,996,513		$	6,195,014
Costs and expenses:
Cost of sales			3,560,171			3,994,002
Selling, general and administrative			3,424,379			2,653,086
Total operating expenses			6,984,550			6,647,088
Operating loss			(1,988,037	)		(452,074	)
Other income (expenses):
Interest and dividend income			20,411			131,438
Delta lawsuit settlement			700,000			-
Realized gains (losses) on trading securities			104,311			(82,941	)
Unrealized gains (losses) on trading securities			(62,081	)		96,815
Interest expense			(220,516	)		(218,608	)
Other income			14,381			195,146
Total other income			556,506			121,850
Loss before income tax			(1,431,531	)		(330,224	)
Income tax expense			16,212			12,684
Net loss			(1,447,743	)		(342,908	)
Net income attributable to the noncontrolling interest			343,334			149,769
Net loss attributable to American International Industries, Inc.		$	(1,104,409	)	$	(193,139	)
Net loss per common share - basic and diluted		$	(0.12	)	$	(0.02	)
Weighted average common shares - basic and diluted			9,329,142			8,689,074

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
		2010			2009
Cash flows from operating activities:
Net loss		$	(1,447,743	)	$	(342,908	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			287,326			293,557
Share-based compensation			962,770			41,250
Realized (gains) losses on the sale of trading securities			(104,311	)		82,941
Unrealized (gains) losses on trading securities			62,081			(96,815	)
Change in operating assets and liabilities:
Accounts receivable			107,445			353,624
Trading securities			543,012			95,443
Inventories and deposits for pipe inventory purchases			692,869			(268,216	)
Prepaid expenses and other current assets			1,450			49,060
Other assets			1,650			17,970
Accounts payable and accrued expenses			(114,322	)		144,109
Net cash provided by operating activities			992,227			370,015
Cash flows from investing activities:
Purchase of property and equipment			(61,241	)		(25,546	)
Redemption of certificate of deposit			-			1,000,000
Investment in certificate of deposit			(6,242	)		(700,000	)
Purchase of note receivable from bank			-			(300,000	)
Proceeds from notes receivable			8,832			33,306
Loans to related parties			(427,402	)		(241,200	)
Net cash used in investing activities			(486,053	)		(233,440	)
Cash flows from financing activities:
Proceeds from issuance of common stock			746,810			-
Net borrowings (repayments) under lines of credit agreements and short-term notes			(144,709	)		3,112
Principal payments on debt			(234,205	)		(1,283,122	)
Principal payments under capital lease obligations			(21,376	)		(16,985	)
Payments for acquisition of treasury stock			(3,274	)		(41,237	)
Net cash provided by (used in) financing activities			343,246			(1,338,232	)

Net increase (decrease) in cash and cash equivalents from operations		849,420		(1,201,657	)
Cash and cash equivalents at beginning of period		1,727,388		3,114,575
Cash and cash equivalents at end of period	$	2,576,808	$	1,912,918
Supplemental schedule of cash flow information:
Interest paid	$	222,014	$	185,076
Taxes paid	$	6,149	$	-
Non-cash transactions:
��  Stock issued to related party for receivable	$	262,600	$	-
Acquisition of fixed assets under capital lease obligations	$	144,000	$	-
Receipt of common stock to convert promissory note due from Delta	$	872,352	$	-
Accounts payable and dividends payable assumed in Delta reverse merger transaction	$	597,131	$	-
Adjustment to noncontrolling interest in Delta as a result of the reverse merger transaction	$	310,906	$	-
Delta dividends declared and unpaid	$	60,000	$	-
The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

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, 2009. 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 48.2% 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 International Industries, Inc. ("American") and its wholly-owned subsidiaries, Northeastern Plastics, Inc. ("NPI") and Shumate Energy Technologies, Inc. ("SET"), and Delta Seaboard International, Inc. ("Delta"), in which American holds a 48.2% shareholder interest.  All significant intercompany transactions and balances have been eliminated in consolidation.

On February 3, 2010, Hammonds Industries Inc. ("Hammonds") and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed the reverse merger pursuant to which Delta Seaboard was merged with and into Hammonds. In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. Following the effective date of the Reverse Split, Delta issued shares of Common Stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh extending their employment agreements for five years in addition to the balance of their current employment agreements. Following the Reverse Split and Reverse Merger, American owns 32,859,935 shares of Common Stock, representing 48.2% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,924,353 shares of Common Stock, representing 45.4% of the Delta's total outstanding shares. All other stockholders of Delta own 4,357,962 shares of Common Stock, representing 6.4% of Delta's total 68,142,250 outstanding shares.

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.

7

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 months ended March 31, 2010 and 2009, 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.

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, 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 March 31, 2010, 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 March 31, 2010
					Fair 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	$	989,690	$	989,690	$	989,690	$	-	$	-

Subsequent Events

American has evaluated all transactions through the financial statement issuance date for subsequent event disclosure consideration.

New Accounting Pronouncements

There were various 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.

8 

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 three months ended March 31, 2010 and 2009, American had unrealized trading losses of $62,081 and gains of $96,815, respectively, related to securities held on those dates.  American recorded realized gains of $104,311 and realized losses of $82,941 for the three months ended March 31, 2010 and 2009, 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 potentially increasing the diversity of our securities portfolios.

Note 3 - Inventory and Deposits for Pipe Inventory Purchases

Inventories consisted of the following:

	March 31, 2010			December 31, 2009
Work in process	$	276,583		$	171,506
Finished goods		4,869,118			4,370,730
Less reserve		(56,111	)		(96,021	)
	$	5,089,590		$	4,446,215

Periodically, American enters into agreements to purchase pipe inventory from vendors.  At December 31, 2009, American had cash deposits of $1,336,244 for inventory purchases under these agreements that had not been received.  At March 31, 2010, these pipe purchases are included in inventory. 

Note 4 - Real Estate Transactions

During the fourth 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 $4,611,233, which represents $3,332,543 in principal and accrued interest allocated to the property received at the time of default and the assumption of a $1,278,690 note payable secured by the property by another lien holder, see Note 8.  This property consists of seven tracts, of which several are under contract for sale and the remainder are listed for sale with a broker.

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 valued at $540,000 as a guarantor's fee. In connection with this fee, American 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.  This property is listed for sale with a broker.

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.  These properties are listed for sale with a broker.

American reviewed the accounting standards Real Estate - General (ASC 970-10) and Property, Plant, and Equipment (ASC 360-10) to determine the appropriate classification for these properties.  According to ASC 970-10, real estate that is held for sale in the ordinary course of business is classified as inventory, which is a current asset.  ASC 360-10 provides the following criteria for property to be classified as held for sale:

9

• Management with the appropriate authority commits to a plan to sell the asset;
• The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;
• An active program to locate a buyer and other actions required to complete the plan of sale have been initiated;
• The sale of the property or asset within one year is probable and will qualify for accounting purposes as a sale;
• The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
• Actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Management consulted with the real estate brokers for these properties and reviewed the recent interest for each property.  Based on our consultations and review, we believe that the sale of these properties within one year is probable.  We concluded that all of these criteria have been met for these properties and that they are appropriately classified as held for sale in current assets.

Note 5 - Long-term Notes Receivable

Long-term notes receivable consists of the following:

	March 31, 2010			December 31, 2009
Unsecured note receivable for sale of former subsidiary, Marald, Inc., principal and interest due monthly through June 5, 2012	$	86,690		$	95,523
Unsecured note receivable for sale of former subsidiary, Marald, Inc., due in monthly payments of $3,074, including interest at 4%, beginning April 1, 2011 through March 1, 2021 (a)		200,000			200,000
Unsecured note receivable, principal balance due on April 30, 2008, interest at 6% through maturity and at 10% thereafter (b)		-			552,063
Unsecured note receivable, principal balance due on December 31, 2008, interest at 10% through maturity and at 15% thereafter (b)		-			250,000
Note secured by property and shares of stock, interest due monthly at 18%, principal payment due on or before May 9, 2009 (c)		35,000			35,000
Unsecured note receivable purchased from Texas Community Bank, interest at 8% due monthly, principal due January 2009 (d)		300,000			300,000
Notes receivable		621,690			1,432,586
Less current portion		(371,909	)		(1,173,334	)
Long-term notes receivable	$	249,781		$	259,252

(a) 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.  Marald is currently in default on its payments.  On May 4, 2010, a new promissory note was executed in the amount of $300,000 for the note balance plus accrued interest, with the payment terms indicated above.  Since payments are currently being made on the other note receivable with Marald in accordance with note terms, no further discounting of the loan was deemed necessary as of March 31, 2010.

(b) 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.  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 closed this transaction in February 2010 and Hammonds issued 10,000,000 post-Reverse Split common shares at fair value of $0.087 per share in consideration for the conversion of the principal and interest on these notes.

(c) Note secured by property and shares of stock, interest due monthly at 18%, per annum 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 had sold all of these shares on the open market for $25,411. 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.  At September 30, 2009, American carried this property on the balance sheet for $198,500, which represented 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 paid $150,000 in November 2009 in exchange for American's deed of trust for the property.  Upon receipt of the $150,000, American removed the property from its balance sheet and recorded the difference of $48,500 to the note and accrued interest.  This receivable is secured by real property from the original $225,000 note receivable.

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(d) Note purchased from Texas Community Bank with a face amount of $300,000.  This delinquent note was purchased on March 31, 2009 for $300,000 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 months ended March 31, 2010 and 2009, American recognized interest income of $9,195 and $72,812, respectively.

Note 6 - Property and Equipment

Major classes of property and equipment together with their estimated useful lives, consisted of the following:

	Years	March 31, 2010			December 31, 2009
Land		$	892,945		$	892,945
Building and improvements	20		1,003,870			1,003,870
Machinery and equipment	7-15		7,951,523			7,698,256
Office equipment and furniture	7		390,539			438,565
Automobiles	5		771,712			771,712
			11,010,589			10,805,348
Less accumulated depreciation and amortization			(3,921,869	)		(3,661,130	)
Net property and equipment		$	7,088,720		$	7,144,218

Depreciation expense for the three months ended March 31, 2010 and 2009 was $260,740, and $266,971, respectively.

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:

	Years	March 31, 2010				December 31, 2009
Machinery and equipment	10	$	482,296		$	301,000
Less accumulated depreciation and amortization			(46,661	)		(37,625	)
Net property and equipment		$	435,635		$	263,375

Principal repayment provisions of this long-term capital lease are as follows at March 31, 2010:

2010	$	80,415
2011		110,908
2012		28,194
2013		30,686
2014		33,398
2015		5,846
Total	$	289,447

Note 7 - Intangible Assets

Intangible assets at March 31, 2010 consisted of the following:

	Gross Carrying Amount		Accumulated Amortization			Intangibles, net	Average Weighted Lives
Goodwill					$	674,539	N/A
CNC Programs	$	729,000	$	156,215	$	572,785	7 years
Name and logo		15,403		3,300		12,103	7 years
Intangible assets	$	744,403	$	159,515	$	584,888	7 years

11

Intangible assets at December 31, 2009 consisted of the following:

	Gross Carrying Amount		Accumulated Amortization			Intangibles, net	Average Weighted Lives
Goodwill					$	674,539	N/A
CNC Programs	$	729,000	$	130,179	$	598,821	7 years
Name and logo		15,403		2,750		12,653	7 years
Intangible assets	$	744,403	$	132,929	$	611,474	7 years

Amortization expense for the three months ended March 31, 2010 and 2009 was $26,586 and $26,586, respectively.

Note 8 - Short-term Notes Payable

	March 31, 2010		December 31, 2009
Insurance note payable with interest at 4.99%, principal and interest due in monthly payments of $25,805 through May 1, 2010	$	25,804	$	103,218
Note payable to a bank, due in monthly installments of interest only at 6.34%, with a principal balance due on October 29, 2010, secured by a certificate of deposit.		500,000		500,000
Note payable with interest at 12%, interest due monthly, with a principal balance due on July 1, 2010, secured by real property (a)		1,278,690		1,278,690
	$	1,804,494	$	1,881,908

(a)  This note was assumed as part of the foreclosure on property that was security for a note receivable owed to American.  See Note 4.

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 March 31, 2010 and December 31, 2009, the average annual interest rates of our short-term borrowings were approximately 10.33% and 10.11%, respectively.

Note 9 - Long-term Debt

Long-term debt consisted of the following:

	March 31, 2010			December 31, 2009
Note 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.	$	4,742,703		$	4,802,877
Revolving 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. (a)		1,339,106			1,369,907
Note 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			943,500
Note 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.		493,343			457,253
Note payable to a bank, due in monthly installments of $6,170, including interest at 6.6% through May 2018, secured by real property.		462,526			473,285
Note 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. (b)		949,000			1,099,000
Note 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			1,566,000
Note payable due in monthly payments of $19,373, including interest at 6%, through March 2013, secured by assets of Delta. (c)		699,703			761,982
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.		160,122			174,990
Other secured notes with various terms		48,767			57,476
		11,404,770			11,706,270
Less current portion		(4,308,282	)		(4,441,708	)
	$	7,096,488		$	7,264,562

12

(a) Delta's line of credit with its bank has historically been renewed prior to the due date for a period of 18 to 24 months.  This line of credit came due in April 2010.  Management is currently working to renew this line of credit.

(b) 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 March 31, 2010, NPI’s line of credit balance was $949,000 and as of this filing, the balance has been increased by $31,000 to $980,000.  NPI’s current assets at March 31, 2010 were $3,936,880 and included $967,918 and $2,447,917 in accounts receivable and inventory, respectively.

(c) During the year ended December 31, 2009, the due dates for these notes were extended and the balances have been reclassified to long-term.

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 March 31, 2010:

2010	$	4,160,911
2011		2,169,549
2012		599,389
2013		4,196,951
2014		57,407
Thereafter		220,563
Total	$	11,404,770

Note 10 - 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.

During the three months ended March 31, 2010, American purchased 2,300 common shares as treasury stock for $3,274.  American issued 1,000,000 restricted shares of common stock for cash consideration of $746,810 and a subscription receivable of $262,600 for investment from International Diversified Corporation, Ltd., Dror Charitable Foundation for the Arts, Daniel Dror II Trust of 1976, and the Dror Family Trust, all of which are related parties to Daniel Dror, 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 on March 30, 2009.

On March 30, 2008, American issued 172,800 stock options to American's Chairman and CEO, with an exercise price of $5.83 per share, expiring in 2 years, valued at of $88,063 and recorded as share-based compensation.  In connection with American's 20% stock dividend to all shareholders on July 16, 2008, the terms of these options were adjusted to reflect the dividend, resulting in the option being exercisable to buy 207,360 shares for $4.86 per share.  These options expired on March 30, 2010.

American estimated the fair value of each stock option at the grant date as $0.51 by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2008 as follows:

	March 30, 2008
Dividend yield		0.00	%
Expected volatility		38.64	%
Risk free interest		2.5	%
Expected lives	2 years

13

A summary of the status of American's stock options to employees for the three months ended March 31, 2009 and 2010 is presented below:

	Shares			Weighted Average Exercise Price
Outstanding and exercisable as of March 31, 2009		207,360		$	4.86
Granted		-			N/A
Exercised		-			N/A
Canceled / Expired		(207,360	)		4.86
Outstanding and exercisable as of March 31, 2010		-		$	N/A

Stock-based compensation consists of the following:

	Three Months Ended March 31,
	2010		2009
Common shares issued for services	$	962,770	$	41,250
Stock options issued for services		-		-
Stock-based compensation	$	962,770	$	41,250

Note 11 - 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 March 31, 2010, American's cash and certificates of deposit balances held in banks exceeded the limit covered by the Federal Deposit Insurance Corporation by approximately $1.4 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 three months ended March 31, 2010, NPI had one customer that accounted for 12% of trade accounts receivable and 16% of revenues on a consolidated basis.  Additionally, Delta had one customer that accounted 16% of trade accounts receivable and 12% of revenues on a consolidated basis.

Note 12 - Income Taxes

American has loss carryforwards totaling $19,825,048 available at December 31, 2009 that may be offset against future taxable income.  If not used, the carryforwards will expire as follows:

Operating Losses
Amount		Expires
$	1,761,086	2018
	1,462,959	2019
	2,086,064	2020
	860,006	2022
	566,409	2023
	1,028,302	2024
	1,551,019	2025
	73,187	2026
	288,855	2027
	3,626,977	2028
	6,520,184	2029
$	19,825,048

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Note 13 - Commitments and Contingencies

On July 23, 2008, Delta Seaboard Well Service, Inc. 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. Delta recovered $700,000 of this loss through insurance as described below.

Delta Seaboard Well Service, Inc. v. Houstoun, Woodard, Eason, Gentle Tomforde and Anderson, Inc., D/B/A Insurance Alliance and Robert Holman (“Broker Lawsuit”). On February 19, 2010, Delta settled its claims in the Broker Lawsuit and received $700,000, which will be included in other income for the three months ended March 31, 2010.

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. On February 22, 2010, the trial judge entered a $269,138 judgment  in favor of the plaintiffs. The attorneys plan a motion for a new trial. 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 judgment that might be entered. Delta intends to vigorously defend this case. 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 February 2010, the case was mediated and the parties attempted to settle the case.  However, the parties have been unable to agree on terms.  If the parties cannot agree, the case will have to be mediated again or tried.  Additional information has been recently discovered to support American's case.  Our attorney believes that if the case is tried, either side could win.  If Botts wins, we believe that the maximum loss for American would be approximately $1,500,000.  If the case is tried, American intends to vigorously defend this case. 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 Texas Emissions Reduction Plan ("TERP") grant from the Texas Commission on Environmental Quality in the amount of $1,157,273, of which $781,728 has been recognized through December 31, 2008. For the three months ended March 31, 2010, no TERP grant revenue has been recognized.  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.

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. Delta 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. Delta is still determining the effect this will have, but believes it will not materially affect Delta because of tax loss carryforwards.

15

Delta leases space under a commercial lease which expires in 2010 and SET leases space under a commercial lease which expires in 2013.  Future minimum lease payments are as follows:

Future minimum lease payments are as follows:

Year December 31,	Amount
2010	$	254,400
2011		265,200
2012		265,200
2013		221,000
	$	1,005,800

Note 14 - 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 International, Inc. (Delta) - a 48.2% 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.

16

Consolidated revenues from external customers, operating income (loss), depreciation and amortization expense, interest expense, capital expenditures, non-cash transactions, and identifiable assets were as follows:
 

	Three Months Ended March 31,
	2010			2009
Revenues:
Northeastern Plastics	$	1,488,557		$	1,644,282
Shumate Energy Technologies		1,206,356			2,086,821
Delta		2,238,658			2,463,911
Other		62,942			-
Total revenues	$	4,996,513		$	6,195,014
Operating income (loss):
Northeastern Plastics	$	(80,564	)	$	(24,505	)
Shumate Energy Technologies		(242,329	)		164,281
Delta		(1,294,631	)		(177,243	)
Corporate		(370,513	)		(414,607	)
Operating loss		(1,988,037	)		(452,074	)
Other income		556,506			121,850
Net loss before income tax	$	(1,431,531	)	$	(330,224	)

Depreciation and amortization:
Northeastern Plastics	$	14,845	$	15,635
Shumate Energy Technologies		166,205		163,174
Delta		103,302		112,365
Corporate		2,974		2,383
Total depreciation and amortization	$	287,326	$	293,557
Interest expense:
Northeastern Plastics	$	25,189	$	17,564
Shumate Energy Technologies		93,691		99,546
Delta		40,366		53,031
Corporate		61,270		48,467
Total interest expense	$	220,516	$	218,608
Capital expenditures:
Northeastern Plastics	$	-	$	527
Shumate Energy Technologies		2,657		1,628
Delta		58,584		12,038
Corporate		-		11,353
Total capital expenditures	$	61,241	$	25,546
Non-cash transactions:
SET
Acquisition of fixed assets under capital lease obligations	$	144,000	$	-
Delta				-
Accounts payable and dividends payable assumed in Delta reverse merger transaction	$	597,131	$	-
Delta dividends declared and unpaid	$	60,000	$	-
Corporate
Stock issued to related party for receivable	$	262,600	$	-
Receipt of common stock to convert promissory note due from Delta	$	872,352	$	-
Adjustment to noncontrolling interest in Delta as a result of the reverse merger transaction	$	310,906	$	-

17

	March 31, 2010		December 31, 2009
Identifiable assets:
Northeastern Plastics	$	5,477,389	$	6,013,175
Shumate Energy Technologies		5,584,717		5,437,622
Delta		5,881,873		6,123,301
Corporate		12,787,489		13,438,071
Total identifiable assets	$	29,731,468	$	31,012,169

Note 15 - Related Party Transactions

On March 4, 2010, American issued 1,000,000 restricted shares of common stock for cash consideration of $746,810 and a subscription receivable of $262,600 for investment from International Diversified Corporation, Ltd., Dror Charitable Foundation for the Arts, Daniel Dror II Trust of 1976, and the Dror Family Trust, all of which are related parties to Daniel Dror, CEO.  At March 31, 2010, American had a balance of $119,718 due from International Diversified Corporation, Ltd., a corporation owned by Elkana Faiwuszewicz, Daniel Dror's brother.

During the third quarter of 2009, Texas Community Bank made a loan for $3,850,000 to Southwest Gulf Coast Properties, Inc. ("SWGCP") for the purchase of Dawn Condominiums L.P.  American has pledged $250,000 in certificates of deposit for this loan.  Additionally, this loan is secured by American's 287 acres on Dickinson Bayou and the Dawn Condominiums, located in Galveston, Texas, with an appraised value of over $3,900,000.  American has an account receivable of $235,970 from SWGCP at March 31, 2010, resulting from closing costs paid by American at the closing of the loan.  Charles Zeller, a director of American, is the President of SWGCP.  This property is listed for sale with a broker.  Until the properties are sold, rental income from the condominium units will be used to pay interest on the loan and the receivable balance owed to American.

Note 16 - Subsequent Events

From April 1, 2010 through May 17, 2010, American issued 56,000 shares of common stock for services valued at $61,600. 

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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 International (Delta) - a 48.2% 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.

On February 3, 2010, Hammonds Industries Inc. ("Hammonds") and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed the reverse merger pursuant to which Delta Seaboard was merged with and into Hammonds. In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. Following the effective date of the Reverse Split, Delta issued shares of Common Stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh extending their employment agreements for five years in addition to the balance of their current employment agreements. Following the Reverse Split and Reverse Merger, American owns 32,859,935 shares of Common Stock, representing 48.2% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,924,353 shares of Common Stock, representing 45.4% of the Delta's total outstanding shares. All other stockholders of Delta own 4,357,962 shares of Common Stock, representing 6.4% of Delta's total 68,142,250 outstanding shares.

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.

19

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.

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.

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, 2010 Compared to Three Months Ended March 31, 2009.

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, 2010 and 2009.

Net revenues. For the three months ended March 31, 2010, revenues from continuing operations were $4,996,513, compared to $6,195,014 for the three months ended March 31, 2009, representing a decrease of $1,198,501, or 19%.

During the three months ended March 31, 2010, Delta had revenues of $2,238,658, compared to $2,463,911 during the three-month period ended March 31, 2009, representing a decrease of $225,253, or 9%. The decrease in revenues is due primarily to a decrease in rig service revenues of $200,505. Rig service revenues have decreased due to major maintenance on two rigs during the 2010 quarter.

Revenues at SET for the three months ended March 31, 2010 were $1,206,356, compared to $2,086,821 during the three-month period ended March 31, 2009, representing a decrease of $880,465, or 42%.  During the three months ended March 31, 2009, SET filled a large order for a major customer in the oil and gas industry.  Additionally, revenues have decreased due to a decline in drilling activity.

Revenues at NPI during the three months ended March 31, 2010 were $1,488,557, compared to $1,644,282 for the three months ended March 31, 2009, representing a decrease of $155,725, or 9%.  The revenue decrease was due primarily to the decline in the economy.  NPI's strategic plan for 2010 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.

Cost of sales and margins.  Cost of sales for the three months ended March 31, 2010 was $3,560,171, compared to $3,994,002 for the three months ended March 31, 2009, representing a decrease of $433,831, or 11%.  Margins for the three months ended March 31, 2010 were 29%, compared to 35% for the three months ended March 31, 2009.  The primary reason for the decline in margins is due to the sale of high-priced pipe from inventory by Delta. Margins on pipe sales were 2% for the three months ended March 31, 2010, compared to 25% during the same period in the prior year.  Margins on pipe sales improved near the end of the three months ended March 31, 2010, and management expects a substantial improvement for the three months ended June 30, 2010, due to sales of lower-priced pipe remaining in inventory.

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Selling, general and administrative.  Selling, general and administrative expense for the three months ended March 31, 2010 was $3,424,379, compared to $2,653,086 for the three months ended March 31, 2009, representing an increase of $771,293, or 29%.  The increase in general and administrative expenses is due primarily to non-cash stock-based compensation of $847,750 to the executive officers of Delta in consideration for extending their employment agreements.  Stock-based compensation for the three months ended March 31, 2010 was $962,770, compared to $41,250 for the three months ended March 31, 2009, representing an increase of $921,520.

Loss from operations. Our operating loss for the three months ended March 31, 2010 was $1,988,037, compared to the operating loss of $452,074 for the three months ended March 31, 2009.

Total other income/expenses. Other income was $556,506 for the three months ended March 31, 2010, compared to $121,850 for the three months ended March 31, 2009, representing an improvement of $434,656.  Other income for the three months ended March 31, 2010 included the receipt of  $700,000 by Delta as a cash settlement for its claims in an insurance lawsuit.  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 $220,516 for the three months ended March 31, 2010, compared to $218,608 for the three months ended March 31, 2009.

Net loss. We had a net loss of $1,104,409, or $0.12 per share, for the three months ended March 31, 2010, compared to a net loss of $193,139, or $0.02 per share, for the same period in 2009.

Liquidity and Capital Resources

Total assets/working capital. Total assets at March 31, 2010 were $29,731,468, compared to $31,012,169 at December 31, 2009, representing a decrease of $1,280,701.  At March 31, 2010, consolidated working capital was $11,849,111, compared to working capital of $13,141,451 at December 31, 2009, representing a decrease of $1,292,340.  The primary reason for the decrease in total assets resulted from the conversion of short-term debt and accrued interest of $872,352 to common stock of Delta as a result of the reverse merger transaction.

Cash flow from operations. For the three months ended March 31, 2010, we had cash flow provided by operations of $992,227, compared to negative cash flow from operations of $370,015 during the same period in 2009.  Our net loss of $1,447,743 for the three months ended March 31, 2010 included non-cash expenses of $1,250,096, including depreciation and amortization of $287,326 and share-based compensation of $962,770.  Our net loss of $342,908 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 inventories and deposits for pipe inventory purchases decreased by $692,869 for the three months ended March 31, 2010, compared to an increase of $268,216 during the three months ended March 31, 2009.  We decreased our investments in trading securities by $543,012 during the three months ended March 31, 2010, compared to a decrease of $95,443 during the same period in 2009.  Accounts receivable decreased by $107,445 during the three months ended March 31, 2010, compared to a decrease of $353,624 during the same period in 2009.  Accounts payable decreased by $114,322 during the three months ended March 31, 2010, compared to an increase of $144,109 during the same period in 2009. 

Cash flow from investing activities. For the three months ended March 31, 2010, our investing activities used cash of $486,053 primarily as a result of loans to related parties of $427,402 and the purchase of property and equipment of $61,241.  Our investing activities used cash of $233,440 during the three months ended March 31, 2009, primarily 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.

Cash flow from financing activities. Our financing activities provided cash of $343,246 during the three months ended March 31, 2010, primarily as a result of the issuance of common stock of $746,810, offset by payments on debt and repayments under lines of credit of $380,848.  During the three months ended March 31, 2009, our financing activities used cash of $1,338,232, primarily as a result of payments of $1,283,122 on debt and the purchase of 33,032 shares of treasury stock at a cost of $41,237.

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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 March 31, 2010, NPI’s line of credit balance was $949,000 and as of this filing, the balance has been increased by $31,000 to $980,000.  NPI’s current assets at March 31, 2010 were $3,936,880 and included $967,918 and $2,447,917 in accounts receivable and inventory, respectively.

Our subsidiary, Delta has a line of credit for $2,000,000 with Trust Mark Bank, which had a maturity date in April 2010. Delta's line of credit with its bank has historically been renewed prior to the due date for a period of 18 to 24 months. This line of credit came due in April 2010.  Management is currently working to renew this line of credit. Our Subsidiary, SET, has a $1,000,000 line of credit with Stillwater National Bank and Trust, which has a maturity date in September 2010. Delta and SET have excellent relationships with their banks and believe that they will be able to renegotiate their lines of credit at terms and conditions satisfactory to the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As of March 31, 2010, 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

There have been no material changes from Legal Proceedings as previously disclosed in the Registrant’s annual report for the year ended December 31, 2009.

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, 2009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K During the Period Covered by this Report: The Registrant filed a Form 8-K on January 20, 2010 with disclosure under Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.  The Registrant filed a Form 8-K/A on January 21, 2010 with disclosure under Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

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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:  May 17, 2010

/s/ SHERRY L. COUTURIER

   CHIEF FINANCIAL OFFICER

   Dated:  May 17, 2010