Quarterly Report (10-q)

[AMIN022013_10Q002.GIF] UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2013


	¨ 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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of each of the issuer ’ s classes of equity as of August 14, 2013 is 1,915,494 shares of common stock and 1,000 shares of preferred stock.

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	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
ITEM 4T.	CONTROLS AND PROCEDURES	24

	PART II – OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	25
ITEM 1A.	RISK FACTORS	25
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	25
ITEM 4.	MINE SAFETY DISCLOSURES	25
ITEM 5.	OTHER INFORMATION	25
ITEM 6.	EXHIBITS	25

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Financial Statements


Financial Statements
Unaudited Consolidated Balance Sheets – June 30, 2013 and December 31, 2012	4
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2013 and 2012	5
Unaudited Consolidated Statements of Cash Flows – Six Months Ended June 30, 2013 and 2012	6
Notes to Unaudited Consolidated Financial Statements	8

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)


	June 30, 2013	December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$ 1,008,807	$ 1,016,454
Trading securities	43,024	-
Accounts receivable from related parties	494	2,494
Accounts receivable, less allowance for doubtful accounts
of $45,998 and $36,805, respectively	1,144,910	2,185,839
Notes receivable – related party	-	181,000
Current portion of notes receivable	75,094	1,325,851
Inventories, net	2,002,976	1,832,304
Real estate held for sale	7,480,417	7,031,614
Prepaid expenses and other current assets	115,687	62,340
Total current assets	11,871,409	13,637,896

Long-term notes receivable, less current portion	515,603	57,891
Oil and gas properties	97,690	8,400
Property and equipment, net of accumulated depreciation and amortization	1,948,954	1,971,766
Goodwill	674,539	674,539
Patents, trademarks and tooling, net of accumulated amortization	158,652	158,982
Marketable securities - available for sale	39,000	65,000
Other assets	4,005	4,005
Total assets	$ 15,309,852	$ 16,578,479
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$ 835,223	$ 1,303,761
Bank overdrafts	-	80,598
Accounts and notes payable to related parties	131,100	12,026
Current installments of long-term debt	4,199,939	3,002,362
Total current liabilities	5,166,262	4,398,747

Accrued pension expense	41,427	48,708
Asset retirement obligation	1,957	-
Long-term debt, less current installments	-	1,303,000
Total liabilities	5,209,646	5,750,455

Commitments and contingencies
Equity:
Preferred stock, $0.001 par value, 1,000,000 authorized, 1,000 shares
issued and outstanding	1	1
Common stock, $0.001 par value, 50,000,000 authorized;
2,140,714 and 1,619,714 shares issued, respectively and
1,916,194 and 1,406,144 shares outstanding, respectively	2,141	1,620
Additional paid-in capital	38,717,158	38,088,576
Stock subscription receivable	-	(72,000)
Accumulated deficit	(26,486,883)	(25,196,480)
Accumulated other comprehensive loss	(1,366,000)	(1,340,000)
Less treasury stock, at cost; 224,520 and 213,570 shares, respectively	(867,277)	(851,807)
Total American International Industries, Inc. equity	9,999,140	10,629,910
Non-controlling interest	101,066	198,114
Total equity	10,100,206	10,828,024
Total liabilities and equity	$ 15,309,852	$ 16,578,479

See accompanying notes to the unaudited consolidated financial statements.

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Revenues	$ 1,017,146	$ 979,027	$ 2,534,749	$ 2,132,441
Costs and expenses:
Cost of sales	776,742	699,483	1,894,741	1,500,299
Selling, general and administrative	845,820	1,079,870	2,106,849	2,062,715
Total operating expenses	1,622,562	1,779,353	4,001,590	3,563,014

Loss on sale of assets	(38,546)	(55,272)	(38,546)	(68,010)

Operating loss	(643,962)	(855,598)	(1,505,387)	(1,498,583)

Other income (expenses):
Interest and dividend income	30,248	19,057	50,774	19,434
Botts lawsuit settlement	-	(49,281)	-	(49,281)
Rubicon lawsuit settlement	7,500	-	7,500	-
Realized gains on the sale of trading securities, net	23,953	12,764	132,627	12,764
Unrealized losses on trading securities, net	(28,533)	(78,604)	(88,323)	(8,458)
Interest expense	(59,538)	(58,504)	(123,799)	(117,512)
Other income, net	-	218	-	18,549
Total other expense	(26,370)	(154,350)	(21,221)	(124,504)

Loss before income tax	(670,332)	(1,009,948)	(1,526,608)	(1,623,087)
Income tax expense (benefit)	4,113	13,640	6,120	(26,558)
Loss from continuing operations, net of income taxes	(674,445)	(1,023,588)	(1,532,728)	(1,596,529)
Gain on disposal of discontinued operations	-	1,498,327	-	1,498,327
Loss from discontinued operations, net of income taxes	-	-	-	(922,517)
Net income (loss)	(674,445)	474,739	(1,532,728)	(1,020,719)
Net (income) loss attributable to the non-controlling interest	28,246	(166,194)	242,325	363,363
Net income (loss) attributable to American International Industries, Inc.	$ (646,199)	$ 308,545	$ (1,290,403)	$ (657,356)
Net income (loss) per common share - basic and diluted:
Continuing operations	$ (0.34)	$ (0.78)	$ (0.71)	$ (0.80)
Discontinued operations	-	0.98	-	0.37
Total	$ (0.34)	$ 0.20	$ (0.71)	$ (0.43)

Weighted average common shares outstanding - basic and diluted	1,914,257	1,533,211	1,813,745	1,533,282

Comprehensive income (loss):
Net income (loss)	$ (674,445)	$ 474,739	$ (1,532,728)	$ (1,020,719)
Unrealized gain (loss) on marketable securities	26,000	7,540	(26,000)	5,200
Total comprehensive income (loss)	(648,445)	482,279	(1,558,728)	(1,015,519)
Comprehensive (income) loss attributable to the non-controlling interests	28,246	(166,194)	242,325	363,363
Comprehensive income (loss) attributable to American International Industries, Inc.	$ (620,199)	$ 316,085	$ (1,316,403)	$ (652,156)

See accompanying notes to the unaudited consolidated financial statements.

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	For the Six Months Ended June 30,
	2013	2012
Cash flows from operating activities:
Net loss	$ (1,532,728)	$ (1,020,719)
Income from discontinued operations, net of income taxes	-	575,810
Net loss from continuing operations	(1,532,728)	(1,596,529)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities from continuing operations:
Depreciation, accretion, depletion, and amortization	44,248	37,908
Share-based compensation	342,880	22,600
Amortization of guarantor fee	2,955	17,027
Other income from forgiveness of debt	-	(15,000)
Loss on sale of assets	38,546	68,010
Realized gains on the sale of trading securities, net	(132,627)	(12,764)
Unrealized losses on trading securities, net	88,323	8,458
Change in operating assets and liabilities:
Accounts receivable	1,040,929	163,340
Inventories	(170,672)	(418,288)
Prepaid expenses and other current assets	(56,302)	(80,266)
Accounts payable – related party	131,100	-
Accounts payable and accrued expenses	(445,086)	56,850
Net cash used in operating activities from continuing operations	(648,434)	(1,748,654)

Cash flows from investing activities from continuing operations:
Investment in certificate of deposit	-	(50,000)
Redemption of certificate of deposit	-	50,000
Purchase of trading securities	(213,808)	(9,069)
Sale of trading securities	184,355	24,231
Proceeds from sale of subsidiary	-	1,600,000
Proceeds from sale of real estate	53,651	462,471
Purchase of property and equipment	-	(3,510)
Purchase of oil and gas properties	(87,500)	-
Purchase of VOMF interest in AMIH	(12,000)	-
Costs of securing patents and trademarks	(20,939)	(67,964)
Issuance of note receivable	(23,700)	-
Proceeds from notes receivable	816,745	82,859
Net cash provided by investing activities from continuing operations	696,804	2,089,018

Cash flows from financing activities from continuing operations:
Proceeds from sale of common stock of subsidiary	100,000	-
Net borrowings under line of credit agreements	67,594	1,094,000
Bank overdrafts	(80,598)	(2,688)
Proceeds from stock subscription receivable	55,500	-
Principal payments on debt	(173,017)	(194,554)
Loans to related parties	(10,026)	(6,446)
Payments for acquisition of treasury stock of subsidiary	-	(2,196)
Payments for acquisition of treasury stock	(15,470)	(21,036)
Net cash provided by (used in) financing activities from continuing operations	(56,017)	867,080

Net increase (decrease) in cash and cash equivalents from continuing operations	(7,647)	1,207,444
Cash and cash equivalents at beginning of period	1,016,454	869,246
Cash and cash equivalents at end of period	$ 1,008,807	$ 2,076,690


	For the Six Months Ended June 30,
	2013	2012
Discontinued operations:
Net cash provided by operating activities	$ -	$ 300,902
Net cash used in investing activities	-	(125,399)
Net cash used in financing activities	-	(186,158)
Net decrease in cash and cash equivalents from discontinued operations	-	(10,655)
Cash and cash equivalents at beginning of period from discontinued operations	-	10,655
Cash and cash equivalents at end of period from discontinued operations	$ -	$ -


Supplemental cash flow information:
Interest paid	$ 128,477	$ 110,271
Income taxes paid	$ 3,149	$ -

Non-cash investing and financing transactions:
Unrealized gain (loss) on marketable securities	$ (26,000)	$ 5,200
Adjustment to non-controlling interest in AMIH and BOG	$ 172,151	$ 565,113
AMIH preferred dividends declared and unpaid	$ -	$ 20,000
Reversal of preferred dividends of AMIH	$ -	$ 1,055,000
Stock issued to related party for real estate	$ 360,000	$ -
Conversion of related party note receivable for real estate	$ 181,000	$ -
Conversion of BOG payable owed to AMIN to equity	$ 125,181	$ -
Capitalized asset retirement costs	$ 1,868	$ -
Receipt of AMIH common shares for stock subscription receivable	$ 16,500	$ -
Note receivable received from sale of subsidiary	$ -	$ 1,400,000

See accompanying notes to the unaudited consolidated financial statements.

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, 2012. 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 some partially owned subsidiaries. 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 American International Texas Properties, Inc. ("AITP"), American International Holdings Corp. (“AMIH”), formerly Delta Seaboard International, Inc. ("Delta"), in which American holds a 93.2% shareholder interest, and Brenham Oil & Gas Corp. (“BOG”), in which American holds a 53.3% interest. All significant intercompany transactions and balances have been eliminated in consolidation.

On October 17, 2012, American effected a reverse stock split whereby all outstanding shares of its common stock were subject to a reverse split on a one for ten (1:10) basis. All share and per share amounts for American contained in this Form 10-Q have been retroactively adjusted to reflect the reverse stock split.

On August 13, 2012, AMIH effected a reverse stock split whereby all outstanding shares of its common stock were subject to a reverse split on a one for one hundred (1:100) basis. All share and per share amounts for AMIH contained in this Form 10-Q have been retroactively adjusted to reflect the reverse stock split.

On April 3, 2012, AMIH entered into an Asset Purchase Agreement with Delta Seaboard, LLC (the "Purchaser"), a Texas limited liability company that is owned and controlled by Robert W. Derrick, Jr. and Ronald D. Burleigh, who were Delta's president and director and vice-president and director, respectively, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation and a wholly-owned subsidiary of AMIH, and American.

The agreement provided, among other things, that: (i) AMIH sell, transfer and assign the operating assets and liabilities of DSWSI to the Purchaser; (ii) Messrs. Derrick and Burleigh resign as executive officers and as members of AMIH’s board of directors; and (iii) Messrs. Derrick and Burleigh transfer and assign all of their 319,258 AMIH shares valued at $624,704 to American. In consideration for the sale, transfer and assignment of the DSWSI net assets to Purchaser, Purchaser paid $1,600,000 in cash at the closing and executed a 5 year note bearing interest at 5% per annum in the face amount of $1,400,000. On December 19, 2012, this note was sold to Messrs. Derrick and Burleigh for $1,020,000, of which $220,000 was paid prior to December 31, 2012. Total consideration for the sale was $2,620,000. On February 27, 2013, AMIH received $800,000 in payment of the balance due on the note receivable from Messrs. Derrick and Burleigh.

Discontinued operations for the three and six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the initial consideration of $3,000,000 less DSWSI's operating assets and associated liabilities of $1,501,673 (Note 7). DSWSI's net loss of $922,517 for the six months ended June 30, 2012 is included in discontinued operations. On December 19, 2012, the $1,400,000 note receivable from the sale of DSWSI’s assets was sold to Messrs. Derrick and Burleigh for $1,020,000, and the gain on disposal of DSWSI was reduced by $380,000 to $1,118,327.

BOG owns oil and gas properties as discussed in Note 8. Through BOG, 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 acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. American maintains control of BOG through ownership of 65,346,390 shares of BOG's common stock, representing about 53.3% of the outstanding shares as of June 30, 2013. BOG is a separate reporting company, and BOG's common stock is quoted on the Over-The-Counter Bulletin Board beginning in August 2011.

Reclassifications

Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented.

Oil and Gas Properties, Full Cost Method

BOG uses the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.

Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities, are capitalized as oil and gas property costs. Properties not subject to amortization consist of exploration and development costs that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. BOG assesses overall values of unproved properties, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management's intention with regard to future development of individually significant properties and the ability of BOG to obtain funds to finance their programs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

Under this method, sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the consolidated statements of operations.

Costs of oil and gas properties are amortized using the units of production method under this method. Depletion expense calculated per equivalent physical unit of production amounted to $0.35 per barrel of oil equivalent for the three and six months ended June 30, 2013.

Ceiling Test

In applying the full cost method, BOG performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of oil and gas properties is compared to the “estimated present value” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense. During the three and six months ended June 30, 2013 and 2012, no impairment of oil and gas properties was recorded.

Net Income (Loss) Per Share

The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during a period. Diluted net income (loss) per common share is computed by dividing the net income (loss), adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the three months and six months ended June 30, 2013 and 2012, potential dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net income (loss) per common share. These securities include 10,000 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 and marketable securities - available for sale that primarily include shares of common stock in various companies, are based on quoted market prices of the identical underlying security. As of June 30, 2013 and December 31, 2012, American did not have any significant Level 2 or 3 financial assets or liabilities.

The following tables provide fair value measurement information for American's trading securities and marketable securities - available for sale:


	As of June 30, 2013
			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	$ 43,024	$ 43,024	$ 43,024	$ -	$ -
Marketable Securities - available for sale	$ 39,000	$ 39,000	$ 39,000	$ -	$ -


	As of December 31, 2012
			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:
Marketable Securities - available for sale	$ 65,000	$ 65,000	$ 65,000	$ -	$ -

Subsequent Events

American has evaluated all transactions from June 30, 2013 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.

Note 2 - Concentrations of Credit Risk

American maintains its cash and certificates of deposit in commercial accounts at major financial institutions. The FDIC no longer has limits on non-interest bearing accounts. Although the financial institutions are considered creditworthy, at June 30, 2013, American's cash and certificates of deposit balances held in banks in interest bearing accounts exceeded the limit covered by the Federal Deposit Insurance Corporation by $7,200. The terms of these deposits are on demand to minimize risk. American has not incurred losses related to these deposits.

Trade accounts receivable subject American to the potential for credit risk with customers in the retail and distribution sectors. To reduce credit risk, American performs ongoing evaluations of its customer’s financial condition but generally does not require collateral. As of and during the six months ended June 30, 2013, NPI had one customer that accounted for 16.1% of revenues and 29.2% of trade accounts receivable and one customer that accounted for 15.0% of revenues and 12.4% of accounts receivable on a consolidated basis.

Note 3 - Trading Securities and Marketable Securities - Available for Sale

Investments in equity 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 June 30, 2013 and 2012, American had net unrealized trading losses of $28,533 and $78,604, respectively, related to securities held on those dates. American recorded net realized gains of $23,953 and $12,764 for the three months ended June 30, 2013 and 2012, respectively. For the six months ended June 30, 2013 and 2012, American had net unrealized trading losses of $88,323 and $8,458, respectively, related to securities held on those dates. American recorded net realized gains of $132,627 and $12,764 for the six months ended June 30, 2013 and 2012, respectively.

On June 21, 2010, American received as compensation for consulting services 1,000,000 restricted shares of ADB International Group, Inc. ("ADBI") common stock valued at $1,370,000, based on the closing market price of $1.37 per share on that date. On December 8, 2010, American purchased an additional 300,000 shares for $35,000. This investment is classified as marketable securities - available for sale and, accordingly, any unrealized changes in market values are recognized as other comprehensive loss. At June 30, 2013, this investment was valued at $39,000, based on the closing market price of $0.03 per share on that date. American recognized other comprehensive gains of $26,000 and losses of $26,000 for the three and six months ended June 30, 2013, respectively, for the unrealized changes in market values for this investment. American recognized other comprehensive gains of $7,540 and $5,200 for the three and six months ended June 30, 2012, respectively, for the unrealized changes in market values for this investment.

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 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 4 - Notes receivable

Short-term related party notes receivable:

On July 13, 2012, AITP entered into an agreement with Daniel Dror II to purchase a 48-acre tract, or a 50% undivided interest in a 96-acre tract, of property located in Galveston County. Daniel Dror II signed a promissory note in the amount of $181,000 for an earnest money contract associated with this agreement, bearing interest at 5% per year, with the principal amount due on or before July 13, 2013, in the event that the purchase of the property was not finalized. On January 22, 2013, the Board of Directors of American approved the purchase of the 50% interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II. The note receivable was assigned to KDT. Daniel Dror II is the adult son of Daniel Dror, American’s Chairman, Chief Executive Officer, and President. KDT is owned by an entity which is controlled by the brother of Daniel Dror. This property is recorded on the balance sheet as “Real estate held for sale” for $541,000 (Note 6).

Long-term note receivables consist of the following:


	June 30, 2013	December 31, 2012
Unsecured note receivable for sale of former subsidiary, Marald, Inc., due in monthly payments of $3,074, including interest at 4%, beginning July 1, 2012 through June 1, 2022 (a)	$ 281,073	$ 287,442
Note receivable for the sale of DSWSI, interest due monthly at 5%, principal due on or before April 3, 2017, or upon sale of the 3.2 acre property securing the note	-	800,000
Unsecured note receivable due in monthly payments of $5,000, including interest at 3%, principal due on or before April 1, 2018 (b)	609,624	596,300
Total notes receivable	890,697	1,683,742
Reserve due to uncertainty of collectability	(300,000)	(300,000)
	590,697	1,383,742
Less current portion	(75,094)	(1,325,851)
Long-term notes receivable	$ 515,603	$ 57,891

(a) Sale of former subsidiary, Marald, Inc., principal and interest due monthly through June 1, 2022 . 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. In July 2012, payments began under a new extension and renewal agreement for the note balance plus accrued interest, with the payment terms indicated above. Since April 2013, no payments have been received on this note. American has filed a lawsuit for the total amount owed plus interest and attorney’s fees.

(b) Unsecured note receivable due April 1, 2018 . This note was issued for $601,300. This note was previously owed by Southwest Gulf Coast Properties, Inc. ("SWGCP") resulting from closing costs, principal and interest paid by American on the SWGCP loan at TXCB. In February, SWGCP obtained a judgment against Kentner Shell ("Shell"), who personally guaranteed the note, for $4,193,566 for matters related to these condominiums. On September 30, 2011, SWGCP assigned all of its interests in this judgment to American in exchange for this note and $10. On April 1, 2013, American and Shell executed a $620,000 note agreement whereby Shell will make monthly payments in the amount of $5,000, beginning May 1, 2013, with a balloon payment for the remaining amount owed due on or before April 1, 2018.

American has reserved a total of $300,000 on all notes in the aggregate due to uncertainty of collectability. American believes this reserve remains appropriate at June 30, 2013.

Interest income on notes receivable is recognized principally by the simple interest method. During the three and six months ended June 30, 2013 and 2012, American recognized interest income of $30,195, $50,558, $18,890, and $19,187, respectively, on the notes receivable.

Note 5 - Inventories

Inventories consisted of the following:


	June 30, 2013	December 31, 2012
Finished goods	$ 2,020,451	$ 1,865,141
Less reserve for obsolescence	(17,475)	(32,837)
	$ 2,002,976	$ 1,832,304

Note 6 - Real Estate Held for Sale

Real estate held for sale consisted of the following:


	June 30, 2013	December 31, 2012
65 acres in Galveston County, Texas	$ 520,382	$ 520,382
1.705 acres in Galveston County, Texas	460,000	460,000
Two residential lots in Galveston County, Texas	95,861	95,861
Dawn Condominium units on the waterfront in Galveston, Texas; 8 and 9 units as of June 30, 2013 and December 31, 2012, respectively (a)	1,059,639	1,151,836
50% interest in 96 acres - vacant commercial use land in Galveston County, Texas (b)	541,000	-
5 acres - vacant commercial use land in Houston, Texas	1,303,905	1,303,905
19 acres - vacant mixed use land in Houston, Texas	1,072,833	1,072,833
12 acres - vacant mixed use land in Houston, Texas	742,731	742,731
174 acres in Waller County, Texas	1,684,066	1,684,066
	$ 7,480,417	$ 7,031,614

(a)

Dawn Condominium units on the waterfront in Galveston, Texas - During the three months ended June 30, 2013, one Dawn Condominium unit was sold for $53,651, resulting in a loss on sale of assets of $38,546.

(b)

50% interest in 96 acres of vacant commercial use land in Galveston County, Texas – On January 22, 2013, the Board of Directors of American approved the purchase of a 50% undivided interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II.

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:

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 7 - Discontinued operations

On April 3, 2012, AMIH sold all of the operating assets and liabilities of DSWSI, as discussed in Note 1.

The gain on disposal of DSWSI is summarized below:


	April 3, 2012
Cash	$ 1,600,000
Note receivable (1)	1,400,000
Total consideration	3,000,000
DSWSI's assets less associated liabilities	1,501,673
Gain on disposal of DSWSI	$ 1,498,327

(1)

On December 19, 2012, this note was sold to Messrs. Derrick and Burleigh for $1,020,000, and the gain on disposal of DSWSI was reduced by $380,000 to $1,118,327.

DSWSI's revenues and net loss before income tax and gain on disposal of discontinued operations are summarized below:


	For the Three Months Ended June 30, 2012	For the Six Months Ended June 30, 2012
Revenues	$ -	$ 3,598,374
Net loss before income tax	$ -	$ (883,373)
Gain on disposal of discontinued operations	$ 1,498,327	$ 1,498,327

Note 8 – Oil and Gas Properties

During the three and six months ended June 30, 2013, depletion expense of oil and gas properties of $52 and $78, respectively, was recorded. Costs of oil and gas properties are amortized using the units of production method. Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool and generally, no gain or loss is recognized.

Below are the components of Brenham’s oil and gas properties recorded:


	June 30, 2013	December 31, 2012
Royalty interest in 24 acres in Washington County, Texas (a)	$ -	$ -
Royalty interest in 700 acres in the Permian Basin (b)	8,400	8,400
10% working interest in the Pierce Junction Field (c)	87,500	-
Lease of 394 acres in the Gillock Field (d)	-	-
Capitalized asset retirement costs	1,868	-
Total oil and gas properties	97,768	8,400
Accumulated depletion	(78)	-
Net capitalized costs	$ 97,690	$ 8,400

Royalty interest in 24 acres in Washington County, Texas - We have an oil and gas mineral royalty interest covering a twenty-four acre tract of land located in Washington County, Texas, which is carried on the balance sheet at $0. The royalty interest is currently leased by Anadarko Petroleum Corporation for a term continuing until the covered minerals are no longer produced in paying quantities from the leased premises. Royalties on the minerals produced are currently incidental and paid to BOG as follows: (i) for oil and other liquid hydrocarbons, and (ii) for gas (including casing-head gas), the royalty is one-sixth of the net proceeds realized by Anadarko Petroleum Corporation on the sale thereof, less a proportionate part of ad valorem taxes and production, severance, or other excise taxes. In addition, BOG is entitled to shut-in royalties of $1 per acre of land for every ninety day period within which one or more of the wells in leased premises, or lands pooled therewith, are capable of producing paying quantities, but such wells are either shut-in or production is not being sold.

Royalty interest in 700 acres in the Permian Basin - On July 22, 2011, BOG entered into an Asset Purchase and Sale Agreement with Doug Pedrie, Davis Pedrie Associates, LLC and Energex Oil, Inc. (“Sellers”), pursuant to which BOG acquired 700 acres of unproved property located in the Permian Basin near Abilene, Texas. The agreement provided for the Sellers to complete all oil lease assignments by August 15, 2011. The purchase consideration for the acquisition is the issuance to Sellers of 2,000,000 restricted shares of Brenham common stock valued at $8,400, with an additional 2,000,000 restricted shares to be issued contingent upon realization of certain production targets in 2012. On March 8, 2012, this agreement was rescinded and replaced with an agreement that in consideration for the BOG share issuance, BOG has a 2.5% overriding royalty interest in all of the leases associated with this property and any properties acquired or renewed in the future within a ten-mile radius. In addition, the contingency to issue additional shares was removed.

10% working interest in the Pierce Junction Field - On March 12, 2013, Brenham entered into an agreement with an effective date of January 1, 2013, to purchase a 10% working interest in the Pierce Junction Field for $50,000 cash and a $70,000 non-interest bearing note payable due on August 31, 2013. On May 30, 2013, the holder of this note payable accepted $37,500 as full payment and Brenham recorded $32,500 as a reduction in the value of the oil and gas property due to the decrease in the consideration given to acquire it.

Lease of 394 acres in the Gillock Field - Brenham leased 394 acres in Galveston County for the acquisition of mineral rights for the Gillock Field from Kemah Development Texas, L.P. (“KDT”) and Daniel Dror II Trust of 2012 for $300 per acre, or $131,100 and 200,000 shares of American restricted common stock. The $131,100 is to be paid as follows: $100,000 on or before June 30, 2013 and $31,100 on or before October 30, 2013. KDT subsequently extended the payment terms for these amounts to on or before October 31, 2013. Brenham issued 3,326,316 shares of Brenham restricted common stock to American as payment in full for the 200,000 shares issued by American on Brenham’s behalf. In 2002, KDT paid $1,175,000 for the original 437 acres and the mineral rights to 394 acres. However, KDT assigned no value to the mineral rights. Due to the related parties having no basis in the mineral rights, Brenham expensed the costs associated with the transaction which totaled $447,100 and consisted of i) $316,000 of stock-based compensation calculated at the grant date fair value of the 3,326,316 shares of Brenham common stock issued to American (which equaled the grant date fair value of the common stock American issued to KDT and the Daniel Dror II Trust) and ii) the $131,100 related party payable.

The following table sets forth the changes in the total cost of oil and gas properties during the six months ended June 30, 2013:


Balance at beginning of period – December 31, 2012	$ 8,400
Acquisition of oil and gas interests:
Cash	87,500
Capitalized asset retirement costs	1,868
Balance at end of period – June 30, 2013	$ 97,768

Note 9 - Property and Equipment

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


	Years	June 30, 2013	December 31, 2012
Land	-	$ 1,663,020	$ 1,663,020
Building and improvements	20	922,945	922,945
Machinery and equipment	7-15	112,991	112,991
Office equipment and furniture	7	150,900	150,900
		2,849,856	2,849,856
Less accumulated depreciation		(900,902)	(878,090)
Net property and equipment		$ 1,948,954	$ 1,971,766

Depreciation expense for the three and six months ended June 30, 2013 and 2012 was $11,406, $22,812, $15,168, and $30,218, respectively.

Note 10 - Intangible Assets

Intangible assets at June 30, 2013 consisted of the following:


	Gross Carrying Amount	Accumulated Amortization	Intangibles, net	Average Weighted Lives
Goodwill related to the acquisition of NPI			$ 674,539	N/A

Patents for new NPI products and tooling	$ 208,848	$ 50,196	$ 158,652	3-10 years

Intangible assets at December 31, 2012 consisted of the following:


	Gross Carrying Amount	Accumulated Amortization	Intangibles, net	Average Weighted Lives
Goodwill related to the acquisition of NPI			$ 674,539	N/A

Patents for new NPI products and tooling	$ 187,909	$ 28,927	$ 158,982	3-10 years

Amortization expense for the three and six months ended June 30, 2013 and 2012 was $10,804, $21,269, $5,544, and $7,690, respectively.

Note 11 - Long-term Debt

Long-term debt consisted of the following:


	June 30, 2013	December 31, 2012
Note payable to a bank, due in monthly installments of $11,549, including interest at 7.25% with a principal balance due in November 2013, secured by real property. (a)	$ 1,357,382	$ 1,374,399
Revolving line of credit to a bank, which allows NPI to borrow up to $2,000,000, interest due monthly at the greater of prime (3.25%) plus one or 5%, principal balance due April 30, 2014, secured by assets of NPI. (a)	1,683,557	1,615,963
Note payable to a bank, due in quarterly payments of interest only, with interest at 5%, with a principal balance due in May 2014, secured by real property.	1,150,000	1,300,000
Note payable, due in monthly payments of $1,000, with interest at 4%, due March 2014 (a)	9,000	15,000
	4,199,939	4,305,362
Less current portion	(4,199,939)	(3,002,362)
	$ -	$ 1,303,000

(a) Daniel Dror, Chairman and CEO of American, is a personal guarantor of these notes payable.

Each of American's subsidiaries that have outstanding notes payable has secured such notes by that subsidiary’s inventory, accounts receivable, property and equipment and guarantees from American.

Principal repayment provisions of long-term debt are as follows at June 30, 2013 for the years ending December 31:


2013	$ 1,363,382
2014	2,836,557
Total	$ 4,199,939

Note 12 - 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 1,000 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.

On June 9, 2011, the Board of Directors of American approved the issuance to Daniel Dror, CEO, of 1,000 shares of the Company’s Series A Preferred Stock. Mr. Dror has personally guaranteed the following loans of American, and without such guarantees, American would not have been able to receive such funding: (1) a $1,450,000 loan to Northeastern Plastics (“NPI”) at Icon Bank; (2) a $3,000,000 loan to Delta Seaboard at Trustmark National Bank; (3) a $1,850,000 loan to the Company, Rob Derrick and Ron Burleigh at Texas Community Bank (which has since been repaid); and (4) a $3,250,000 loan to NPI at Trustmark National Bank (collectively the “loans”); which the Company has received and continues to receive significant value. Based on 1% of the outstanding balances of these loans at June 9, 2011, American valued these preferred shares and recorded a guarantor fee of $49,463 to prepaid expenses. This amount is being amortized to expense over the remaining terms of these loans. During the three and six months ended June 30, 2013, American recorded amortization of $1,477 and $2,955, respectively.

The Series A Preferred Stock, as amended, has the right to vote in aggregate, on all shareholder matters votes equal to 30% of the total shareholder vote on any and all shareholder matters. The Series A Preferred Stock will be entitled to this 30% voting right no matter how many shares of common stock or other voting stock of American are issued or outstanding in the future. For example, if there are 10,000 shares of American’s common stock issued and outstanding at the time of a shareholder vote, the holder of the Series A Preferred Stock (Mr. Dror), voting separately as a class, will have the right to vote an aggregate of 4,286 shares, out of a total number of 14,286 shares voting. Additionally, American shall not adopt any amendments to American’s Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock.

American is authorized to issue up to 50,000,000 shares of Common Stock, $0.001 par value per share, of which 103,680 are reserved for issuance pursuant to the exercise of options pursuant to an employment agreement with American's Chairman and CEO.

On January 22, 2013, the Board of Directors of American approved the purchase of a 50% interest in 96 acres in Galveston County from Kemah Development Texas, L.P. (“KDT”) for 300,000 shares of American restricted common stock, valued at $360,000, and the $181,000 note receivable from Daniel Dror II (Note 4). Daniel Dror II is the adult son of Daniel Dror, American’s Chairman, Chief Executive Officer, and President. KDT is owned by an entity which is controlled by the brother of Daniel Dror. Daniel Dror disclaims any ownership in or control over KDT. This property is recorded on the balance sheet as “Real estate held for sale” for $541,000 (Note 6).

On February 28, 2013, Brenham leased 394 acres in Galveston County for the acquisition of mineral rights for the Gillock Field from KDT and Daniel Dror II Trust of 2012 for $300 per acre, or $131,100 and 200,000 shares of American restricted common stock. Brenham issued 3,326,316 shares of Brenham restricted common stock to American as payment in full for the 200,000 shares issued by American on Brenham’s behalf.

A summary of the status of American's stock options to employees for the six months ended June 30, 2013 is presented below:


	Shares	Weighted Average Exercise Price	Intrinsic Value
Outstanding and exercisable as of December 31, 2012	10,000	$ 6.00
Granted	-	N/A
Exercised	-	N/A
Canceled / Expired	-	N/A
Outstanding and exercisable as of June 30, 2013	10,000	$ 6.00	$ -

Stock-based compensation consisted of the following:


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Common shares issued for services	$ -	$ 22,600	$ 342,880	$ 22,600
Stock-based compensation	$ -	$ 22,600	$ 342,880	$ 22,600

During the six months ended June 30, 2013, American issued the following shares for services:

American issued 21,000 shares of common stock valued at $26,880 to employees for bonuses, which were accrued and expensed as of December 31, 2012.

American issued 200,000 shares of common stock valued at $316,000 for the acquisition of mineral rights for the Gillock Field from KDT and Daniel Dror II Trust of 2012.

During the three and six months ended June 30, 2012, American and its subsidiaries issued the following shares for services:

American issued 80,000 shares of common stock valued at $17,600 to a third party.

Brenham issued 100,000 shares of its common stock with a value of $5,000 to a third party.

During the six months ended June 30, 2012, AMIH declared preferred dividends of $20,000, which were accrued and unpaid. On June 29, 2011, AMIH entered into an agreement, with an effective date of July 1, 2011, with Vision Opportunity Master Fund, Ltd. (“VOMF”), pursuant to which VOMF agreed to convert 3,769,626 shares of the Company’s preferred stock, constituting all of AMIH’s outstanding preferred stock, into 37,696 shares (3,769,626 shares pre-split) of common stock and also agreed to waive all accrued dividends payable on the preferred stock. In consideration for the conversion, AMIH agreed to pay VOMF total consideration of $250,000, $50,000 of which was paid on July 1, 2011, and the $200,000 remainder is due and payable at the rate of $20,000 per month. On February 23, 2012, AMIH completed the agreement with VOMF. VOMF accepted a payment of $65,000 in full satisfaction of this note, and the difference of $15,000 was recognized as other income from forgiveness of debt. On February 29, 2012, 3,769,626 shares of AMIH's preferred stock were converted into 37,696 shares (3,769,626 shares pre-split) of AMIH's common stock and accrued dividends of $1,055,000 were forgiven. On March 11, 2013, American and VOMF entered into a securities purchase agreement whereby American paid $12,000 in exchange for the 41,768 common shares of AMIH owned by VOMF.

Note 13 – Income (Loss) Per Share

The numerator for net income (loss) per common share is determined as follows:


	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2013	2012	2013		2012
Loss from continuing operations, net of income taxes	$ (674,445)	$ (1,023,588)	$ (1,532,728)		$ (1,596,529)
Net (income) loss attributable to the non-controlling interest	28,246	(166,194)	242,325		363,363
Net loss from continuing operations	$ (646,199)	$ (1,189,782)	$ (1,290,403)		$ (1,233,166)

Gain on disposal of discontinued operations	$ -	$ 1,498,327	$ -		$ 1,498,327
Loss from discontinued operations, net of income taxes	-	-	-		(922,517)
Net income from discontinued operations	$ -	$ 1,498,327	$ -		$ 575,810

Note 14 - Segment Information

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;

American International Holdings Corp. (“AMIH”), formerly Delta Seaboard International ("Delta") - a 93.2% owned subsidiary, was an onshore rig-based well-servicing contracting company providing services to the oil and gas industry; As of June 30, 2013, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation and formerly a subsidiary of Delta, was a wholly-owned subsidiary of AMIH. On April 3, 2012, AMIH entered into an Asset Purchase Agreement to sell the operating assets and liabilities of DSWSI (Notes 1 and 7).

American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.

Brenham Oil & Gas ("BOG") - a 53.3% owned subsidiary that currently owns oil and gas properties (Note 8). 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. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa.

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.

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 currently significant to the consolidated financial statements.

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


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Revenues:
Northeastern Plastics	$ 1,006,463	$ 964,906	$ 2,508,081	$ 2,110,560
BOG	8,079	132	16,722	411
AITP	2,604	13,989	9,946	21,470
Total revenues	$ 1,017,146	$ 979,027	$ 2,534,749	$ 2,132,441

Operating loss from continuing operations:
Northeastern Plastics	$ (290,471)	$ (229,187)	$ (358,939)	$ (431,541)
AMIH	(36,166)	(54,877)	(74,644)	(76,877)
AITP	(68,681)	(260,986)	(73,562)	(287,947)
BOG	(57,733)	(57,002)	(538,579)	(76,677)
Corporate	(190,911)	(253,546)	(459,663)	(625,541)
Operating loss from continuing operations	(643,962)	(855,598)	(1,505,387)	(1,498,583)
Other expenses from continuing operations	(26,370)	(154,350)	(21,221)	(124,504)
Net loss from continuing operations before income tax	$ (670,332)	$ (1,009,948)	$ (1,526,608)	$ (1,623,087)


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Depreciation and amortization:
Northeastern Plastics	$ 21,766	$ 19,436	$ 43,194	$ 35,280
BOG	141	-	167	-
Corporate	444	1,276	887	2,628
Total depreciation and amortization	$ 22,351	$ 20,712	$ 44,248	$ 37,908

Interest expense:
Northeastern Plastics	$ 43,678	$ 40,620	$ 91,263	$ 77,032
Corporate	15,860	17,884	32,536	40,480
Total interest expense	$ 59,538	$ 58,504	$ 123,799	$ 117,512

Capital expenditures:
Northeastern Plastics	$ -	$ -	$ -	$ 3,510
BOG	-	-	87,500	-
Total capital expenditures	$ -	$ -	$ 87,500	$ 3,510
Non-cash investing and financing transactions:
AMIH
AMIH dividends declared and unpaid			$ -	$ 20,000
Reversal of preferred dividends of AMIH			$ -	$ 1,055,000
Note receivable received from sale of AMIH’s assets			$ -	$ 1,400,000
BOG
Capitalized asset retirement costs			$ 1,868	$ -
Corporate
Unrealized gain (loss) on marketable securities			$ (26,000)	$ 5,200
Adjustment to non-controlling interest in AMIH and BOG			$ 172,151	$ 565,113
Stock issued to related party for real estate			$ 360,000	$ -
Conversion of related party note receivable for real estate			$ 181,000	$ -
Conversion of BOG payable owed to AMIN to equity			$ 125,181	$ -
Receipt of AMIH common shares for stock subscription receivable			$ 16,500	$ -


	June 30, 2013	December 31, 2012
Identifiable assets:
Northeastern Plastics	$ 6,761,684	$ 7,495,101
AITP	5,989,626	6,555,087
AMIH	2,441,734	2,513,212
BOG	116,808	15,079
Total identifiable assets	$ 15,309,852	$ 16,578,479

Note 15 - Subsequent Events

From July 1, 2013 through August 14, 2013, American paid $1,011 to repurchase 700 shares of its common stock.

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". "American" 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, Texas 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.

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

American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.

Brenham Oil & Gas ("BOG") – a 53.3% owned subsidiary that currently owns oil and gas properties (Note 8). 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. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa.

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 complementary businesses and by expanding the operations of our existing businesses, especially in the energy sector. We will evaluate whether additional and complementary 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 and Six Months Ended June 30, 2013 Compared to the Three and Six months Ended June 30, 2012.

The following is derived from, and should be read in conjunction with, our unaudited consolidated financial statements, and related notes for the three and six months ended June 30, 2013 and 2012.

Net revenues. Revenues from continuing operations were $1,017,146 for the three months ended June 30, 2013, compared to $979,027 for the three months ended June 30, 2012, representing an increase of $38,119, or 3.9%. Revenues from continuing operations were $2,534,749 for the six months ended June 30, 2013, compared to $2,132,441 for the six months ended June 30, 2012, representing an increase of $402,308, or 18.9%. NPI's revenues increased by $41,557, or 4.3%, to $1,006,463 for the three months ended June 30, 2013, compared to $964,906 for the same period in the prior year. NPI's revenues increased by $397,521, or 18.8%, to $2,508,081 for the six months ended June 30, 2013, compared to $2,110,560 for the same period in the prior year. NPI has added several new customers and expects to add additional medium to large customers this year. For the three and six months ended June 30, 2013 and 2012, Brenham's revenues were $8,079, $16,722, $132, and $411, respectively. For the three and six months ended June 30, 2013 and 2012, AITP's revenues were $2,604, $9,946, $13,989, and $21,470, respectively.

Cost of sales and margins. Cost of sales for the three months ended June 30, 2013 was $776,742, compared to $699,483 for the three months ended June 30, 2012. Cost of sales for the six months ended June 30, 2013 was $1,894,741, compared to $1,500,299 for the six months ended June 30, 2012. Our gross margins for the three and six months ended June 30, 2013 were 23.6% and 25.2%, respectively, compared to gross margins for the three and six months ended June 30, 2012 of 28.6% and 29.6%. The decrease in margins was primarily due to the product mix at NPI.

Selling, general and administrative. Consolidated selling, general and administrative expenses for the three months ended June 30, 2013 were $845,820, compared to $1,079,870 in the prior year, representing a decrease of $234,050, or 21.7%. Consolidated selling, general and administrative expenses for the six months ended June 30, 2013 were $2,106,849, compared to $2,062,715 in the prior year, representing an increase of $44,134, or 2.1%. General and administrative expenses for the three months ended June 30, 2013 decreased from the same period in the prior year primarily due to lower legal and professional expenses and lower property tax expenses. During the three and six months ended June 30, 2012, AITP incurred $157,759 in property tax expenses for past due amounts owed on the Dawn Condominiums.

Gain (loss) on sale of assets. Loss on sale of assets for the three and six months ended June 30, 2013 was $38,546 and $38,546, respectively, compared to $55,272 and $68,010, respectively, for the three and six months ended June 30, 2012. During the three months ended June 30, 2013, one Dawn Condominium unit was sold for $53,651, resulting in a loss on sale of assets of $38,546. During the three months ended June 30, 2012, one Dawn Condominium unit was sold for $122,269, resulting in a loss on sale of assets of $55,272. During the six months ended June 30, 2012, four Dawn Condominium units were sold for $462,471, resulting in a loss on sale of assets of $68,010. (see Note 6 to the consolidated financial statements).

Income (loss) from operations. We had operating losses of $643,962 and $1,505,387, respectively, for the three and six months ended June 30, 2013, compared to $855,598 and $1,498,583, respectively, for the three and six months ended June 30, 2012.

Total other income/expenses. Other expenses were $26,370 for the three months ended June 30, 2013, compared to $154,350 for the three months ended June 30, 2012. Other expenses were $21,221 for the six months ended June 30, 2013, compared to $124,504 for the six months ended June 30, 2012. Other expenses for the three and six months ended June 30, 2012 included an expense of $49,281 for the Botts lawsuit settlement. Other expenses for the three months ended June 30, 2013 included non-cash unrealized losses on trading securities of $28,533, compared to $78,604 for the three months ended June 30, 2012. Realized gains on trading securities for the three months ended June 30, 2013 were $23,953 compared $12,764 for the three months ended June 30, 2012. Other expenses for the six months ended June 30, 2013 included non-cash unrealized losses on trading securities of $88,323, compared to $8,458 for the six months ended June 30, 2012. Realized gains on trading securities for the six months ended June 30, 2013 were $132,627 compared to $12,764 for the six months ended June 30, 2012. Interest expense was $59,538 during the three-month period ended June 30, 2013, compared to $58,504 during the same period in the prior year. Interest expense was $123,799 during the six-month period ended June 30, 2013, compared to $117,512 during the same period in the prior year.

Net loss. We had a net loss from continuing operations of $674,445, or $0.34 per share, for the three months ended June 30, 2013, compared to $1,023,588, or $0.78 per share, for the three months ended June 30, 2012. We had a net loss from continuing operations of $1,532,728, or $0.71 per share, for the six months ended June 30, 2013, compared to $1,596,529, or $0.80 per share, for the six months ended June 30, 2012. We had net income from discontinued operations of $0, or $0.00 per share, for the three months ended June 30, 2013, compared to $1,498,327, or $0.98 per share, for the same period in the prior year. We had net income from discontinued operations of $0, or $0.00 per share, for the six months ended June 30, 2013, compared to net income of $575,810, or $0.37 per share, for the six months ended June 30, 2012. Discontinued operations for the six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the total initial consideration of $3,000,000 less DSWSI's assets and associated liabilities of $1,501,673 (On December 19, 2012, the $1,400,000 note receivable from the sale of DSWSI’s assets was sold to Messrs. Derrick and Burleigh for $1,020,000, and the gain on disposal of DSWSI was reduced by $380,000 to $1,118,327. See Note 7 to the consolidated financial statements). Net income from discontinued operations for the six months ended June 30, 2012 includes DSWSI's net loss of $922,517.

Our net loss was $646,199, or $0.34 per share, for the three months ended June 30, 2013, compared to net income of $308,545, or $0.20 per share, for the three months ended June 30, 2012. Our net loss was $1,290,403, or $0.71 per share, for the six months ended June 30, 2013, compared to $657,356, or $0.43 per share, for the six months ended June 30, 2012.

Liquidity and Capital Resources

Liquidity is our ability to generate sufficient cash flows to meet the Company’s obligations and commitments, or obtain appropriate financing. Currently, our liquidity needs arise primarily from working capital requirements, debt service on indebtedness, and capital expenditures. We have funded these liquidity requirements from proceeds from notes receivable of $816,745.

Capital expenditures for the six months ended June 30, 2013 were $87,500 compared to $3,510 for the same period in the prior year. The Company has no major capital expenditure commitments for the next 12 months.

Net cash used in operating activities from continuing operations was $648,434 for the six months ended June 30, 2013, compared to $1,748,654 for the six months ended June 30, 2012. Net cash used in operating activities for the six months ended June 30, 2013 was derived primarily from our net loss from continuing operations of $1,532,728, a decrease in accounts payable of $445,086, and an increase in inventories of $170,672, offset by stock-based compensation of $342,880, related party payable of $131,100, and a decrease in accounts receivable of $1,040,929. Accounts receivable decreased significantly due to collections made in the six months ended June 30, 2013 resulting from higher revenues at NPI during the three months ended December 31, 2012. Accounts payable decreased significantly due to payments made in the six months ended June 30, 2013 for expenses incurred during the three months ended December 31, 2012 in support of the higher revenues at NPI.

The Company's prospects for selling real estate from its portfolio have improved significantly due to infrastructure developments in close proximity to these properties. Management believes that demand and prices for real estate will increase during the next 12 months from the date of this report. The appraised values of the Company's portfolio of real estate are significantly higher than the value recorded on the books.

For the six months ended June 30, 2013, our investing activities provided cash of $696,804, compared to $2,089,018 during the six months ended June 30, 2012. Our financing activities used cash of $56,017 during the six months ended June 30, 2013, compared to cash provided of $867,080 during the six months ended June 30, 2012.

NPI has a line of credit from Trustmark Bank in the amount of $2,000,000, which has a maturity date of April 30, 2014.

We believe that our cash on hand, operating cash flows, and credit facilities will be sufficient to fund our operations, service our debt, and fund planned capital expenditures for at least 12 months from the date of this report.

Total assets at June 30, 2013 were $15,309,852, compared to $16,578,479 at December 31, 2012, representing a decrease of $1,268,627. At June 30, 2013, consolidated working capital was $6,705,147, compared to working capital of $9,239,149 at December 31, 2012, representing a decrease of $2,534,002. Total assets as of June 30, 2013, included real estate held for sale of $7,480,417 (see Note 6), inventories of $2,002,976, accounts receivable of $1,144,910, cash and cash equivalents of $1,008,807, $590,697 in notes receivable, $97,690 in oil and gas properties, and $1,948,954 of property and equipment.

We had total liabilities of $5,209,646 as of June 30, 2013, which included $5,166,262 of current liabilities, consisting of $835,223 of accounts payable and accrued expenses, $131,100 in accounts and notes payable to related parties, and $4,199,939 of current installments of long-term debt, and long-term liabilities of $43,385, consisting of accrued pension expense of $41,427 and asset retirement obligation of $1,957.

Cash flow from operations. Net cash used in operating activities from continuing operations was $648,434 for the six months ended June 30, 2013, compared to $1,748,654 for the six months ended June 30, 2012. Net cash used in operating activities for the six months ended June 30, 2013 was derived from our net loss from continuing operations of $1,532,728, which included non-cash expenses of $390,083, including depreciation, depletion, and amortization of $44,248, share-based compensation of $342,880, and amortization of guarantor fee of $2,955. Our net loss from continuing operations of $1,596,529 for the six months ended June 30, 2012 included non-cash expenses of $77,535, including depreciation and amortization of $37,908, share-based compensation of $22,600, and amortization of guarantor fee of $17,027. Accounts receivable decreased by $1,040,929 during the six months ended June 30, 2013, compared to $163,340 during the same period in 2012. Accounts payable decreased by $445,086 during the six months ended June 30, 2013, compared to an increase of $56,850 during the same period in 2012. Accounts receivable decreased significantly due to collections made in the six months ended June 30, 2013 resulting from higher revenues at NPI during the three months ended December 31, 2012. Accounts payable decreased significantly due to payments made in the six months ended June 30, 2013 for expenses incurred during the three months ended December 31, 2012 in support of the higher revenues at NPI. Our inventories increased by $170,672 for the six months ended June 30, 2013, compared to an increase of $418,288 during the six months ended June 30, 2012. Accounts payable- related party increased by $131,100 for the six months ended June 30, 2013 due to the lease acquisition by Brenham from KDT.

Cash flow from investing activities. For the six months ended June 30, 2013, our investing activities provided cash of $696,804 primarily as a result of proceeds from notes receivable of $816,745, sales of trading securities of $184,355, offset by purchases of trading securities of $213,808 and the purchase of oil and gas properties of $87,500. Our investing activities provided cash of $2,089,018 during the six months ended June 30, 2012, primarily as a result of proceeds from the sale of the assets of DSWSI of $1,600,000 and proceeds from the sale of real estate of $462,471.

Cash flow from financing activities. Our financing activities used cash of $56,017 during the six months ended June 30, 2013, primarily as a result of payments on debt of $173,017 and a reduction in bank overdrafts of $80,598, offset by proceeds from the sale of common stock of a subsidiary of $100,000, net borrowings under line of credit agreements of $67,594, and proceeds from stock subscription receivables of $55,500. During the six months ended June 30, 2012, our financing activities provided cash of $867,080, primarily as a result of net borrowings under lines of credit agreements of $1,094,000, offset by payments on debt of $194,554.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As of June 30, 2013, 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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

American International Industries, Inc. v. Rubicon Financial Incorporated. On March 5, 2010, American filed suit against Rubicon Financial Corporation (OTCBB: RBCF.OB), a Nevada corporation with offices in Irvine, CA ("Rubicon"), and Rubicon's control person, chief executive officer and primary financial officer, Joe Mangiapane, Jr., in the District Court, 281st Judicial District, Harris County, TX, for breach of contract, rescission, fraudulent inducement, common law fraud and fraud in the sale of securities. The action related to the acquisition by American on November 27, 2007, of 1,000,000 restricted shares of Rubicon's common stock for a $1,000,000 cash payment and the issuance of 200,000 restricted shares of American's common stock, valued at $4.90 per common share based upon the closing market price on the date of acquisition.

On May 7, 2013, a settlement agreement was reached, whereby American received $7,500 from Rubicon and Joe Mangiapane, Jr. for the release of all claims arising out of or in connection with this suit.

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, 2012.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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 CEO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

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 AND CHAIRMAN

Dated: August 14, 2013

/s/ SHERRY L. MCKINZEY

CHIEF FINANCIAL OFFICER

Dated: August 14, 2013

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