Dear fellow shareholders,

American International Industries, Inc. achieved several key milestones in 2007.  Our shares of common stock began trading on the NASDAQ Capital Market on August 21, 2007.  The Company’s revenues increased for a fourth straight year to a record level of $34.9 million, total assets increased by 22%, and stockholders’ equity increased by 20%. Our ongoing strategy of providing financing and management expertise for our subsidiaries continues to enhance our financial position and improve shareholder value. 

We produced record results for 2007 and substantially improved our financial profile from our asset portfolio, which consists of wholly-owned and majority-owned subsidiaries, as follows: 

·        Northeastern Plastics, Inc. (NPI), a wholly-owned subsidiary, 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. NPI's diversified products are sold in the automotive and consumer retail and after market channels. NPI currently markets its diversified product assortment under the Good Choice® and MOTOR TREND® brand names.

·        Delta Seaboard Well Service, Inc. (Delta), a 51% owned subsidiary, an onshore rig-based well-servicing contracting company providing services to the oil and gas industry.

·        Hammonds Industries, Inc. (OTCBB:"HMDI"), a 48.2% owned subsidiary, is a public reporting company, which owns 100% of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc. (collectively "Hammonds"):

o       Hammonds Technical Services – a business engaged in fuel handling equipment for the United States military and industrial customers, a provider of fuel injection services for the aviation industry, and the designer of a new line of omni directional vehicles (ODV®) for a wide variety of uses;

o       Hammonds Fuel Additives – produces and markets motor and aviation fuel additives; and

o       Hammonds Water Treatment – manufactures patented systems which provide water disinfection for a wide range of potable and waste water applications. 

In addition, the Company continues to own 287 undeveloped acres of waterfront property on Dickinson Bayou and Galveston Bay in Galveston County, Texas. The book value for this property is $225,000, based on its historic cost, and is under contract for sale at $16.0 million.  During 2007, the Company purchased for investment a 174 acre tract of land in Waller County, Texas for $1.7 million. This property is listed for sale with a real estate broker.  Management believes that these two properties should be sold in 2008, which will substantially increase the Company’s cash and working capital positions. 

American International Industries, Inc. is a growing diversified holding company with a business model emphasis on enhancing assets and stockholders’ equity to facilitate substantial future revenues and earnings per share. To that end, during the past five years, the Company has increased assets to $44.6 million at December 31, 2007, or an increase of $33.4 million, or 299%, from $11.2 million at December 31, 2002; the Company has increased stockholders’ equity to $27.1 million at December 31, 2007, or an increase of $19.0 million, or 234%, from $8.1 million at December 31, 2002. 

Financial highlights of 2007 

·        We reported record revenues of $34.9 million for the twelve months ended December 31, 2007, compared to $33.4 million in 2006, an increase of approximately 5%. 

·        Revenues generated by our Hammonds subsidiary increased by $3.6 million, or 56%, to $10.1 million.  Increasing demand for Hammonds Water Treatment products and Hammonds Technical Services’ transport mounted injection systems is driving the increase in revenues at our Hammonds subsidiary. 

·        The Company added shareholder value by significantly strengthening the balance sheet in 2007:

o        Total assets increased by $8.0 million.

o        Working capital increased by $10.2 million.

o        Stockholders’ equity increased by $4.5 million. 

Looking forward to 2008 and beyond 

·        Without any potential acquisitions, we project revenues for 2008 in excess of $45 million. 

o       With the investment in manufacturing assets, Hammonds is ideally positioned to meet growing demand for its innovative products and experience unprecedented growth.  Hammonds’ backlog of orders was $3.7 million at December 31, 2007. This backlog, as well as the increasing acceptance of its existing products and prospects for introduction of its technology in new markets, has Hammonds on track for substantial revenue growth for 2008 and 2009. Recent fuel cost increases have resulted in increased demand for injector technologies to achieve fuel economies. Also, recent acceptance of Hammonds’ ODV® by The Boeing Company and the U.S. Army present the potential for significantly increasing demand for our materials handling and aircraft positioning equipment.  New manufacturing processes and equipment should appreciably lower manufacturing costs.  Hammonds expects to enjoy improved profitability through better absorption of fixed costs over an increasing revenue base. 

o       NPI projects that its revenues will grow by over 15% for 2008.  NPI is in final negotiations with a major "big box" chain to distribute its Good Choice™ night light and wall tap products, and if successful, this should further increase revenues significantly in 2008.  NPI's strategic plan for 2008 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts, which will reduce risk and substantially increase revenues and profitability. 

o       Delta projects that its revenues will grow by over 12% for 2008.  Delta will activate a seventh well service rig during the second half of 2008, and expects this rig will add a minimum of $75,000 in monthly revenues. 

·        Management believes that these two properties mentioned above should be sold in 2008, which will substantially increase the Company’s cash and working capital positions. 

We remain focused on further strengthening our financial profile in 2008 and beyond. We believe that we can achieve growth and add shareholder value by continuing to pursue opportunities to acquire additional and complimentary businesses and by expanding the operations of our existing businesses. We will evaluate whether businesses can be acquired at reasonable terms and conditions, at attractive earnings multiples, and 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. Periodically, as opportunities present themselves, we may sell or merge the subsidiaries in order to bring value to our shareholders and to enable the Company to acquire larger companies. 

As stewards of the Company, our management team seeks opportunities to improve working capital through a variety of financing options. A key talent of our management team has been to acquire real estate and sell it for a substantial profit. The Company may acquire real estate for resale, based upon market conditions, location, and development potential. We will use profits from these ventures and continue to strengthen our relationships with financial institutions and outside investors to improve our asset portfolio. 

I wish to thank our management team and all of our employees for their hard work and dedication which lead to the Company’s record results for 2007. On behalf of our Board and management, I wish to express our gratitude to our shareholders for your continued support. We remain committed to delivering value to our shareholders and look forward to a bright future.