Chairman’s Letter

Dear fellow shareholders,

American International Industries, Inc. went through significant changes and produced excellent financial results in 2008.  In October, we acquired all of the assets of Shumate Machine Works and created Shumate Energy Technologies, Inc., our new wholly-owned subsidiary.  We deconsolidated from Hammonds Industries, Inc. in December, resulting in net income from deconsolidation of $9.3 million.  We reported net income of $8,381,667, or $1.07 per share, for the year ended December 31, 2008, compared to a net loss of $3,816,688, or $0.65 per share, for the year ended December 31, 2007.  Revenues from continuing operations were $32,108,660 for the year ended December 31, 2008, compared to $24,841,988 for the same period in the prior year, representing an increase of $7,266,672, or 29%.  Our ongoing strategy of providing financing and management expertise for our subsidiaries continues to enhance our financial position and improve shareholder value.

We restructured our asset portfolio in 2008, which now consists of two wholly-owned and a majority-owned subsidiary, as follows:

·        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.

·        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.

·        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.

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 listed with CBRE for sale to developers for $25.0 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 for the consideration of $3.5 million.  Management believes that these two properties should be sold in 2009 or 2010, which will substantially increase the Company’s cash and working capital positions. 

Financial highlights of 2008 

·        We reported record revenues from continuing operations of $32.1 million for the twelve months ended December 31, 2008, compared to $24.8 million in 2007, an increase of approximately 29%.  Revenues from continuing operations have increased by 49% from $16.7 million for the twelve months ended December 31, 2004.

·        Earnings from continuing operations before interest, taxes, depreciation and amortization (EDITDA) excluding special items was $415,159, or $0.05 per share, for the year ended December 31, 2008.  EDITDA from continuing operations excluding special items for the year ended December 31, 2007 reflected a net loss of $292,303, or $0.05 per share.

·        Assets from continuing operations were $36.0 million at December 31, 2008, compared to $33.5 million at December 31, 2007.  Since December 31, 2004, our assets from continuing operations have increased by 50% from $22.4 million.

Looking forward to 2009 and beyond 

Of course, no one can predict what the economy will do in 2009, however, we anticipate increased revenues and profitability from operations in 2009 over those of 2008, despite the slow down in the economy.  During the first quarter of 2009, SET announced that it was awarded a $2.9 million contract by a major energy services company.  We look forward to the value that SET will bring to American and anticipate realizing synergies between SET and Delta.

Management believes that the two properties mentioned above should be sold in 2009 or 2010, 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.

We remain focused on further strengthening our financial profile in 2009 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 2008. 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.

Daniel Dror

Chairman and C.E.O.