Dear fellow shareholders,

American International Industries, Inc. reported that its loss from continuing operations before interest, taxes, depreciation and amortization (EBITDA) significantly improved by $1,737,744 to $1,133,205, or $0.13 per share, for the year ended December 31, 2009, compared to EBITDA from continuing operations, excluding special items, for the year ended December 31, 2008, which reflected a loss of $2,870,949, or $0.37 per share. 

Our ongoing strategy of providing financing and management expertise for our subsidiaries continues to enhance our financial position and improve shareholder value.  Recently, we have taken the following actions to create and deliver additional value to our shareholders:

·        Created a new wholly-owned subsidiary, Downhole Completion Products, Inc., which will provide major international oil and gas service company end-users with the highest quality proprietary downhole/completion threaded products under any condition.

·        Established a new public company, Delta Seaboard International, Inc., through a reverse-merger transaction by which Delta Seaboard Well Service, Inc. was merged with and into Hammonds Industries, Inc.  Delta Seaboard International, Inc. is a separate public company, but is consolidated with American.

·         Declared a special dividend of shares of common stock of our subsidiary, Brenham Oil & Gas, Inc. (BOG) to American shareholders.  American shareholders of record (Record Date to be announced), will be issued one share of BOG common stock for each share of American common stock owned and held on the Record Date.  The BOG shares distributed to the non-affiliated shareholders of American will represent approximately 10% of all shares outstanding of BOG after the distribution.  American has engaged counsel to prepare a registration statement on Form S-1 in order to register the BOG shares being distributed to American shareholders.  We expect that the BOG shares will be issued to American shareholders in July 2010, and American’s non-affiliated shareholders will have registered, free-trading shares as soon as the SEC declares the registration statement effective.  BOG will then be a separate publicly-traded company.  BOG’s plan of operation is to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa.

Our asset portfolio now consists of three wholly-owned and a 48.2% owned subsidiary, as follows: 

·        Delta Seaboard International, Inc. (Delta), a 48.2% 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.

·        Downhole Completion Products, Inc. (DCP), a wholly-owned subsidiary, plans to deliver a forged synergy specifically designed for the oil and gas industry. We are excited to pursue our global objective to provide major international oil and gas service company end-users with the highest quality proprietary downhole/completion threaded products under any condition. Our new subsidiary plans to successfully implement DCP strategies with the intention of experiencing strong annual market share growth. In locations where premium quality downhole/completion products are demanded, DCP will be offering integrated professional services with our quality products.

·        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.  During the fourth quarter of 2009, American foreclosed on real property which was security for a note receivable owed to American, which was in default.  American was carrying this property on the balance sheet for $4,611,233 as of December 31, 2009. On April 1, 2010, we announced the completion of the sale of 8 acres of land located on Airport Boulevard in Houston, Texas for $450,000 cash and that a contract has been entered into with Continental Connections USA, LLC to sell the additional 34 acres on Airport Boulevard for $1,550,000 cash. The remaining property consists of 36 acres on Interstate 59 in Houston, Texas and it is listed for sale with a broker.  The appraised value of this property is approximately $9.1 million.  Management believes that these three properties should be sold in 2010 or 2011, which will substantially increase the Company’s cash and working capital positions. 

Financial highlights of 2009 

·        Primarily due to a decrease in pipe sales to the oil field service industry by Delta, revenues from continuing operations decreased by $6,451,982, or 20% to $25,656,678 for the year ended December 31, 2009, compared to $32,108,660 for the prior year.  Pipe sales revenues decreased during 2009 due to a decline in drilling activity creating decreased demand for pipe.  Delta’s revenues decreased by $10,342,022. NPI’s revenues decreased by $718,768, due to the decline in the economy.  The decreases in revenues and Delta and NPI were partially offset by the inclusion of a full year of revenues for Shumate of $7,193,272 compared to $2,584,464 for three months in the prior year.

·        Our loss from continuing operations was $3,237,436, or $0.37 per share, for the year ended December 31, 2009, compared to $834,881, or $0.11 per share, for the year ended December 31, 2008.  Our loss from continuing operations for the year ended December 31, 2009 included interest expense, taxes, and depreciation and amortization of $873,518, $51,364, and $1,179,349, respectively.  Our income from continuing operations for the year ended December 31, 2008 included interest expense, a tax benefit, and depreciation and amortization of $841,212, $52,540, and $647,851, respectively.  Special items included in our loss from continuing operations for the year ended December 31, 2008 were $1,450,000 from the Delta lawsuit settlement and a $4,922,591 gain on the Hammonds’ property dividend distribution. On March 17, 2010, we announced that Delta had reached a settlement and received a payment of $700,000 related to the lawsuit settlement in 2008. This amount will be included in other income for the three months ended March 31, 2010.  The settlement was a result of litigation brought by Delta against certain of its insurance companies for their failure to obtain appropriate insurance coverage and misrepresentation of the coverage it did obtain for Delta.

·        Assets from continuing operations were $31.0 million at December 31, 2009.  Since December 31, 2004, our assets from continuing operations have increased by 38% from $22.4 million.

Looking forward to 2010 and beyond 

Of course, no one can predict what the economy will do in 2010 however; we anticipate increased revenues and profitability from operations in 2010 over those of 2009, despite the slowdown in the economy. 

Management believes that the three properties mentioned above should be sold in 2010 or 2011, 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 2010 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. 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