SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

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

For the quarterly period ended ~~June~~September 30, 2010.

~~oTRANSITION~~o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____.

Commission file number 1-7160

		ALL AMERICAN GROUP, INC.
		(Exact name of registrant as specified in its charter)

Indiana		35-1101097
(State of incorporation or organization)		(IRS Employer Identification No.)

2831 Dexter Drive, Elkhart, Indiana		46514
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:

(574) 266-2500

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition 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 o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Number of shares of Common Stock, without par value, outstanding as of the close of business on ~~July~~October 31, 2010: 16 36,~~200~~750,~~134~~083

FORM 10-Q
INDEX
Part I. Financial Information	Page
Financial Statements:
Consolidated Balance Sheets at June 30, 2010 and December 31, 2009	3
Consolidated Balance Sheets at September 30, 2010 and December 31, 2009	3
Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009	4
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009	4
Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009	5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009	5
Notes to Consolidated Financial Statements	6-1517
Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618-2428
Quantitative and Qualitative Disclosures About Market Risk	2529
Controls and Procedures	2529
Part II. Other Information
Item 6. Exhibits	2630
Signatures	2731
Index to Exhibits	2832

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Index

All American Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands)

	June 30,			December 31,
	September 30,			December 31,
	2010			2009
Assets	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	32,~~585~~485		$	6,352
Restricted cash		8,~~340~~052			10,191
Trade receivables, less allowance for doubtful receivables 2010 - $316 and 2009 - $1,234		4,185			3,163
Trade receivables, less allowance for doubtful receivables 2010 - $414 and 2009 - $1,234		2,712			3,163
Other receivables		1,~~725~~691			1,426
Refundable income taxes		~~2,272~~182			1,939
Inventories		2017,~~008~~096			21,566
Prepaid expenses and other		23,~~538~~955			4,325
Assets held for sale		4,659			4,659
Total current assets		4740,~~312~~832			53,621
Property, plant and equipment, net		27,~~768~~333			28,787
Cash value of life insurance, net of loans		72			515
Restricted cash		4,~~599~~598			4,607
Other		1,~~559~~554			2,519
TOTAL ASSETS	$	8174,~~310~~389		$	90,049
Liabilities and Shareholders’ Equity
CURRENT LIABILITIES
Accounts payable, trade	$	89,~~975~~314		$	9,132
Accrued income taxes		~~444~~441			691
Accrued expenses and other liabilities		118,~~151~~736			11,933
Fair value of derivative instruments		126,~~926~~589			-
Current maturities of long-term debt		911,~~102~~194			369
Total current liabilities		4236,~~598~~274			22,125
Long-term debt		2,~~328~~248			2,828
Fair value of derivative instruments		-			13,030
Deferred income taxes		~~508~~-			508
Postretirement deferred compensation benefits		2,~~476~~369			2,753
Other		~~194~~64			448
Total liabilities		4840,~~104~~955			41,692
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS’ EQUITY
Common shares, without par value: authorized 60,000 shares; issued 2010 – 21,262 shares and 2009 – 21,257 shares		92,715			92,710
Common shares, without par value: authorized 100,000 shares; issued 2010 – 41,751 shares and 2009 – 21,257 shares		101,320			92,710
Additional paid-in capital		6,~~618~~365			6,547
Retained earnings (deficit)		(917,~~108~~558	)		6,195
Treasury shares, at cost, 2010 – 5,062 shares and 2009 – 5,074 shares		(57,019	)		(57,095	)
Treasury shares, at cost, 2010 – 5,000 shares and 2009 – 5,074 shares		(56,693	)		(57,095	)
Total shareholders’ equity		33,~~206~~434			48,357
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	8174,~~310~~389		$	90,049

See Notes to Consolidated Financial Statements.

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Index

All American Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net sales
Products	$	1815,~~741~~993		$	1615,~~350~~064		$	3854,~~852~~845		$	2641,~~795~~857
Delivery and set		~~902~~703			1,~~384~~010			2,~~265~~969			23,~~220~~231
		19,643			17,734			41,117			29,015
		16,696			16,074			57,814			45,088
Cost of sales
Products		1716,~~980~~304			15,~~255~~810			3653,~~927~~232			2743,~~508~~318
Delivery and set		~~906~~981			1,~~626~~208			23,~~267~~247			23,~~730~~938
		18,886			16,881			39,194			30,238
		17,285			17,018			56,479			47,256
Gross profit (loss)		~~757~~(589	)		~~853~~(944	)		1,~~923~~335			(12,~~223~~168	)
Operating expenses:
Selling		1,~~273~~278			~~997~~1,083			23,~~407~~685			12,~~635~~717
General and administrative		2,~~298~~749			2,~~534~~856			47,~~752~~502			68,~~122~~978
Gain on sale of assets, net		(479	)		(158	)		(1190	)		(1422	)
		3,567			3,516			7,148			7,743
		3,948			3,931			11,097			11,673
Operating loss		(24,~~810~~537	)		(24,~~663~~875	)		(59,~~225~~762	)		(813,~~966~~841	)
Nonoperating (income) expense:
Interest expense (income)		(2,516	)		595			3,046			1,460
Interest expense		4,140			924			7,186			2,385
Debt extinguishment loss		~~7,289~~-			-			7,289			-
Investment income		(70194	)		(~~323~~598	)		(~~533~~727	)		(~~570~~1,168	)
Other income, net		(~~139~~112	)		(4942	)		(~~245~~357	)		(~~850~~892	)
		4,564			223			9,557			40
		3,834			284			13,391			325
Loss from continuing operations before income taxes		(78,~~374~~371	)		(25,~~886~~159	)		(1423,~~782~~153	)		(914,~~006~~166	)
Income taxes, credit		-			(53	)		-			(53	)
Income taxes, (credit)		(214	)		34			(214	)		(19	)
Net loss from continuing operations		(78,~~374~~157	)		(25,~~833~~193	)		(1422,~~782~~939	)		(814,~~953~~147	)
Discontinued operations:
Loss from operations of discontinued entities		(212	)		(440	)		(520	)		(729	)
Income (loss) from operations of discontinued entities (net of taxes of $0)		(294	)		1,298			(814	)		382
Gain on sale of assets of discontinued entities		-			25			-			25
Gain on sale of assets of discontinued entities (net of taxes of $0)		-			-			-			25
Income from legal settlement (net of taxes of $188)		-			-			-			14,722
Income from legal settlement (net of taxes of $0)		-			-			-			14,910
Income (loss) from discontinued operations		(~~212~~294	)		~~(415~~1,298	)		(~~520~~814	)		1415,~~018~~317
Net income (loss)	$	(78,~~586~~451	)	$	(3,~~248~~895	)	$	(1523,~~302~~753	)	$	51,~~065~~170
Earnings (loss) per share – Basic and Diluted
Continuing operations	$	(0.4640	)	$	(0.1832	)	$	(01.9212	)	$	(0.5689	)
Discontinued operations		(0.01	)		(0.0308	)		(0.0304	)		0.8896
Net income (loss) per share	$	(0.4741	)	$	(0.2124	)	$	(01.9516	)	$	0.3207
Number of common shares used in the computation of earnings (loss) per share:
Basic		1620,~~194~~564			1516,~~819~~024			1620,~~192~~559			15,~~883~~946
Diluted		1620,~~194~~564			1516,~~819~~024			1620,~~192~~559			15,~~883~~965
See Notes to Consolidated Financial Statements.

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Index

All American Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six Months Ended
	Nine Months Ended
	June 30,
	September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(1523,~~302~~753	)	$	51,~~065~~170
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		12,~~762~~473			1,~~325~~910
Provision for doubtful receivables, net of recoveries		(445	)		(276	)
Amortization of discount on convertible debt		2,036			-
Amortization of discount on convertible debt		1,643			-
Fair value change in derivative instruments		2,161			-
Fair value adjustment to derivative instruments		(105	)		-
PIK interest and penalties		2,510			-
PIK interest		850			-
Debt extinguishment loss		7,289			-
Net realized and unrealized losses on derivatives		-			7222
Gain on sale of properties and other assets, net		(11	)		(39	)
Provision for doubtful receivables, net of recoveries		(213	)		(374	)
Increase in cash surrender value of life insurance policies		(2	)		(1,317	)
Gain on sale of properties and other assets, net		(90	)		(47	)
Other		(384	)		(47	)
Increase in cash surrender value of life insurance policies		(2	)		(931	)
Deferred income tax		(508	)		-
Other		(547	)		(187	)
Changes in certain assets and liabilities:
Accounts receivable		~~(876~~399	)		(91,~~336~~870	)
Inventories		14,~~558~~470			~~407~~3,166
Prepaid expenses and other		(~~677~~2,263	)		~~1,159~~651
Accounts payable, trade		~~(157~~182	)		(15,~~772~~586	)
Income taxes – accrued and refundable		~~(580~~1,507	)		(~~248~~620	)
Accrued expenses and other liabilities		(~~782~~3,197	)		(1115,~~343~~301	)
Net cash used in operating activities		(67,~~219~~546	)		(1614,~~350~~257	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of properties and other assets		~~302~~402			~~704~~713
Surrender of life insurance policies		445			771
Investments in life insurance policies		445			771
Purchases of property and equipment		(~~430~~561	)		(~~576~~712	)
Release of restricted cash and other		23,~~815~~112			32,~~281~~301
Net cash provided by investing activities		3,~~132~~398			43,~~180~~073
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings		-			2,345
Payments of short-term borrowings		-			(5,441	)
Proceeds from long-term debt		~~500~~550			2,~~000~~375
Payments of long-term debt		(~~185~~276	)		(~~210~~435	)
Proceeds from borrowings on cash value of life insurance policies		-			1,452
Issuance of common shares under stock incentive plans		57			1019
Purchases of common shares for treasury		-			(47	)
Net cash provided by financing activities		~~320~~281			~~109~~268
Decrease in cash and cash equivalents		(23,~~767~~867	)		(1210,~~061~~916	)
CASH AND CASH EQUIVALENTS:
Beginning of period		6,352			15,745
End of period	$	32,~~585~~485		$	34,~~684~~829

See Notes to Consolidated Financial Statements.

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Index

All American Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. BASIS OF PRESENTATION.

The condensed consolidated financial statements have been prepared by All American Group, Inc. (“the Company”), without audit, in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Management believes the disclosures made in this document are adequate so as not to make the information presented misleading.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements, taken as a whole, and read in conjunction with these notes, contain all adjustments which are of a normal recurring nature necessary to present fairly the financial position of the Company as of ~~June~~September 30, 2010, and the results of its operations and cash flows for the interim periods presented. Operating results for the ~~six~~nine-month period ended ~~June~~September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. ItManagement isrecommends ~~suggested~~ that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2009.

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Index

2. SEGMENT INFORMATION.

The Company has determined that its reportable segments are those that are based on the Company's method of internal reporting, which disaggregates its business by product category. The Company's two reportable segments are Specialty Vehicles and Housing. The Company evaluates the performance of its segments based primarily on net sales and pre-tax income and allocates resources to them based on performance. There are no inter-segment revenues. The Company allocates certain corporate expenses to these segments based on three dimensions: revenues, subsidiary structure and number of employees. Differences between reported segment amounts and corresponding consolidated totals represent corporate income or expenses for administrative functions and income, debt expenses, costs or expenses relating to property and equipment that are not allocated to segments.

The table below presents information about the segments, used by the chief operating decision maker of the Company for the three and six-month periods ended ~~June~~September 30 (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2010				2009				2010				2009
Net sales
Specialty vehicles		$	56,~~402~~471			$	23,~~867~~948			$	1219,~~675~~147		$	37,~~939~~887
Housing			1410,~~241~~225				1412,~~867~~126				2838,~~442~~667			2537,~~076~~201
Consolidated total		$	1916,~~643~~696			$	1716,~~734~~074			$	4157,~~117~~814		$	2945,~~015~~088
Gross profit
Specialty vehicles		$	~~599~~391			$	~~(162~~265	)		$	1,~~489~~881		$	(~~595~~330	)
Housing			~~158~~(980	)			(1,~~021~~202	)			~~434~~(546	)		(~~613~~1,814	)
Other reconciling items			-				(67	)			-			(1524	)
Consolidated total		$	~~757~~(589	)		$	~~853~~(944	)		$	1,~~923~~335		$	(12,~~223~~168	)
Operating expenses
Specialty vehicles		$	~~389~~397			$	~~288~~287			$	~~792~~1,189		$	~~573~~860
Housing			3,~~099~~106				3,~~198~~437				69,~~040~~146			69,~~044~~481
Other reconciling items			79445				30207				~~316~~762			1,~~126~~332
Consolidated total		$	3,~~567~~948			$	3,~~516~~931			$	711,~~148~~097		$	711,~~743~~673
Operating income (loss)
Specialty vehicles		$	~~211~~(6	)		$	(~~450~~22	)		$	~~697~~691		$	(1,~~168~~190	)
Housing			(24,~~942~~086	)			(24,~~177~~639	)			(59,~~606~~691	)		(611,~~656~~296	)
Other reconciling items			(79445	)			(36214	)			(~~316~~762	)		(1,~~142~~355	)
Consolidated total		$	(24,~~810~~537	)		$	(24,~~663~~875	)		$	(59,~~225~~762	)	$	(813,~~966~~841	)

	June 30,		December 31,
	September 30,		December 31,
	2010		2009
Total assets
Specialty vehicles	$	96,~~624~~898	$	6,715
Housing		4038,~~218~~610		42,461
Corporate and Other reconciling items		31,468		40,873
Corporate and other reconciling items		28,881		40,873
Consolidated total	$	8174,~~310~~389	$	90,049

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Index

3. INVENTORIES.

Inventories consist of the following (in thousands):

	June 30,		December 31,
	September 30,		December 31,
	2010		2009
Raw materials
Specialty vehicles	$	21,~~821~~686	$	3,493
Housing		32,~~296~~589		3,691
Other		-		14
Consolidated total		64,~~117~~275		7,198
Work in process
Specialty vehicles		1,~~871~~545		1,780
Housing		21,~~409~~245		1,554
Consolidated total		42,~~280~~790		3,334
Improved lots
Housing		391		391
Consolidated total		391		391
Finished goods
Specialty vehicles		~~415~~85		483
Housing		89,~~805~~555		10,160
Consolidated total		9,~~220~~640		10,643
Consolidated total	$	2017,~~008~~096	$	21,566

4. LONG-TERM ASSETS.

Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

	June 30, 2010		December 31, 2009
	September 30,		December 31,
	2010		2009
Land and improvements	$	7,310	$	7,549
Buildings and improvements		31,~~780~~860		31,777
Machinery and equipment		10,~~943~~969		10,789
Transportation equipment		109,~~256~~993		10,398
Office furniture and fixtures		14,~~336~~335		14,138
Total		74,~~625~~467		74,651
Less, accumulated depreciation		4647,~~857~~134		45,864
Property, plant and equipment, net	$	27,~~768~~333	$	28,787

At ~~June~~September 30, 2010, and December 31, 2009, the Company had $4.7 million classified in assets held for sale. These assets were available and listed for sale. These assets consisted of former Housing Segment property and buildings, including the former manufacturing facility in Zanesville, Ohio that was consolidated into a larger Indiana manufacturing plant, plus a warehouse and office building in Decatur, Indiana. ~~Additionally~~Also included is a former RV paint facility located in Elkhart, Indiana that the Company sold on December 5, 2007 for $2.9 million consisting of cash of $0.3 million and a $2.6 million secured note that was due in full December 2008. Due to the default on the secured note, the property reverted back to the Company during the third quarter of 2009.

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Index

4. LONG-TERM ASSETS, Continued.

Joint Venture – Note Receivable

In December 2007, the Company entered into an agreement to produce ADA compliant low floor accessible buses for ARBOC Mobility, LLC, a marketer of specialized transit and shuttle buses designed for users with mobility challenges. This bus incorporates patent pending technologies provided by ARBOC Mobility. In connection with the agreement with ARBOC Mobility, LLC, the Company agreed to finance up to $1.0 million of start up cash requirements. As of ~~June~~September 30, 2010, the Company has a note receivable of $0.9 million due from ARBOC Mobility, LLC for start up cash requirements. The note is on a month-by-month basis and bears interest at the rate of 1% per month on the principal balance. The note is included in other receivables on the Consolidated Balance Sheet at a net amount of $0.56 million after write-down for the Company’s portion of joint venture losses to date. The Company has a 30% interest in this entity and therefore accounts for this investment on the equity basis. Related party transactions with ARBOC Mobility, LLC include sales of $6.90 million and $518.10 million, respectively, infor the ~~first~~three and ~~second~~nine-month ~~quarters~~periods ofending September 30, 2010 and of $03.68 million and $27.60 million infor the ~~first~~corresponding ~~and~~periods ~~second quarters~~ of 2009. Outstanding accounts receivable were approximately $21.87 million at ~~June~~September 30, 2010 and ~~approximately $1.7 million at~~ December 31, 2009.

5. ACCRUED EXPENSES AND OTHER LIABILITIES.

Accrued expenses and other liabilities consist of the following (in thousands):

	June 30, 2010		December 31, 2009
	September 30,		December 31,
Wages, salaries, bonuses and commissions and other compensation	$	539	$	226
	2010		2009
Warranty		2,619		4,162
Wages, salaries, bonuses and commissions and other compensation	$	622	$	226
Insurance-products and general liability, workers compensation, group health and other		2,223		3,105
Warranty		2,081		4,162
Customer deposits and unearned revenues		2,472		1,391
Insurance-products and general liability, workers compensation, group health and other		1,573		3,105
Interest		605		400
Customer deposits and unearned revenues		1,858		1,391
Sales and property taxes		784		778
Interest		304		400
Other current liabilities		1,909		1,871
Sales and property taxes		862		778
Total	$	11,151	$	11,933
Other current liabilities		1,436		1,871
Total	$	8,736	$	11,933

Changes in the Company's warranty liability during the three and ~~six~~nine-month periods ended ~~June~~September 30 were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Balance of accrued warranty at beginning of period	$	32,~~444~~619		$	86,~~323~~565		$	4,162		$	9,688
Warranties issued during the period and changes in liability for pre-existing warranties		730			66			1,572			855
Warranties issued during the period and changes in liability for pre- existing warranties		415			544			1,988			1,399
Settlements made during the period		(~~1,555~~953	)		(1,~~824~~678	)		(34,~~115~~069	)		(35,~~978~~656	)
Balance of accrued warranty at June 30	$	2,619		$	6,565		$	2,619		$	6,565
Balance of accrued warranty at September 30	$	2,081		$	5,431		$	2,081		$	5,431

At ~~June~~September 30, 2010 warranty reserves include estimated amounts related to recreational vehicle warranty obligations retained by the Company after the sale of the recreational vehicle business in December 2008. The $10.0 million indemnity escrow account created as a result of the recreational vehicle business asset sale, which at ~~June~~September 30, 2010 has a balance of $32.18 million (see Note 11, Restricted Cash) is included in restricted cash at ~~June~~September 30, 2010, and is subject to reduction to pay for the recreational vehicle warranty obligations retained by the Company.

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Index

6. COMPREHENSIVE INCOME (LOSS).

The changes in the components of comprehensive income (loss) for the three and ~~six~~nine months ended ~~June~~September 30 are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net loss	$	(7,586	)	$	(3,248	)	$	(15,302	)	$	5,065
Net income (loss)	$	(8,451	)	$	(3,895	)	$	(23,753	)	$	1,170
Unrealized gains on securities		-			59			-			59
Unrealized loss on securities		-			(59	)		-			-
Unrealized gains on cash flow hedges, net of taxes		-			109			-			1322
Comprehensive loss	$	(7,586	)	$	(3,179	)	$	(15,302	)	$	5,137
Comprehensive income (loss)	$	(8,451	)	$	(3,945	)	$	(23,753	)	$	1,192

As of ~~June~~September 30, 2009 the accumulated other comprehensive income, net of tax, relating to deferred losses on cash flow hedges was ($6253,000). In October 2009, the interest rate swap agreement with a notional amount of $1.8 million that was used to convert the variable interest rates on an industrial development revenue bond to a fixed rate was terminated and paid.

7. EARNINGS PER SHARE AND COMMON STOCK MATTERS.

Basic earnings per share are based on the weighted average number of shares outstanding during the period. Diluted earnings per common share are based on the weighted average number of shares outstanding during the period, after consideration of the dilutive effect of stock options and awards and shares held in deferred compensation plans. Basic and diluted earnings per share for the three and ~~six~~nine-month period ended ~~June~~September 30 were calculated using the average shares as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

Nine Months Ended

September 30,

2010

2009

2010

2009

Numerator:

Net income (loss) available to common stockholders

(78,~~586~~451

)

(3,~~248~~895

)

(1523,~~302~~753

)

51,~~065~~170

Denominator:

Number of shares outstanding, end of period:

Weighted average number of common shares used in basic EPS

1620,~~194~~564

1516,~~819~~024

1620,~~192~~559

15,~~883~~946

Effect of dilutive securities

-19

Weighted average number of common shares used in dilutive EPS

1620,~~194~~564

1516,~~819~~024

1620,~~192~~559

15,~~883~~965

For the quarters ending ~~June~~September 30, 2010 and 2009, 76,200 and 78,900 shares of outstanding stock options respectively, were not included in the computation of diluted earnings per share because their exercise price was greater than the average market prices for the respective periods and their inclusion would have been antidilutive.

Share Repurchase Programs

Periodically, the Company has repurchased its common stock as authorized by the Board of Directors. Under the repurchase program, common shares are purchased from time to time, depending on market conditions and other factors, on the open market or through privately negotiated transactions. During August 2006, the Company announced that the Board of Directors had authorized a share repurchase of up to one million shares. During the first quarter of 2009, the Company repurchased 24,914 shares for a total cost, including commissions, of $46,993. At ~~June~~September 30, 2010, there are 931,071 shares remaining authorized for repurchase by the Board of Directors.

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Index

8. INCOME TAXES.

As of the beginning of fiscal year 2010, the Company had unrecognized tax benefits of $2.0 million including interest and penalties. During the 1st quarter of 2010, the Company reached a settlement with the IRS with respect to its appeal of the disallowance of Federal Research & ~~Expenditure~~Experimentation tax credits for the years 1999 to 2004. As a result of this settlement, unrecognized tax benefits were reduced $1.7 million. ~~leaving~~During the 3rd quarter of 2010 the Company ~~with~~determined as a result of this settlement $0.3 million of ~~unrecognized~~state ~~tax~~Research ~~benefits~~& asExperimentation ofcredits ~~June~~from 1999 through 2004 were no longer available. Through the nine-month period ending September 30, 2010 the Company also recognized a net tax benefit in the amount of $0.2 million resulting from several miscellaneous adjustments such as federal and state tax payables and receivables, and deferred tax liabilities.

The Company is subject to periodic audits by U.S. federal and state taxing authorities. In 2006, the Internal Revenue Service (IRS) commenced an examination of the Company’s U.S. income tax returns specifically for the purpose of reviewing claims for Research and ~~Expenditure~~Experimentation credits for the years 1999 through 2004. The audit of these claims has been concluded and a settlement was concluded during the first quarter. The settlement of this audit resulted in $0.3 million in interest income being recorded in the first quarter of 2010.

For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004.

InThe ~~the~~ability ~~three~~to ~~and~~use ~~six-month~~net ~~periods~~operating ~~ending~~loss ~~June~~carryforwards ~~30,~~to ~~2010,~~offset afuture ~~valuation~~taxable ~~allowance~~income ofis ~~$0.4~~dependent ~~million~~on ~~and~~a ~~$0.5~~number ~~million,~~of ~~respectively,~~factors ~~was~~and ~~recognized~~complex toregulations. Certain ~~offset~~limitations ~~potential~~may be placed on net operating loss ~~tax~~carryforwards ~~benefits~~as ~~associated~~a ~~with~~result ~~losses~~of ~~for~~“changes in control” as defined in Section 382 of the ~~three~~Internal ~~and~~Revenue ~~six-month~~Code. Generally, ~~periods~~after ~~ended~~a ~~June~~change 30in control, ~~2010~~a ~~essentially~~corporation ~~reducing~~cannot ~~the~~deduct ~~effective~~NOL ~~tax~~carryforwards ~~rate~~in toexcess ~~zero~~of the Section 382 limitation. Due to ~~the~~these ~~Company’s~~“change ~~cumulative losses~~ in ~~recent~~ownership” ~~years~~provisions, ~~net~~utilization ~~operating~~of ~~loss~~NOL carryforwards ~~were~~may ~~utilized~~be subject to ~~offset~~an annual limitation regarding their utilization against taxable income ~~for~~in ~~the~~future ~~six-month~~periods. The ~~period~~Company ~~ended~~has ~~June~~not ~~30,~~performed ~~2009~~a ~~reducing~~Section ~~the~~382 ~~effective~~analysis, ~~tax~~however ~~rate~~management tobelieves ~~3.3%~~that ~~for~~certain ~~the~~changes ~~three~~in ~~and~~control may ~~six-month~~have ~~periods~~occurred ~~ended~~which ~~June~~may ~~30,~~result ~~2009. The~~in ~~ability~~limitations toon utilization ~~use~~of its net operating loss carryforwards. toThe ~~offset~~Company ~~future~~has ~~taxable~~established ~~income~~a isfull ~~dependent~~valuation allowance against the deferred tax assets because, based on athe ~~number~~weight of ~~factors~~available ~~and~~evidence ~~complex~~including ~~regulations~~continued ~~and~~operating losses, it is ~~determined~~more atlikely ~~the~~than ~~time~~not ofthat not ~~completion~~all of the ~~annual~~deferred tax ~~returns~~assets will be realized.

9. COMMITMENTS AND CONTINGENCIES.

Obligation to Purchase Consigned Inventories

The Company obtains certain of its vehicle chassis for its bus products directly from an automobile manufacturer under a converter pool agreement. The agreement generally provides that the manufacturer ~~will~~would provide a supply of chassis at the Company's production facilities under the terms and conditions as set forth in the agreement. ~~These~~Chassis ~~chassis~~ are accounted for as consigned inventory until assigned to a unit in the production process. At that point, the Company is obligated to purchase the chassis and it is recorded as inventory. The Company also has a bailment agreement with an automobile dealer providing for a similar consignment arrangement. At ~~June~~September 30, 2010 and December 31, 2009, chassis inventory, accounted for as consigned inventory, approximated $2.9 million and $3.0 million, respectively.

Repurchase Agreements

The Company was contingently liable at December 31, 2009 to banks and other financial institutions on repurchase agreements in connection with financing provided by such institutions to most of the Company's former independent dealers in connection with their purchase of the Company's recreational vehicle products. These agreements provided for the Company to repurchase its products from the financing institution in the event that they have repossessed them upon a dealer's default. The estimated maximum contingent liability, without offsets for resale, was approximately $0.4 million at December 31, 2009. The Company was subject to buy-back claims for a limited specific time period, starting from the date of original wholesale sale. This specified time period has expired, and at ~~June~~September 30, 2010, the Company is no longer liable for these repurchase claims. Based on losses previously experienced under these obligations, the Company had established a reserve for estimated losses under repurchase agreements. At December 31, 2009, $0.2 million was recorded as an accrual for estimated losses under repurchase agreements.

The Company was also contingently liable at June 30, 2010 to a financial institution on repurchase agreements in connection with financing provided by the institution to certain of the Company's independent home builders in connection with their purchase of the Company's housing products. This agreement provides for the Company to repurchase its products from the financing institution in the event that they have repossessed them upon a builder's default. Products repurchased from builders under this agreement are accounted for as a reduction in revenue and cost of sales at the time of repurchase. Although the estimated contingent liability without offsets for resale would be approximately $3.2 million at June 30, 2010 ($4.0 million at December 31, 2009), is reduced by the resale value of the products repurchased. The Company has evaluated the potential for losses under this agreement and has recorded an accrual of $0.1 million as of June 30, 2010 and December 31, 2009 for estimated losses under the repurchase agreement.

- 11 -

Index

9.	COMMITMENTS AND CONTINGENCIES, Continued.

The Company was also contingently liable at September 30, 2010 to a financial institution on repurchase agreements in connection with financing provided by the institution to certain of the Company's independent home builders in connection with their purchase of the Company's housing products. This agreement provides for the Company to repurchase its products from the financing institution in the event that they have repossessed them upon a builder's default. Products repurchased from builders under this agreement are accounted for as a reduction in revenue and cost of sales at the time of repurchase. Although the estimated contingent liability without offsets for resale would be approximately $2.5 million at September 30, 2010 ($4.0 million at December 31, 2009), is reduced by the resale value of the products repurchased. The Company has evaluated the potential for losses under this agreement and has recorded an accrual of $0.1 million as of September 30, 2010 and December 31, 2009 for estimated losses under the repurchase agreement.

Corporate Guarantees

The Company was contingently liable under guarantees to financial institutions of their loans to independent dealers for amounts totaling approximately $0.86 million at ~~June~~September 30, 2010 and $1.5 million at December 31, 2009. The Company had an agreement with a financial institution to form a private-label financing program to provide wholesale inventory financing to the Company's former recreational vehicle dealers. The agreement provided for a preferred program that provided financing subject to the standard repurchase agreement described above. In addition, the agreement provided for a reserve pool whereby the financial institution made available an aggregate line of credit not to exceed $40 million that provided financing for dealers that may not otherwise qualify for credit approval under the preferred program. No dealer being provided financing from the reserve pool could receive an aggregate line of credit exceeding $5 million. At ~~June~~September 30, 2010 the Company was contingently liable to the financial institutions up to a maximum of $2.0 million of aggregate losses, as defined by the agreement, incurred by the financial institutions on designated dealers with higher credit risks that were accepted into the reserve pool financing program. The Company has recorded a loss reserve of less than $0.1 million at ~~June~~September 30, 2010 and December 31, 2009 associated with these guarantees.

Financing Obligation

During the second quarter of 2004, the Company entered into an agreement to provide financing of up to $4.9 million to a developer for the construction of a hotel for which the Company was to provide modular units. As of June 30, 2009, the Company provided $2.3 million in financing to the developer under this arrangement. No funding has been provided since December 2005. The loans are collateralized by a first priority interest in all tangible and intangible property of the borrower. The developer was unable to obtain a building permit, so the Company is pursuing its legal remedies through litigation to recoup the financing extended to date. During the fourth quarter of 2006, the Company obtained title to the real estate that was partial collateral for this Note. In the event the sale of the property does not generate proceeds sufficient to cover the financing previously provided, the Company will continue pursuing its legal remedies to recover any shortfall. As of June 30, 2010, the Company has reserved an amount for which Management believes the Company may not recover, however, there is a potential for exposure in excess of the amount reserved.

Litigation

InDuring ~~February~~the ~~2009~~second quarter of 2004, the Company ~~received~~entered ainto ~~favorable~~an ~~verdict~~agreement ~~against Crane~~to ~~Composites,~~provide ~~Inc~~financing of up to $4.9 ~~f/k/~~million to a ~~Kemlite~~developer for ~~breach~~the construction of ~~contract~~a ~~and~~hotel ~~multiple~~for ~~warranty~~which ~~claims~~the ~~arising~~Company ~~from~~was ~~the~~to ~~sale~~provide ofmodular ~~defective~~units. ~~sidewall~~As ~~material to~~of ~~All~~September ~~American~~30, ~~Group~~2010, ~~Inc.~~the ~~and~~Company ~~subsidiaries~~provided $2.3 ~~All~~million ofin financing to the ~~counts~~developer ~~alleged~~under inthis ~~the~~arrangement. ~~original~~No ~~complaint~~funding ~~were~~has ~~found~~been provided since December 2005. The loans are collateralized by a first priority interest in ~~favor~~all tangible and intangible property of the ~~Company~~borrower. OnThe ~~April~~developer ~~17,~~was ~~2009~~unable to obtain a building permit, so the Company ~~entered~~has ~~into~~pursued aits ~~settlement~~legal ~~agreement~~remedies ~~with~~through ~~Crane~~litigation ~~Composites,~~to ~~Inc.,~~recoup ~~f/k/a~~the ~~Kemlite,~~financing ~~with~~extended ~~respect~~ to ~~this~~date. ~~verdict~~During ~~rendered~~the infourth ~~favor~~quarter of 2006, the Company ~~and~~obtained ~~its~~title ~~subsidiaries,~~to on the ~~liability~~real ~~portion~~estate ofthat was partial collateral for this ~~lawsuit~~Note. ~~Pursuant~~ On toAugust ~~the~~20, ~~terms~~2010, ofa ~~the~~judgment ~~settlement,~~was ~~Crane~~entered ~~Composites~~in ~~paid~~favor of the Company ain ~~total~~the principal amount of $172.753 million inplus ~~three~~interest ~~installments~~of $0.3 million, ~~with~~plus ~~the~~additional ~~first~~interest ~~installment~~accrued ofafter ~~$10~~June ~~million~~5, ~~paid~~2006, onplus ~~May~~all 8costs, ~~2009,~~including attorneys' fees incurred by the ~~second~~Company ~~installment~~in ofconnection ~~$3.875~~with ~~million~~the onenforcement ~~June~~of 1the Company's rights, ~~2009~~plus ~~and~~the costs of the ~~final~~action. The ~~installment~~liable parties are a company that has since gone out of ~~$3.875~~business ~~million~~and onan ~~July~~individual 1,who ~~2009~~was the principal owner of that business.

In February 2009 the Company received a favorable verdict against Crane Composites, Inc. f/k/a Kemlite for breach of contract and multiple warranty claims arising from the sale of defective sidewall material to All American Group, Inc. subsidiaries. All of the counts alleged in the original complaint were found in favor of the Company. On April 17, 2009, the Company entered into a settlement agreement with Crane Composites, Inc., f/k/a Kemlite, with respect to this verdict rendered in favor of the Company and its subsidiaries, on the liability portion of this lawsuit. Pursuant to the terms of the settlement, Crane Composites paid the Company a total of $17.75 million in three installments, with the first installment of $10 million paid on May 8, 2009, the second installment of $3.875 million on June 1, 2009 and the final installment of $3.875 million on July 1, 2009.

The settlement with Crane Composites, Inc. resulted in income of $14.9 million net of contingent attorney fees recorded in the first quarter of 2009. The parent Company acquired the claims that were subject to the settlement for fair value from its RV Group subsidiaries during the fourth quarter of 2008, prior to trial. Because the settlement is related to damages originally incurred by the recreational vehicle business, accounting rules required the Company to record this income under discontinued operations, even though the settlement is owned by the parent Company and not the RV Group.

The Company was named as a defendant in a number of lawsuits alleging that the plaintiffs were exposed to levels of formaldehyde in FEMA-supplied trailers manufactured by the Company's subsidiaries (and other manufacturers) and that such exposure entitles plaintiffs to an award, including injunctive relief, a court-supervised medical monitoring fund, removal of formaldehyde-existing materials, repair and testing, compensatory, punitive and other damages, including attorneys’ fees and costs. The litigation proceeded through the class certification process. In December 2008, class certification was denied.

The Company is involved in various other legal proceedings, most of which are ordinary disputes incidental to the industry and most of which are covered in whole or in part by insurance. Management believes that the ultimate outcome of these matters and any liabilities in excess of insurance coverage and self-insurance accruals will not have a material adverse impact on the Company's consolidated financial position, future business operations or cash flows.

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Index

9. COMMITMENTS AND CONTINGENCIES, Continued.

In the third quarter of 2008, as a result of the favorable settlement of a lawsuit involving an insurance recovery, the Company recorded income of approximately $0.4 million. During the second quarter of 2008, as a result of the favorable settlement of two lawsuits involving insurance recoveries, the Company recorded income of approximately $1.0 million. During the first quarter of 2008, the Company also recorded income of approximately $1.0 million as a result of the favorable settlement of two lawsuits involving insurance recoveries. These favorable settlements are classified as a reduction to general and administrative expenses on the consolidated statement of operations.

10. STOCK-BASED COMPENSATION.

The Company has not granted any stock option awards since 2003. Compensation expense related to the Company's Employee Stock Purchase Plan was not significant for ~~the~~2010 ~~first~~ or ~~second quarter of 2010~~2009. Compensation expense related to prior year restricted stock grants was not material for the three and ~~six~~nine-month periods ended ~~June~~ September 30, 2010 and 2009.

11. RESTRICTED CASH.

The Company had $12.97 million and $14.8 million of restricted cash as of ~~June~~September 30, 2010 and December 31, 2009, respectively.

Restricted cash amounts are as follows (in thousands):

	June 30,		December 31,
	September 30,		December 31,
	2010		2009
Cash collateral for letters of credit (1)	$	8,~~550~~553	$	8,550
Indemnity escrow account (2)		32,~~104~~817		5,147
Cash collateral for workers compensation trust accounts		1,~~099~~098		1,101
Other		~~186~~182		-
Total restricted cash	$	12,~~939~~650	$	14,798

(1) The amount classified as current assets is $5.21 million and $5.0 million as of ~~June~~September 30, 2010 and December 31, 2009.

(2)	The indemnity escrow account is related to the agreement for the asset sale of the recreational vehicle business.

- 13 -

Index

12. DEBT.

On April 9, 2009, All American Group, Inc. and Lake City Bank entered into an agreement for a $2 million three-year note in exchange for cash loaned to the Company by Lake City Bank. The note is fully collateralized by certain properties, bears interest at the rate of 6.250% per annum, and has a maturity date of April 9, 2012. At ~~June~~September 30, 2010 and December 31, 2009, the amount outstanding was approximately $1.8 million and $1.9 million, respectively.

On April 9, 2009, All American Group, Inc. gave a promissory note to Lake City Bank in connection with the bank’s provision of a $0.5 million working capital line of credit. The note is fully collateralized by certain properties, and borrowings against this line will bear interest at a variable rate, with a minimum interest rate of 5% per annum. This line of credit has a maturity date of March 31, 2012. At ~~June~~September 30, 2010, $0.5 million was outstanding on this line, and at December 31, 2009, there were no borrowings against this line of credit.

Convertible Debt Loan Agreement

On October 27, 2009, the Company completed a two-year $20.0 million loan agreement as borrowers with H.I.G. All American, LLC (H.I.G.) for $10.0 million of senior secured revolving notes and $10.0 million of convertible debt (Secured Subordinated Convertible Tranche B Notes). This loan agreement is collateralized by substantially all of the assets of the Company. As part of the Secured Subordinated Convertible Tranche B Notes, the Company also issued to H.I.G. an aggregate of approximately 6.7 million Common Stock Purchase Warrants exercisable at a price of $0.00001 per share upon the occurrence of a triggering event (as defined in the agreement) and prior to the tenth anniversary from the date of the loan agreement. The revolving notes bear interest at a rate equal to LIBOR plus 5%, payable in cash monthly. The convertible debt bears interest at the rate of 20% per annum, payable in either cash semiannually or as PIK interest that accrues and increases the principal amount. All principal and accrued interest on the Secured Subordinated Convertible Tranche B Notes is convertible into shares of the Company’s common stock at the election of H.I.G. and is exercisable at any time up until the end of the two-year term of the notes at the conversion price of $0.979 per share, the 90-day average stock price prior to the Letter of Intent. The warrants and Tranche B Note both contain anti-dilution protection in the event the Company issues in excess of 16,403,409 shares of its common stock.

The Company recorded a debt discount on the convertible notes for the full $10.0 million due to the issuance of the Common Stock Purchase Warrants, as well as the existence of a beneficial conversion feature. The interest due to H.I.G. on the convertible debt on the March 30, 2010 due date was $0.9 million, and was added to the Note balance as PIK interest. As a result, at March 31, 2010, the Tranche B Note could be converted into 11,082,737 shares and the Warrant could be exercised for 6,871,536 shares, due to the anti-dilution protection.

At March 31, 2010, the fair value adjustment to the warrants and the beneficial conversion feature and the additional shares resulting from the PIK interest resulted in an additional $3.5 million being recorded as a liability and an additional non-cash interest expense primarily as a result of the increase in the Company’s stock price between December 31, 2009 and March 31, 2010.

During the first quarter of 2010, the Company failed to meet certain financial covenants of the H.I.G. All American Credit Agreement. H.I.G. did not declare the Company to be in default of any covenant and on April 5, 2010, the Company and H.I.G. All American, LLC (H.I.G.) entered into the First Amendment to the Loan Agreement (the “First Amendment”). In the First Amendment, H.I.G. waived specified Events of Default that had occurred under the Loan Agreement dated October 27, 2009 between the Company and H.I.G. prior to April 5, 2010.

First Amendment to the Loan Agreement

The Company and H.I.G. All American, LLC (H.I.G.) entered into the First Amendment to the Loan Agreement (the “First Amendment”) on April 5, 2010. The Company issued a new warrant to purchase up to 9,557,939 shares of the Company’s common stock (the “New Warrant”) exercisable at a price $0.00001 per share as consideration to H.I.G. for entering into the First Amendment. The warrant originally issued pursuant to the Loan Agreement (the “Original Warrant”) and the Tranche B Note were amended and restated to reflect the anti-dilution adjustments that occurred as a result of the issuance of the New Warrant. The Original Warrant, as amended, ~~now~~could ~~can~~ be exercised for 10,925,926 shares, and the Tranche B Note now can be converted into 17,728,758 shares (including PIK interest due March 30, 2010). The amended and restated Original Warrant, the New Warrant and the amended and restated Tranche B Note all contain anti-dilution protection in the event the Company issues in excess of 16,403,409 shares of its common stock. The outstanding principal of the amended and restated Tranche B Note (including PIK interest) is convertible into shares of the Company’s common stock at the initial conversion price of $0.612 per share.

The First Amendment revised covenants and contains other modifications to the credit agreement. As a result of the modifications, the Company will only have partial access to the $10 million revolving line of credit, for specified purposes, until the Company is in compliance with the original financial covenants of the loan agreement.

- 14 -

Index

12. DEBT, Continued.

The First Amendment ~~has~~revised ~~been~~covenants ~~accounted~~and ~~for~~contains asother amodifications ~~debt~~to ~~extinguishment of~~ the credit ~~original debt in accordance with generally accepted accounting principles~~agreement. ~~The~~As ~~Company~~a ~~has~~result ~~determined that the fair value~~ of the ~~new debt resulting from the First Amendment is approximately $8.4 million~~modifications, ~~while~~ the ~~face~~Company ~~value~~will ofonly ~~the~~have ~~debt~~partial ~~continues~~access to bethe $10.9 million~~. In~~ ~~determining~~revolving ~~the~~line ~~fair value~~ of ~~the new debt~~credit, ~~the~~for ~~Company~~specified ~~used a discount rate of 40%~~purposes, ~~representing~~until the ~~expected~~Company ~~rate~~is ~~of return adjusted for risk. The difference between the fair value of the new debt and its previous carrying value and the unamortized closing costs related to the old debt resulted~~ in acompliance ~~charge~~with ~~of $7.3 million being recorded as a loss on debt extinguishment. The Company recorded a debt discount on~~ the ~~convertible~~original ~~notes~~financial ~~related~~covenants ~~to the First Amendment for the difference between the face value~~ of ~~$10.9 million and~~ the ~~fair value of $8.4 million. The amortization of the $2.5 million in debt discounts will be reported as an increase in debt and additional interest expense over the remaining term of the~~ loan agreement. Amortization of debt discount on the original and First Amendment convertible notes amounted to $0.4 million and $1.6 million for the quarter and year-to-date periods ended June 30, 2010. The remaining unamortized discount was $2.1 million at June 30, 2010.

The First Amendment has been accounted for as a debt extinguishment of the original debt in accordance with generally accepted accounting principles. The Company determined that the fair value of the new debt resulting from the First Amendment on April 5, 2010 to be approximately $8.4 million, while the face value of the debt continues to be $10.9 million. In determining the fair value of the new debt, the Company used a discount rate of 40%, representing the expected rate of return adjusted for risk. The difference between the fair value of the new debt and its previous carrying value and the unamortized closing costs related to the old debt resulted in a charge of $7.3 million being recorded as a loss on debt extinguishment. The Company recorded a debt discount on the convertible notes related to the First Amendment for the difference between the face value of $10.9 million and the fair value of $8.4 million. The amortization of the $2.5 million in debt discounts will be reported as an increase in debt and additional interest expense over the remaining term of the loan agreement. Amortization of debt discount on the original and First Amendment convertible notes amounted to $0.4 million and $2.0 million for the quarter and year-to-date periods ended September 30, 2010. The remaining unamortized discount was $1.7 million at September 30, 2010.

The additional 6.6 million shares that the Tranche B Note can be converted into along with the additional warrants to purchase 13.6 million shares had a fair value of approximately $26.8 million as of the April 5, 2010 agreement date, which increased the Company’s derivative instrument liabilities and increased additional non-cash interest expense.

The fair value of the warrants and the beneficial conversion feature were $10.4 million and $2.5 million, respectively, at June 30, 2010, and $7.6 million and $5.4 million, respectively, at December 31, 2009 and are recorded as a liability on the Consolidated Balance Sheet. At June 30, 2010, the fair value adjustment to the warrants and the beneficial conversion feature resulted in $30.3 million being recorded as a reduction to the derivative instruments liability and a reduction in non-cash interest expense primarily as a result of the decrease in the Company’s stock price between April 5, 2010 and June 30, 2010.

For the second quarter of 2010, the net impact of the First Amendment and fair value valuation adjustments resulted in a reduction to net interest of $3.6 million.

~~Operating~~Warrant ~~results~~Exercise for the six month period ended June 30, 2010 failed to meet the revised debt covenants set with H.I.G. All American, LLC (H.I.G.) in the First Amendment to the Loan Agreement. H.I.G. has waived the covenant defaults through July 31, 2010 in exchange for a waiver fee and ~~expenses~~New of $0.8 million representing the value of the penalties prescribed in the First Amendment, plus expenses, and the issuance on August 24, 2010 of the Second Amended and Restated Tranche B Note (the “Second Amendment”). The Second Amendment provides that the waiver fee and expenses, plus accrued interest on the convertible debt thru August 24, 2010 of $0.8 million, be added to the principal amount of the convertible note. As a result of the Second Amendment, the Tranche B Note has a face value of $12.5 million. The Board of Directors and H.I.G. are currently in discussions to work out mutually acceptable agreements for the long-term. Since the Company cannot be assured it will be in compliance with the existing covenants after July 31, 2010 and discussions with H.I.G. regarding revised covenants are continuing. As of June 30, 2010 the convertible note is recorded as a current liability in current maturities of long-term debt and the fair value of derivative instruments relating to the warrants and conversion feature is also recorded as a current liability.Warrant

13On August 3, 2010, H.I.G. All American, LLC (“H.I.G.”) exercised all of the warrants issued to them up to that date to purchase 20,483,865 shares of the Company’s common stock for $204.84 in connection with the Convertible Debt Loan Agreement dated October 27, 2009. As a result of the shares purchased by H.I.G., as of September 30, 2010, a total of 36,750,083 shares of common stock are outstanding, of which H.I.G. holds 55.7%. ~~SUBSEQUENT~~The ~~EVENTS~~exercise of the warrants resulted in a decrease to the derivative liability related to the warrants and an increase to common stock of $8.6 million. The carrying value of the derivative liability related to the warrants was $10.4 million on August 3, 2010, while the fair value was $8.6 million, which resulted in a reduction to the derivative instruments liability and a reduction in non-cash interest expense of $1.8 million.

On August 35, 2010, in connection with the exercise of warrants by H.I.G., ~~All~~the ~~American,~~Company ~~LLC~~issued a new warrant (the “New Warrant”) to H.I.G.”) ~~exercised~~that ~~all~~is ofexercisable for the ~~warrants~~number ~~issued~~of toshares ~~them~~necessary up to ~~that~~maintain ~~date~~H.I.G.’s topercentage ~~purchase~~ownership ~~20,483,865 shares~~ of the Company’s common ~~stock~~shares ~~for~~if ~~$204~~the Company issues, on a fully diluted basis, more than 36,887,274 common shares.84 inThe ~~connection~~New ~~with~~Warrant ~~the~~was ~~Convertible~~issued ~~Debt~~pursuant to anti-dilution provisions contained in the original Loan Agreement dated October 27, 2009. The ~~(see~~Company ~~Note~~has 12determined ofthat ~~Notes~~the tonew ~~Consolidated~~warrant ~~Financial~~is ~~Statements)~~a derivative financial instrument. The AsCompany ahas ~~result~~valued this warrant at $9.0 million which represents the fair value of the 25.6 million shares ~~purchased~~that bywould Hbe exercisable when the convertible debt is converted to common shares.~~I.G.,~~ The aCompany ~~total~~does ofnot 36believe,~~683~~ at this time,~~999~~ that any additional shares will be issued under the new warrant agreement during the remaining life of ~~common~~the ~~stock~~debt ~~are~~agreement; ~~outstanding~~and therefore, ofno ~~which~~additional ~~H.I.G.~~shares ~~holds~~have 55been assumed to be issued under the anti-dilution provision contained in the new warrant agreement.~~8%.~~

On August 20, 2010, a judgment was entered in favor of the Company in the principal amount of $2.3 million plus interest of $0.3 million, plus additional interest accrued after June 5, 2006, plus all costs, including attorneys' fees incurred by the Company in connection with the enforcement of the Company's rights, plus the costs of the action. The liable parties are a company that has since gone out of business and an individual who was the principal owner of that business. (See Note 9 of Notes to Consolidated Financial Statements, Commitments and Contingencies, Financial Obligation.)

- 15 -

Index

12. DEBT, Continued.

Second Amendment to the Loan Agreement

Operating results for the six-month period ended June 30, 2010 failed to meet the revised debt covenants set with H.I.G. All American, LLC (H.I.G.) in the First Amendment to the Loan Agreement. H.I.G. has waived the covenant defaults through July 31, 2010 in exchange for a waiver fee and expenses of $0.8 million representing the value of the penalties prescribed in the First Amendment, plus expenses, and the issuance on August 24, 2010 of the Second Amended and Restated Tranche B Note (the “Second Amendment”). The Second Amendment provides that the waiver fee and expenses, plus accrued interest on the convertible debt thru August 24, 2010 of $0.8 million, be added to the principal amount of the convertible note. As a result of the Second Amendment, the Tranche B Note has a face value of $12.5 million. The Board of Directors and H.I.G. are currently in discussions to work out mutually acceptable agreements for the remaining term of the debt agreement. Since the Company is not in compliance with the existing covenants, the convertible note is recorded as a current liability in current maturities of long-term debt and the fair value of derivative instruments relating to the new warrant and conversion feature was also recorded as a current liability.

In accordance with the anti-dilution provisions contained in the original Loan Agreement dated October 27, 2009, as a result of the Second Amendment of August 24, 2010, the Tranche B Note can be converted into a total of 20.5 million shares, or an additional 2.8 million shares. As of the Second Amendment date of August 24, 2010, the additional 2.8 million shares associated with the Tranche B Note and the maximum 25.6 million shares related to the New Warrant that is exercisable to the extent that the debt is converted had a fair value of $9.1 million, which increased the Company’s derivative instrument liabilities and increased additional non-cash interest expense.

The fair value of the new warrant and the beneficial conversion feature were $5.9 million and $0.7 million, respectively, at September 30, 2010, and $7.6 million and $5.4 million, respectively, at December 31, 2009 and are recorded as a liability on the Consolidated Balance Sheet. At September 30, 2010, the fair value adjustment to the warrants and the beneficial conversion feature resulted in $5.0 million being recorded as a reduction to the derivative instruments liability and a reduction in non-cash interest expense primarily as a result of the decrease in the Company’s stock price between July 1, 2010 and September 30, 2010.

The interest due to H.I.G. on the convertible debt on the October 30, 2010 payment date was $0.4 million, and was added to the Note balance as PIK interest. At October 30, 2010, as a result of the PIK interest and due to the anti-dilution provisions, the Tranche B Note can be converted into an additional 0.6 million shares and the warrant that is exercisable to the extent the debt is converted increases an additional 0.7 million shares.

Interest expense during the three and nine-month periods ended September 30, 2010 were as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010			2009		2010			2009
Interest on H.I.G. Tranche B Note	$	536		$	-	$	1,585		$	-
Additional warrants, conversion feature, penalty and anti-dilution provisions from 1st and 2nd Amendments		9,965			-		36,727			-
Fair value adjustments of derivative instruments		(6,879	)		-		(33,746	)		-
Debt accretion		393			-		2,036			-
Amortization of loan fees		13			-		317			-
Interest on Lake City Bank notes		35			31		97			60
Interest on life insurance borrowings		-			784		2			2,231
Interest on retirement plans		30			54		90			18
Other interest expense		47			55		78			76
Total interest expense	$	4,140		$	924	$	7,186		$	2,385

- 16 -

Index

13. SUBSEQUENT EVENTS.

The Company announced on November 8, 2010 that it has agreed to be acquired by affiliates of All American Group Holdings, LLC, which is an affiliate of H.I.G. All American, LLC, in a merger that would result in the Company’s shareholders (other than H.I.G.) receiving $0.20 per share in cash, plus an interest in a liquidating trust that will have a contingent right to receive proceeds from the sale of the Company’s specialty vehicle business.

Upon closing of the merger, the specialty vehicle business will be offered for sale for a minimum price of $12 million. The Company can make no assurance that this threshold price will be achieved or that there will be a sale or transaction if it is not. The sale of the specialty vehicle business will be negotiated on behalf of the Company by a special committee of the Company’s board of directors. The majority of the members of the committee will be directors who are not affiliated with H.I.G.

If an agreement is entered into for the sale of the assets within nine months after the closing of the merger, the excess of the net sale proceeds over $5 million will be deposited in the liquidating trust for distribution to all former AAG shareholders pro rata (in addition to the $0.20 per share to be paid to the non-HIG Shareholders in connection with the closing of the merger). The Company cannot give assurance that the sale of the assets will be completed within the 9 months’ time frame or that it will bring a sufficient amount of net sale proceeds to provide the shareholders any additional consideration.

- 17 -

Index

All American Group, Inc. and Subsidiaries

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors, which have affected the Company’s financial condition, results of operations and cash flows during the periods included in the accompanying consolidated financial statements. A summary of the changes in the principal items included in the consolidated statements of operations is shown below (dollar amounts in thousands).

	Three Months Ended
													Percentage Change
													Percentage
													Change
				Percentage						Percentage			2010
	June 30,			of			June 30,			of			to
	September 30,			of			September 30,			of			to
	2010			Net Sales			2009			Net Sales			2009
Net sales:
Specialty vehicles	$	56,~~402~~471			2738.58	%	$	23,~~867~~948			1624.26	%		8863.49	%
Housing		1410,~~241~~225			7261.52			1412,~~867~~126			8375.84			(415.27	)
Consolidated total		1916,~~643~~696			100.0			1716,~~734~~074			100.0			103.89
Gross profit:
Specialty vehicles		~~599~~391			116.10			~~(162~~265	)		(56.7	)		~~469~~47.85
Housing		~~158~~(980	)		1(9.16	)		(1,~~021~~202	)		6(9.9	)		~~(84~~18.5	)
Other		-			-n/m			(67	)		-n/m			-
Consolidated total		~~757~~(589	)		(3.95	)		~~853~~(944	)		4(5.89	)		~~(11~~37.36	)
Operating expenses:
Selling		1,~~273~~278			67.57			~~997~~1,083			5.6.7			2718.70
General and administrative		2,~~298~~749			1116.75			2,~~534~~856			1417.38			(9.3.7	)
(Gain) loss on sale of assets, net		(479	)		-(0.5	)		(158	)		-			n/m
Consolidated total		3,~~567~~948			1823.27			3,~~516~~931			1924.95			10.54
Operating loss		(24,~~810~~537	)		(1427.32	)		(24,~~663~~875	)		(1530.14	)		(56.59	)
Nonoperating (income) expense		43,~~564~~834			23.20			~~223~~284			1.27			n/m
Loss from continuing operations before income taxes		(78,~~374~~371	)		(3750.52	)		(25,~~886~~159	)		(1632.31	)		(~~155~~62.53	)
Tax expense (credit)		-(214	)		(1.3	)		~~(53~~34	)		(0.32	)		-n/m
Loss from continuing operations		(78,~~374~~157	)		(3748.59	)		(25,~~833~~193	)		(1632.03	)		(~~160~~57.31	)
Discontinued operations:
Income (loss) from discontinued operations		(294	)		(1.7	)		1,298			8.1			(122.7	)
Loss from operations of discontinued entities (net of taxes)		(212	)		(1.1	)		(440	)		(2.5	)		51.8
Net loss	$	(8,451	)		(50.6	)%	$	(3,895	)		(24.2	)%		(117.0	)%
Gain on sale of discontinued RV assets (net of taxes)		-			-			25			(0.2	)		-
Loss from discontinued operations		(212	)		(1.1	)		(415	)		(2.3	)		48.9
Net loss	$	(7,586	)		(38.6	)%	$	(3,248	)		(18.3	)%		(133.6	)%
n/m - not meaningful

- 1618 -

Index

	Six Months Ended
	Nine Months Ended
													Percentage Change
													Percentage
													Change
				Percentage						Percentage			2010
	June 30,			of			June 30,			of			to
	September 30,			of			September 30,			of			to
	2010			Net Sales			2009			Net Sales			2009
Net sales:
Specialty vehicles	$	1219,~~675~~147			3033.81	%	$	37,~~939~~887			1317.65	%		~~221~~142.8	%
Housing		2838,~~442~~667			6966.29			2537,~~076~~201			8682.45			133.49
Consolidated total		4157,~~117~~814			100.0			2945,~~015~~088			100.0			4128.72
Gross profit:
Specialty vehicles		1,~~489~~881			119.78			(~~595~~330	)		(154.12	)		~~350.3~~n/m
Housing		~~434~~(546	)		(1.54	)		(~~613~~1,814	)		(2.4.9	)		~~170~~69.89
Other		-			-			(1524	)		-			-
Consolidated total		1,~~923~~335			42.73			(12,~~223~~168	)		(4.28	)		~~257~~161.26
Operating expenses:
Selling		23,~~407~~685			56.94			12,~~635~~717			5.6.0			4735.26
General and administrative		47,~~752~~502			1113.50			68,~~122~~978			2119.19			(2216.4	)
(Gain) loss on sale of assets, net		(1190	)		-(0.2	)		(1422	)		-			-n/m
Consolidated total		711,~~148~~097			1719.42			711,~~743~~673			2625.79			(74.79	)
Operating loss		(59,~~225~~762	)		(1216.79	)		(813,~~966~~841	)		(30.97	)		4129.75
Nonoperating (income) expense		913,~~557~~391			23.2			40325			0.17			n/m
Loss from continuing operations before income taxes		(1423,~~782~~153	)		(3540.91	)		(914,~~006~~166	)		(31.04	)		(6463.14	)
Tax expense (credit)		-(214	)		-(0.4	)		(5319	)		(0.21	)		-n/m
Net loss from continuing operations		(1422,~~782~~939	)		(3539.97	)		(814,~~953~~147	)		(3031.83	)		(6562.1	)
Discontinued operations:
Loss from operations of discontinued entities (net of taxes)		(520	)		(1.3	)		(729	)		(2.5	)		28.7
Income (loss) from operations of discontinued entities (net of taxes)		(814	)		(1.4	)		382			0.8			n/m
Gain on sale of discontinued RV assets (net of taxes)		-			-			25			~~0.1~~-			-
Income from legal settlement (net of tax)		-			-			14,~~722~~910			5033.71			-
Gain (loss) from discontinued operations		(520	)		(1.3	)		14,018			48.3			n/m
Income (loss) from discontinued operations		(814	)		(1.4	)		15,317			33.9			n/m
Net income (loss)	$	(1523,~~302~~753	)		(3741.21	)%	$	51,~~065~~170			172.56	%		~~(402.1~~n/m	)%
n/m - not meaningful

- 1719 -

Index

NET SALES

Consolidated net sales from continuing operations for the quarter ended ~~June~~September 30, 2010 were $1916.67 million, an increase of 103.89% from the $1716.71 million reported for the corresponding quarter last year. Net sales for the ~~six~~nine months ended ~~June~~September 30, 2010 were $4157.18 million, representing an increase of $12.17 million, or 4128.72%, reported for the same period of 2009.

The Company’s Housing Segment experienced a net sales decrease for the quarter ended ~~June~~September 30, 2010 of 415.27%, from $1412.91 million during the ~~second~~third quarter of 2009 to $1410.2 million for the ~~second~~third quarter of 2010. Net sales for the ~~six~~nine months ended ~~June~~September 30, 2010 increased 133.49%, from $2537.12 million during the first ~~half~~nine months of 2009 to $2838.47 million for the ~~first~~comparable ~~half~~period of 2010, due mainly to the impact of major project revenues in the first quarter of 2010 offsetting the continued weakness in traditional single-family housing markets.

The Company’s Specialty Vehicle Segment, through a joint venture with ARBOC Mobility, manufactures a line of low floor ADA (Americans with Disabilities Act)-compliant buses under the Spirit of Mobility brand name. Net sales for the Specialty Vehicle Segment for the quarter ended ~~June~~September 30, 2010 were $56.45 million compared to $23.9 million for the ~~second~~third quarter of 2009, ana 8863.49% increase. Net sales for the ~~six~~nine months ended ~~June~~September 30, 2010 increased ~~221~~142.8%, from $37.9 million during the first ~~half~~nine months of 2009 to $1219.71 million for the first ~~half~~nine months of 2010. The significant increase is a result of the special features available only on the ARBOC Mobility product offering and that it has just recently become available in the market.

COST OF SALES

Cost of sales from continuing operations increased 111.96%, or $2.0.3 million, for the three months ended ~~June~~September 30, 2010. As a percentage of net sales, cost of sales was 96103.15% for the three-month period ended ~~June~~September 30, 2010 compared to 95105.29% for the three months ended ~~June~~September 30, 2009. The corresponding gross ~~profit~~loss declined to $(0.86) million or (3.95)% for the three-month period ended ~~June~~September 30, 2010 compared to athe ~~profit~~loss of $(0.9) million or 4(5.89)% for the three months ended ~~June~~September 30, 2009. Cost of sales for the ~~six~~nine months ended ~~June~~September 30, 2010 were $3956.25 million, or 9597.37% compared to $3047.23 million or 104.28% for the same ~~six~~nine-month period in 2009. The corresponding gross profit increased to $1.93 million or 42.73% for the ~~six~~nine-month period ended ~~June~~September 30, 2010 compared to a loss of $(12.2) million or (4.28)% for the ~~six~~nine months ended ~~June~~September 30, 2009. Gross profit was positively impacted in the first ~~half~~nine months of 2010 by increased sales and a corresponding production volume increase, primarily in the Specialty Vehicle Segment, resulting in improved utilization of the Company's manufacturing facilities yielding improvement in operating leverage.

OPERATING EXPENSES

As a percentage of net sales, operating expenses from continuing operations, which include selling, general and administrative expenses, were 1824.2% and 1924.95% for the three-month periods ended ~~June~~September 30, 2010 and 2009, respectively, and 1719.4% and 2625.79% for the ~~six~~nine-month periods ended ~~June~~September 30, 2010 and 2009, respectively.

Selling expenses were $1.3 million and 67.57% of net sales for the 2010 ~~second~~third quarter compared to $1.01 million and 5.6.7% of net sales for the three-month period ended ~~June~~September 30, 2009. For the ~~six~~nine-month period ended ~~June~~September 30, 2010, selling expenses were $23.47 million and 56.94% compared to $12.67 million and 5.6.0% for the same ~~six~~nine-month period in 2009. The increase in selling expenses for the three and ~~six~~nine-month periods of 2010 versus 2009 was primarily due to increased sales efforts, including advertising and sales promotion expenses, which were a response to the continuing downturn in the economy and housing markets, as the Company endeavored to increase sales revenue.

General and administrative expenses were $2.37 million and 1116.75% of net sales for the 2010 ~~second~~third quarter compared to $2.59 million and 1417.38% for the 2009 corresponding quarter. General and administrative expenses for the ~~six~~nine months ended ~~June~~September 30, 2010 were $47.85 million or 1113.50% compared to $69.10 million or 2119.19% for the same ~~six~~nine-month period in 2009. The decrease in general and administrative expenses for the three and ~~six~~nine-month periods of 2010 versus 2009 was primarily the result of reduced payroll related expenses and, for the first nine months, a reduction in bad debt expense.

- 1820 -

Index

OPERATING INCOME (LOSS)

Operating loss for the ~~second~~third quarter of 2010 was $(24.85) million and (1427.32)% of sales compared to $(24.79) million and (1530.04)% of sales in the ~~second~~third quarter of 2009, while operating loss for the ~~six~~nine months ended ~~June~~September 30, 2010 improved by 4129.7 5% or $34.80 million to a loss of $(59.28) million and (1216.79)% of revenue compared to a loss of $(913.08) million and (30.97)% of revenue for the comparable ~~six~~nine-month period in 2009.

NONOPERATNG INCOME AND EXPENSE

Nonoperating expense was $43.68 million and $0.23 million for the three-month periods ended ~~June~~September 30, 2010 and 2009, respectively. The increase was primarily due to transactions and adjustments regarding the Company’s convertible debt, consisting of a non-cash ~~debt~~interest ~~extinguishment~~expense ~~loss~~ of $7.3.1 million, ~~which was partially offset by interest income recorded in the second quarter~~ due to ~~the~~anti-dilution protection and fair value ~~adjustment~~adjustments to warrants and the beneficial conversion feature (see Note 12 of Notes to Consolidated Financial Statements). Nonoperating expense was $913.64 million and $0.13 million for the ~~six~~nine-month periods ended ~~June~~September 30, 2010 and 2009, respectively,. ~~the~~The increase ~~again~~is primarily due to the non-cash interest expense due to anti-dilution protection and fair value adjustments to warrants and the beneficial conversion feature of $3.0 million, a non-cash debt extinguishment loss of $7.3 million, plus non-cash interest expense due to accretion of debt discount of $12.60 million and interest expense accruals on the convertible notes of $1.06 million which is offset by $0.3 million attributable to interest income related to a tax refund claim.

PRE-TAX INCOME (LOSS)

Pre-tax loss from continuing operations for the three and ~~six~~nine-month periods ended ~~June~~September 30, 2010 was $(78.4) million and $(1423.82) million compared with pre-tax loss of $(25.92) million and $(914.02) million in the corresponding periods of 2009. The increased pre-tax loss was primarily due to the non-cash nonoperatng expenses as discussed above.

INCOME TAXES

InDuring the ~~three~~3rd ~~and~~quarter ~~six-month~~of ~~periods~~2010 ~~ending~~the ~~June~~Company ~~30,~~determined ~~2010,~~as a ~~valuation~~result ~~allowance~~ of ~~$0.4~~this ~~million~~settlement ~~and~~ $0.53 million, ~~respectively,~~of ~~was~~state ~~recognized~~Research to& ~~offset~~Experimentation ~~potential~~credits ~~net~~from ~~operating~~1999 ~~loss~~through ~~tax~~2004 ~~benefits~~were ~~associated~~no ~~with~~longer ~~losses~~available. Through ~~for~~ the ~~three and six~~nine-month ~~periods~~period ~~ended~~ending ~~June~~September 30, 2010 ~~essentially reducing~~ the ~~effective tax rate to zero. Due to the~~ Company’s ~~cumulative~~also ~~losses~~recognized ina ~~recent years,~~ net ~~operating loss carryforwards were utilized to offset taxable income for the six-month period ended June 30, 2009 reducing the effective~~ tax ~~rate~~benefit toin ~~3.3% for~~ the ~~three~~amount ~~and~~of ~~six-month periods ended June 30, 2009~~$0. ~~The~~2 ~~ability~~million toresulting ~~use~~from ~~net~~several ~~operating~~miscellaneous ~~loss~~adjustments ~~carryforwards~~such toas ~~offset~~federal ~~future~~and ~~taxable~~state ~~income~~tax ispayables ~~dependent on a number of factors~~ and ~~complex~~receivables, ~~regulations~~ and isdeferred ~~determined at the time of completion of the annual~~ tax ~~returns (see Note 8 of Notes to Consolidated Financial Statements)~~liabilities.

The ability to use net operating loss carryforwards to offset future taxable income is dependent on a number of factors and complex regulations. Certain limitations may be placed on net operating loss carryforwards as a result of “changes in control” as defined in Section 382 of the Internal Revenue Code. Generally, after a change in control, a corporation cannot deduct NOL carryforwards in excess of the Section 382 limitation. Due to these “change in ownership” provisions, utilization of NOL carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. The Company has not performed a Section 382 analysis, however management believes that certain changes in control may have occurred which may result in limitations on utilization of its net operating loss carryforwards. The Company has established a full valuation allowance against the deferred tax assets because, based on the weight of available evidence including continued operating losses, it is more likely than not that not all of the deferred tax assets will be realized (see Note 8 of Notes to Consolidated Financial Statements).

DISCONTINUED OPERATIONS

The settlement with Crane Composites, Inc. resulted in income of $14.7 million net of contingent attorney fees and taxes recorded in the first quarter of 2009. The parent Company acquired the claims that were subject to the settlement for fair value from its RV Group subsidiaries during the fourth quarter of 2008, prior to trial. Because the settlement is related to damages originally incurred by the recreational vehicle business, accounting rules required the Company to record this income under discontinued operations, even though the settlement is owned by the parent Company and not the RV Group.

~~NET~~- ~~INCOME~~21 ~~(LOSS)~~-

Net loss from continuing operations for the three and six-month periods ended June 30, 2010 was ($7.4) million (a loss of ($0.46) per diluted share) and $(14.8) million (a loss of $(0.92) per diluted share) compared to net loss from continuing operations of $(2.8) million (a loss of $(0.18) per diluted share) and $(9.0) million (a loss of $(0.56) per diluted share) for 2009. Net loss for the quarter ended June 30, 2010 was $(7.6) million (a loss of $(0.47) per diluted share) compared to net loss of $(3.2) million (a loss of $(0.21) per diluted share) for the second quarter of 2009. Net loss for the six months ended June 30, 2010 was $(15.3) million (a loss of $(0.95) per diluted share) compared to net income of $5.1 million (a profit of $0.32 per diluted share) for the corresponding period of 2009.

- 19 -

Index

NET INCOME (LOSS)

Net loss from continuing operations for the three and nine-month periods ended September 30, 2010 was ($8.2) million (a loss of ($0.40) per diluted share) and $(22.9) million (a loss of $(1.12) per diluted share) compared to net loss from continuing operations of ($5.2) million (a loss of ($0.32) per diluted share) and $(14.1) million (a loss of $(0.89) per diluted share) for 2009.

Net loss for the quarter ended September 30, 2010 was $(8.5) million (a loss of $(0.41) per diluted share) compared to net loss of $(3.9) million (a loss of $(0.24) per diluted share) for the third quarter of 2009. Net loss for the nine months ended September 30, 2010 was $(23.8) million (a loss of $(1.16) per diluted share) compared to net profit of $1.2 million (a profit of $0.07 per diluted share) for the corresponding period of 2009.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

The Company generally relies on funds from operations and availability from various lines of credit, previously including cash surrender value of life insurance policies, as its primary sources of working capital and liquidity. During 2009 the Company determined it to be most advantageous to surrender the majority of Company-owned life insurance policies effective October 2009. As a result, the Company received the cash surrender value of the policies redeemed, and eliminated the related borrowings, associated interest expense and future premium obligations on the policies. At December 31, 2009 the carrying amount of the remaining life insurance policies, which equaled their fair value, was $0.5 million ($6.0 million less $5.5 million of policy loans). Additional Company-owned life insurance policies were surrendered during January 2010, resulting in the Company receiving $0.4 million cash in the first quarter of 2010. At June 30, 2010, the value of the remaining life insurance policies, which equaled their fair value, was $0.1 million.

At ~~June~~September 30, 2010, working capital decreased to $4.76 million from $31.5 million at December 31, 2009. The $512.18 million decrease in current assets at ~~March~~September 3130, 2010 versus December 31, 2009 was primarily due to decreases in inventories and cash ~~partially~~and ~~offset~~restricted ~~by an increase in receivables~~cash. The $2014.51 million ~~decrease~~increase in current liabilities at ~~June~~September 30, 2010 versus December 31, 2009 was primarily due to increases related to the convertible debt, resulting in current maturities of long-term debt increasing by $810.78 million and the fair value of derivative instruments increasing $126.96 million (see Note 12 of Notes to Consolidated Financial Statements). This was partially offset by a decrease in accrued warranty and insurance (see Note 5 of Notes to Consolidated Financial Statements).

On ~~April~~October 918, ~~2009,~~2010 ~~All~~the ~~American~~financial ~~Group,~~institution ~~Inc.~~that ~~and~~finances ~~Lake~~the ~~City~~Company’s ~~Bank~~consigned ~~entered~~chassis ~~into~~inventory anused ~~agreement~~ for abus $2production ~~million~~suspended ~~three-year~~the ~~note~~Company’s incredit ~~exchange~~line. These ~~for~~consigned ~~cash~~chassis ~~loaned~~are topurchased ~~the~~from ~~Company~~an byautomobile ~~Lake~~manufacturer ~~City~~under ~~Bank~~a converter pool agreement. The ~~note~~Company is ~~fully~~pursuing ~~collateralized~~the bypossibility ~~certain~~of ~~properties,~~reopening ~~bears~~this ~~interest~~credit atline ~~the~~as ~~rate~~well ofas ~~6.250%~~alternative ~~per~~financing ~~annum,~~arrangements ~~and~~to ~~has~~allow afor ~~maturity~~the ~~date~~future purchase of ~~April~~chassis 9,under ~~2012~~a converter pool agreement. At ~~June~~As ~~30,~~of ~~2010~~the ~~and~~time ~~December~~of ~~31,~~the ~~2009~~filing, the ~~amount~~Company ~~outstanding~~does ~~was~~not ~~approximately~~yet ~~$1.8~~have ~~million~~a ~~and~~replacement ~~$1.9~~credit ~~million,~~line ~~respectively~~in place for the purchase of chassis.

On April 9, 2009, All American Group, Inc. ~~gave~~and ~~a promissory note to~~ Lake City Bank inentered ~~connection~~into ~~with~~an ~~the~~agreement ~~bank’s~~for ~~provision of~~ a $~~0.5~~2 million ~~working~~three-year ~~capital~~note ~~line~~in ofexchange ~~credit~~for cash loaned to the Company by Lake City Bank. The note is fully collateralized by certain properties, ~~and~~bears ~~borrowings against this line will bear~~ interest at athe ~~variable~~ rate, ~~with a minimum interest rate~~ of 56.250% per annum~~. This~~, ~~line~~and ~~of credit~~ has a maturity date of ~~March~~April 319, 2012. At ~~June~~September 30, 2010, ~~$0.5 million was outstanding on this line,~~ and at December 31, 2009, ~~there~~the ~~were~~amount nooutstanding ~~borrowings~~was ~~against~~approximately ~~this~~$1.8 ~~line~~million ofand ~~credit~~$1.9 million, respectively.

On April 9, 2009, All American Group, Inc. gave a promissory note to Lake City Bank in connection with the bank’s provision of a $0.5 million working capital line of credit. The note is fully collateralized by certain properties, and borrowings against this line will bear interest at a variable rate, with a minimum interest rate of 5% per annum. This line of credit has a maturity date of March 31, 2012. At September 30, 2010, $0.5 million was outstanding on this line, and at December 31, 2009, there were no borrowings against this line of credit.

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Convertible Debt Loan Agreement

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First Amendment to the Loan Agreement

The First Amendment has been accounted for as a debt extinguishment of the original debt in accordance with generally accepted accounting principles. The Company has determined that the fair value of the new debt resulting from the First Amendment is approximately $8.4 million, while the face value of the debt continues to be $10.9 million. In determining the fair value of the new debt, the Company used a discount rate of 40%, representing the expected rate of return adjusted for risk. The difference between the fair value of the new debt and its previous carrying value and the unamortized closing costs related to the old debt resulted in a charge of $7.3 million being recorded as a loss on debt extinguishment. The Company recorded a debt discount on the convertible notes related to the First Amendment for the difference between the face value of $10.9 million and the fair value of $8.4 million. The amortization of the $2.5 million in debt discounts will be reported as an increase in debt and additional interest expense over the remaining term of the loan agreement. Amortization of debt discount on the original and First Amendment convertible notes amounted to $0.4 million and $1.6 million for the quarter and year-~~to-date~~ ~~periods~~23 ~~ended June 30, 2010. The remaining unamortized discount was $2.1 million at June 30, 2010.~~-

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For the second quarter of 2010, the net impact of the First Amendment and fair value valuation adjustments resulted in a reduction to net interest of $3.6 million.

On August 3, 2010, H.I.G. All American, LLC (“H.I.G.”) exercised all of the warrants issued to them up to that date to purchase 20,483,865 shares of the Company’s common stock for $204.84 in connection with the Convertible Debt Loan Agreement dated October 27, 2009 ~~(see Note 12 of Notes to Consolidated Financial Statements)~~. As a result of the shares purchased by H.I.G., as of September 30, 2010, a total of 36,~~683~~750,~~999~~083 shares of common stock are outstanding, of which H.I.G. holds 55.87%. The exercise of the warrants resulted in a decrease to the derivative liability related to the warrants and an increase to common stock of $8.6 million. The carrying value of the derivative liability related to the warrants was $10.4 million on August 3, 2010, while the fair value was $8.6 million, which resulted in a reduction to the derivative instruments liability and a reduction in non-cash interest expense of $1.8 million.

On August 5, 2010, in connection with the exercise of warrants by H.I.G., the Company issued a new warrant (the “New Warrant”) to H.I.G. that is exercisable for the number of shares necessary to maintain H.I.G.’s percentage ownership of the Company’s common shares if the Company issues, on a fully diluted basis, more than 36,887,274 common shares. The New Warrant was issued pursuant to anti-dilution provisions contained in the original Loan Agreement dated October 27, 2009. The Company has determined that the new warrant is a derivative financial instrument. The Company has valued this warrant at $9.0 million which represents the fair value of the 25.6 million shares that would be exercisable when the convertible debt is converted to common shares. The Company does not believe, at this time, that any additional shares will be issued under the new warrant agreement during the remaining life of the debt agreement; and therefore, no additional shares have been assumed to be issued under the anti-dilution provision contained in the new warrant agreement.

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Second Amendment to the Loan Agreement

Operating results for the six-month period ended June 30, 2010 failed to meet the revised debt covenants set with H.I.G. All American, LLC (H.I.G.) in the First Amendment to the Loan Agreement. H.I.G. has waived the covenant defaults through July 31, 2010 in exchange for a waiver fee and expenses of $0.8 million representing the value of the penalties prescribed in the First Amendment, plus expenses, and the issuance on August 24, 2010 of the Second Amended and Restated Tranche B Note (the “Second Amendment”). The Second Amendment provides that the waiver fee and expenses, plus accrued interest on the convertible debt thru August 24, 2010 of $0.8 million, be added to the principal amount of the convertible note. As a result of the Second Amendment, the Tranche B Note has a face value of $12.5 million. The Board of Directors and H.I.G. are currently in discussions to work out mutually acceptable agreements for the remaining term of the debt agreement. Since the Company is not in compliance with the existing covenants, the convertible note is recorded as a current liability in current maturities of long-term debt and the fair value of derivative instruments relating to the warrants and conversion feature was also recorded as a current liability.

The fair value of the warrants and the beneficial conversion feature were $5.9 million and $0.7 million, respectively, at September 30, 2010, and $7.6 million and $5.4 million, respectively, at December 31, 2009 and are recorded as a liability on the Consolidated Balance Sheet. At September 30, 2010, the fair value adjustment to the warrants and the beneficial conversion feature resulted in $5.0 million being recorded as a reduction to the derivative instruments liability and a reduction in non-cash interest expense primarily as a result of the decrease in the Company’s stock price between July 1, 2010 and September 30, 2010.

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CRITICAL ACCOUNTING POLICIES

The preparation of the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company's estimates. However, actual results may differ from these estimates under different assumptions or conditions. A summary of the Company’s more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Company’s 10-K Report for the year ended December 31, 2009. During the first nine ~~six~~ months of fiscal 2010, there was no material change in the accounting policies and assumptions previously disclosed.

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Forward-Looking Statements

This Form 10-Q Report contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on management’s expectations and beliefs concerning future events. Forward-looking statements are subject to risks and uncertainties, and are dependent on various factors, many of which are outside the control of the Company. These uncertainties and other factors include, but are not limited to:

• liquidity; • the ability of the management team to achieve desired results; • interest rates, which affect the affordability of the Company's products; • consumer confidence, the availability of credit to consumers and commercial customers; • the availability and related costs of working capital and financing to the Company; • uncertainties regarding the length and depth of the recession, the potential for a double-dip recession, and timing and speed of recovery in the housing market; • the ability of the Company to obtain adequate bid and performance bonds with reasonable collateral requirements; • the ability to produce buses to meet demand; • the availability ~~to the Company~~ of ~~chassis utilized for bus production; • the availability of~~ financing to the Company’s customers, in consumer, commercial and government markets; • the Company’s ability to introduce new homes and features that achieve consumer acceptance; • the margins associated with the mix of products the Company sells in a particular period; • the impact of foreclosures on the broader housing market; • adverse weather conditions affecting home deliveries; • potential liabilities under repurchase agreements and guarantees; • tax law changes could make home ownership more expensive or less attractive; • legislation governing the relationships of the Company with its builders; • the price volatility of materials used in production and the ability to pass on rapidly increasing costs of product components and raw materials to end buyers; • the availability and cost of real estate for residential housing; • the increased size and scope of work of major projects, as compared to the Company's traditional single-family homes business, with increased reliance on third parties for performance which could impact the Company; • the ability to perform in new market segments or geographic areas where it has limited experience; • the over supply of existing homes and the inventory of foreclosed properties within the Company’s markets; • changing government regulations, including those covering accounting standards; • environmental matters or product warranties and recalls, which may affect costs of operations, revenues, product acceptance and profitability; • changes in property taxes and energy costs; • changes in federal income tax laws and federal mortgage financing programs; • competition in the industries in which the Company operates; • further developments in the war on terrorism and related international crises; • uncertainties of matters in litigation and other risks and uncertainties; • the ability of the Company to generate taxable income in future years to utilize deferred tax assets and net operating loss carry forwards that may be available, and the tax interpretations as to their availability; • the Company’s ability to increase gross margins which are critical whether or not there are increased sales; • the Company’s use of incentives at either the wholesale or retail level; • the dependence on key customers within certain product types; • the addition or loss of builders; • the introduction and marketing of competitive product by others, including significant price discounting offered by others; • uncertainties regarding the impact of the disclosed restructuring steps; • the ability to sell excess properties held by the Company; • the ability to attract and retain qualified senior managers; • the availability of collateral posted for various bonds, or the timing of restrictions being released on restricted cash; • the ability of the Company to reach agreement with H.I.G. regarding revised covenants at reasonable terms and the ability to meet the revised covenants in future periods; • the availability ofto the Company of chassis utilized for bus production and the availability of chassis financing to procure the chassis.

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In addition, investors should be aware that generally accepted accounting principles prescribe when a company must disclose or reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore appear to be volatile in certain accounting periods. The foregoing lists are not exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements.

At times, the Company's actual performance differs materially from its projections and estimates regarding the economy, the specialty vehicle and housing industries and other key performance indicators. Readers of this Report are cautioned that reliance on any forward-looking statements involves risks and uncertainties. Although the Company believes that the assumptions on which the forward-looking statements contained herein are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. There can be no assurance that the forward-looking statements contained in this Report will prove to be accurate. The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's objectives will be achieved.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, operations of the Company are exposed to fluctuations in interest rates. These fluctuations can vary the costs of financing and investing yields.

At ~~June~~September 30, 2009, the Company had one interest rate swap agreement with a notional amount of $1.8 million that was used to convert the variable interest rates on an industrial development revenue bond to a fixed rate. In accordance with the terms of the swap agreement, the Company pays a 3.71% interest rate, and receives the Bond Market Association Index (BMA), calculated on the notional amount, with net receipts or payments being recognized as adjustments to interest expense. This swap agreement is designated as a cash flow hedge for accounting purposes and effectively converts a portion of the Company's variable-rate borrowing to a fixed-rate basis through November of 2011, thus reducing the impact of changes in interest rates on future interest expense. The fair value of the Company's interest rate swap agreement represents the estimated receipts or payments that would be made to terminate the agreements. A cumulative gain of approximately $1322,000, net of taxes, attributable to changes in the fair value of interest rate swap agreements was recorded as a component of accumulated other comprehensive income (loss) for the ~~six~~nine-month period ended ~~June~~September 30, 2009. In October 2009, the interest rate swap agreement with a notional amount of $1.8 million that was used to convert the variable interest rates on an industrial development revenue bond to a fixed rate was terminated and paid. Additionally, the associated industrial revenue bond of $1.8 million, plus another industrial revenue bond in the amount of $0.9 million were paid in full on November 1, 2009 utilizing restricted cash held for that purpose.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~June~~September 30, 2010. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~September 30, 2010.

During the first quarter of 2010, the Company implemented a new business and financial system that replaced our previous business and financial system. We have updated our control documentation to reflect the new system and the related impact on our business processes, and we believe that we have designed adequate controls into and around the new system. These controls are essentially unchanged and are effective.

There have been no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), other than the new business and financial system described above during the periods covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 6. Exhibits

See Index to Exhibits incorporated by reference herein.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALL AMERICAN GROUP, INC.

(Registrant)

Date: August 25, 2010	By:	/s/ Richard M. Lavers
Date: November 12, 2010	By:	/s/ Richard M. Lavers
		Richard M. Lavers, Chief Executive Officer
Date: August 25, 2010	By:	/s/ Colleen A. Zuhl
Date: November 12, 2010	By:	/s/ Colleen A. Zuhl
		Colleen A. Zuhl, Chief Financial Officer
Date: August 25, 2010	By:	/s/ Stephen L. Patterson
Date: November 12, 2010	By:	/s/ Stephen L. Patterson
		Stephen L. Patterson, Corporate Controller

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INDEX TO EXHIBITS

Number Assigned In Regulation S-K, Item 601	Description of Exhibit
(3)(a)(i)	Articles of Incorporation of the Company as amended on May 30, 1995 (incorporated by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
(3)(a)(ii)	Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 4.2 to the Company's Form S-3 Registration Statement, File No. 333-14579).
(3)(b)	By-Laws as modified through October 27,2009 (incorporated by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K/A filed October 29, 2009).
(3)(a)(iii)	Articles of Amendment to Articles of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K filed May 5, 2010).
(10)(a)	First Amendment to Loan Agreement dated April 5, 2010 among Coachmen Industries, Inc. and H.I.G. All American, LLC, (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed April 9, 2010).
(3)(a)(iv)	Articles of Amendment to Articles of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K filed October 12, 2010).
(10)(b)	Amended and Restated Secured Subordinated Convertible Tranche B Note, dated April 5, 2010, by and among Coachmen Industries, Inc. and H.I.G. All American, LLC, (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed April 9, 2010).
(3)(b)	By-Laws as modified through October 27, 2009 (incorporated by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K/A filed October 29, 2009).
(10)(c)	Amended and Restated Warrant dated April 5, 2010, among Coachmen Industries, Inc. and H.I.G. All American, LLC, (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed April 9, 2010).
(10)(a)	Entry into a Material Definitive Contract for production of Modular Units for Casper College.
(10)(d)	First Amendment to Registration Rights Agreement, dated April 5, 2010, among Coachmen Industries, Inc. and H.I.G. All American, LLC, (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed April 9, 2010).
(10)(b)	Entry into an agreement to be acquired by affiliates of All American Group Holdings, LLC, an affiliate of H.I.G. All American, LLC, in a merger and establishment of a liquidating trust (incorporated by reference to the Company’s Current Report on Form 8-K filed November 10, 2010).
(10)(e)	Common Stock Purchase Warrant dated April 5, 2010, among Coachmen Industries, Inc. and H.I.G. All American, LLC, (incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed April 9, 2010).
(10)(f)	Common Stock Purchase Warrant dated August 5, 2010, among All American Group, Inc. (f/k/a Coachmen Industries, Inc.) and H.I.G. All American, LLC, (incorporated by reference to Exhibit 4 to the Company’s Current Report on Form 8-K filed August 11, 2010).
(10)(g)	Second Amended and Restated 20% Secured Subordinated Convertible Tranche B Note, dated August 24, 2010, by and among All American Group, Inc. and H.I.G. All American, LLC, (incorporated by reference to Exhibit 4 to the Company’s Current Report on Form 8-K filed August 25, 2010).
(31.1)	Rule 13a-14(a) Certification of Chief Executive Officer.
(31.2)	Rule 13a-14(a) Certification of Chief Financial Officer.
(32.1)	Section 1350 Certification of Chief Executive Officer.
(32.2)	Section 1350 Certification of Chief Financial Officer.

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