AMERICAN INTERNATIONAL INDUSTRIES INC, 10KSB/A, 2000-11-06

AMERICAN INTERNATIONAL INDUSTRIES INC
10KSB/A, 2000-11-06
INVESTORS, NEC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1994

For the transition period from _______ to _______

COMMISSION FILE NUMBER: 0-25223

AMERICAN INTERNATIONAL INDUSTRIES, INC.

(Exact name of small business issuer as specified in its charter)

Nevada	88-0326480
(State or Other Jurisdiction of Incorporation)	(IRS Employer Identification No.)


601 Cien Street, Suite 235, Kemah, TX	77565-3077
(Address of Principal Executive Offices)	(Zip Code)

(281) 334-9479
(Issuer's telephone number)

Securities registered under Section 12 (b) of the Act: NONE
(Title of class)

Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.001
(Title of class)

Check whether the issuer: (i) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to the filing requirements for the past 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A. [ ]
Issuer’s revenues for its most recent fiscal year: $13,396,256
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the price on the pink sheets of the National Quotation Bureau on October 31, 2000 was $6,737,671. As of October 31, 2000 registrant had 162,256,222 shares of Common Stock outstanding.

TABLE OF CONTENTS

	Page
PART I
Item 1. Description of Business.	2
Item 2. Description of Property.	12
Item 3. Legal Proceedings.	12
Item 4. Submission of Matters to a Vote of Security Holders.	12

PART II
Item 5. Market for Common Equity and Related Stockholder Matters.	13
Item 6. Management's Discussion and Analysis.	16
Item 7. Financial Statements.	19
Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.	40

PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.	40
Item 10. Executive Compensation.	41
Item 11. Security Ownership of Certain Beneficial Owners and Management.	42
Item 12. Certain Relationships and Related Transactions.	43
Item 13. Exhibits and Reports on Form 8-K.	45

PART I

All references to American International Industries, Inc. common stock reflect a three for one common stock split effective July 1996.

ITEM 1. DESCRIPTION OF BUSINESS

Some of the statements contained in this Form 10-KSB/A for American International Industries, Inc. ("AIII" or "Company"), discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. The term "AIII" or the "Company" refers to American International Industries, Inc. or to American International Industries, Inc. and its consolidated subsidiaries, as applicable. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. Important factors that may cause actual results to differ from projections include, for example:

-	the success or failure of management's efforts to implement their business strategy;
-	the ability of the Company to raise sufficient capital to meet operating requirements;
-	the ability of the Company to protect its intellectual property rights;
-	the ability of the Company to compete with major established companies;
-	the effect of changing economic conditions;
-	the ability of the Company to attract and retain quality employees; and other risks, which may be, described in future filings with the SEC.

General

American International Industries, Inc. is a Nevada corporation, which began conducting its current operations in September 1996, when it made its first acquisition. The Company is filing this Annual Report on Form 10-KSB/A together with other reports due under the Exchange Act in order to become current and thereby permit the Company's Common Stock to be listed on the OTC:BB. The Company's Common Stock was delisted from the OTC:BB on November 4, 1999 because it was not current in its reporting obligations under the Exchange Act.

The Company is a holding company, and operates the following subsidiaries:

-	Har-Whit/Pitt's & Spitt's, Inc. (a manufacturer and distributor of barbeque pits and a custom sheet metal fabricator)
-	Brenham Oil & Gas, Inc. (an owner of an oil and gas royalty interest),
-	Texas Real Estate Enterprises, Inc. (which owns certain undeveloped real estate in Harris, Galveston, and Chambers counties in Texas, some of which is held by its wholly-owned subsidiary Midtowne Properties, Inc.)
-	Acqueren, Inc. (whose sole business operating entity is Northeastern Plastics, Inc. which is a supplier of automotive after-market products and consumer durables),
-	Marald, Inc. d/b/a Unlimited Coatings (a distributor of specialty chemicals, primarily used for spray-on bed-liners for truck beds, marketed through a network of independent distributors),
-	Tough Trucks & Accessories, Inc. d/b/a Armor Linings, a retail applicator of spray-on truck bed liners and truck accessories.
-	World Wide Net, Inc. (a separately trading public entity, WWNT, currently inactive, having sold its wholly owned subsidiary, Modern Film Effects, Inc. at October 1, 1999).

The Company's long-term strategy is to expand the operations of each of its subsidiaries in their respective fields.

The Company encounters substantial competition in each of its product and service areas, with businesses producing the same or similar products or services, or with businesses producing different products designed for the same uses. Such competition is expected to continue. Depending on the particular market involved, the Company's businesses compete on a variety of factors, such as price, quality, delivery, customer service, performance, product innovation and product recognition. Other competitive factors for certain products include breadth of product line, research and development efforts and technical and managerial capability.

American International Industries, Inc.

In September 1994, the Company was incorporated in Nevada under the name Black Tie Affair, Inc. for the purposes of engaging in catering services. In July 1996, an unaffiliated group of investors purchased shares of Company common stock constituting 90% of the outstanding shares of Black Tie Affair, Inc. This group changed the name of the Company to Pitts and Spitts of Texas, Inc., and acquired Pitt's & Spitts, Inc. and Har-Whit, Inc. in September 1996. In September and October 1997, a new investor group ("1997 Group") including Mr. Daniel Dror, Sr., gained control of the Company through the following arms-length negotiated transactions with the Company and unaffiliated third parties: (i) Elk International Corporation, Ltd., an entity controlled by Mr. Dror's brother, purchased 5,000,000 shares of Company common stock at a purchase price of $0.03 per share from the Company, received an option to purchase 2,000,000 shares of Company common stock at an exercise price of $0.02 per share from the Company, and purchased 1,200,000 shares of Company common stock at a purchase price of $0.03 per share from an individual (Mr. Dror has never owned any shares of Elk International Corporation, Ltd., nor has he ever served as an officer or director of such entity), (ii) Jack Talan, a former director of the Company, purchased 500,000 shares of Company common stock from the Company at a purchase price of $0.10 per share, and (iii) Daniel Dror & Company, Inc., formerly controlled by Mr. Dror, purchased 200,000 shares of Company common stock at a purchase price of $0.03 per share from an individual. At the closing of this transaction, the sole operating entities of the Company were its two subsidiaries Pitt's & Spitt's, Inc. and Har-Whit, Inc. This group elected a new board of directors, appointed current management, and appointed Mr. Dror chairman of the board and chief executive officer. In December 1997, the name of the Company was changed to Energy Drilling Industries, Inc., and in June 1998, the Company changed its name to American International Industries, Inc.

In January 1998, the Company amended its Articles of Incorporation to increase its authorized common shares to 100,000,000 and to authorize 10,000,000 preferred shares. In September 1998, the Company amended its Articles of Incorporation to increase its authorized common shares to 200,000,000 ("Common Stock"). The Company is located at 601 Cien St., Suite 235 in Kemah, Texas 77565. Its telephone number is (281) 334-9479.

The Company currently operates from one facility in Kemah, Texas. Its facility is 1,380 square feet and is leased for $1,335 month, expiring May 2004. As of July 11, 2000, the Company, excluding its subsidiaries, employed eight persons, on a full-time basis, none of which are covered by a collective bargaining agreement.

Har-Whit/Pitt's & Spitt's, Inc.

In September 1996, prior to the 1997 Group gaining control of AIII, the Company purchased all of the capital stock of Pitt's & Spitt's, Inc., a Texas corporation, incorporated in December 1989, and Har-Whit, Inc., a Texas corporation, incorporated in January 1975, for 2,527,000 shares of Common Stock and $500,000 in exchange for non-compete agreements with the previous owners. Messrs. Hartis and Whitworth, two of the prior owners of the above corporations who served as directors for fiscal year 1998, each received 631,750 shares of Common Stock and $250,000 in connection with the acquisitions. In August 1998, Pitt's & Spitt's, Inc. was merged into Har-Whit, Inc., which subsequently changed its name to Har-Whit/Pitt's & Spitt's, Inc. ("Har-Whit"). Har-Whit is located at 14221 Eastex Freeway in Houston, Texas 77032. Its telephone number is (281) 442-5013.

Brenham Oil & Gas, Inc.

In December 1997, the Company purchased all of the capital stock of Brenham Oil and Gas, Inc., a Texas corporation, incorporated in November 1997 ("Brenham"), for 6,000,000 shares of Common Stock from Daniel Dror II 1976 Trust. At the time of the transaction, Mr. Dror was the trustee of the Daniel Dror II 1976 Trust, but he has never had any financial interest in such trust, the sole beneficiary being Mr. Dror's son. Mr. Dror is no longer the trustee of the trust. Brenham's sole asset is an oil and gas royalty interest, which was owned by the Daniel Dror II 1976 Trust prior to December 1995. The mineral rights, which resulted in the royalty interest, were retained by the Daniel Dror II 1976 Trust in a real estate sale transaction. All of the cost basis which the Daniel Dror II 1976 Trust had in that property was attributed to the property, which was sold, thus no basis is attributed to the mineral interest. Brenham is located at 601 Cien St., Suite 235 in Kemah, Texas 77565. Its telephone number is (281) 334-9479. This is also the address and telephone of the Company's executive offices.

Texas Real Estate Enterprises, Inc.

In December 1997, the Company purchased all of the capital stock of Texas Real Estate Enterprises, Inc. a Texas corporation, incorporated in March 1996 ("TREE"), for 10,000,000 shares of Common Stock from Elk International Corporation, Ltd., which is controlled by Mr. Dror's brother. The Company also purchased G.C.A. Incorporated ("GCA") (wholly owned by an unrelated individual) for 6,000,000 shares of AIII Common Stock. TREE and GCA are collectively referred to as TREE. In May 1998, the Company through TREE issued 8,000,000 shares of AIII Common Stock to Daniel Dror & Company, Inc., which at the time of the transaction was controlled by Mr. Dror in exchange for additional property. Mr. Dror is no longer affiliated with the company. In June 1998, the Company through TREE purchased all of the capital stock of Midtowne Properties, Inc. ("Midtowne") for 1,100,000 shares of AIII Common Stock, from two parties, one of which was the Daniel Dror II 1976 Trust, which received 660,000 shares of AIII Common Stock. In December 1998, because the appraisals on the properties exceeded the preliminary values of the properties as estimated by both parties to the transaction, the Company authorized the issuance of an additional 1,000,000 shares of AIII Common Stock, of which the party with which Mr. Dror was affiliated was to receive 600,000 shares. The purchase price of TREE, GCA, Midtowne, and the additional property was established based on the fair market value of the assets acquired as determined by independent, certified appraisals. Management believes the terms of the purchases were fair and reasonable based on such appraisals. TREE is located at 601 Cien St., Suite 235 in Kemah, Texas 77565. Its telephone number is (281) 334-9479. This is also the address and telephone of the Company's executive offices.

Acqueren, Inc.

In June 1998, the Company entered into a purchase agreement to acquire all of the capital stock of Acqueren, Inc., a Delaware corporation, incorporated in December 1995 ("Acqueren"), which operates through its wholly owned subsidiary Northeastern Plastics, Inc., a New York corporation, incorporated in January 1986 ("NPI"). The purchase agreement provided for the issuance of 6,750,000 shares of Common Stock to the two largest shareholders of Acqueren in exchange for approximately 55% of the outstanding capital stock of Acqueren, and provided for the remaining shareholders of Acqueren to receive approximately 25.02 shares of Common Stock for each share of Acqueren common stock exchanged (these remaining shares of Acqueren common stock had been issued pursuant to a private placement and included a warrant to purchase one share of Acqueren common stock, which is included in the above exchange). The transaction was closed effective July 1, 1998. Based upon the estimated fair value of the restricted common stock of AIII ($.08 per share at date of acquisition), the total purchase consideration for Acqueren was approximately $2,140,000. Based on the representations made to it at the time of the transaction, management believed the terms of the acquisition were fair and reasonable being based on arms-length negotiations. NPI is located at 11601 Highway 32 in Nicholls, Georgia 31554. Its telephone number is (912) 345-2030.

Marald, Inc.

Effective January 1999, the Company purchased all of the capital stock of Marald, Inc., doing business as Unlimited Coatings ("Unlimited"), in exchange for 3,500,000 restricted shares of Common Stock of AIII valued at fair market value of approximately $652,000 at $.19 per share plus a finders fee of $45,000 paid in part to a party related to Mr. Dror. In addition, under the terms of the acquisition agreement, the Company has agreed to provide chemicals at a discount to Toro Spray-On Liners, Inc. an entity partially owned by the above-related party. Unlimited, headquartered in Houston, Texas distributes specialty chemicals to the automotive after-market and is best known for its spray-on bed-liners for trucks. Unlimited products are marketed under the "Toro Liner" name. Unlimited also markets specialty chemicals, including rust proofing, undercoating, fabric protectants, fuel additives, and performance enhancement chemicals related to the automotive after-market. The Unlimited acquisition has been accounted for as a purchase. The Company knows of no independent sources of information regarding Unlimited's market. However, based on management's knowledge of the industry, management believes Unlimited is the fourth largest wholesaler of systems, training, and chemicals used for sprayed-on truck bed linings. Management believes the industry leader is Rhino Liners, followed by Linex and Ultimate Linings. Unlimited markets through participation in trade shows and advertising in national trade magazines. Unlimited competes on the basis of price, quality, and service. Unlimited is located at 1107-B Upland Drive, Houston, Texas 77043. Its phone number is (713) 647-8676.

Tough Trucks & Accessories, Inc.

In April 1999, the Company acquired 100% of the outstanding shares of Tough Trucks & Accessories, Inc. d/b/a Armor Linings ("Armor"). Armor operates a facility in Houston, for the application of spray-on liners for truck beds, undercoating and rustproofing of vehicles, and wholesale and retail sales of truck accessories. Customers include many of the Houston area auto and truck dealerships. Armor has established commercial applications of the coatings, which are applied for corrosion resistance and noise suppression in diverse uses. A manufacturing company has Armor apply the lining to the inside of housings for large turbine engines. Other applications include surfaces exposed to corrosive materials in chemical and refining plants, lining the interior of refuse containers (dumpsters), spraying floors and decks, and other applications where a tough surface, resistant to corrosion, moisture and wear is needed. The chemicals are supplied by Unlimited. The Company paid cash in the amount of $143,000 and assumed approximately $85,000 related to certain equipment lease obligations. The acquisition was accounted for as a purchase. Armor is located at 1107-B Upland Drive, Houston, Texas 77043. Its phone number is (713) 932-7667.

Acquisition of World Wide Net, Inc. Common Stock

In May 1999, the Company purchased for investment purposes, 400,000 freely tradable shares (giving effect to a 1 for 5 reverse split) of World Wide Net, Inc. (WWNT) for a total of $300,000, representing 20% of the total outstanding common shares of WWNT. WWNT, an inactive public company with nominal assets, is traded in the over-the-counter-bulletin-board (OTC:BB). Of the total of 400,000 freely tradable shares, approximately 367,000 have been sold, and an additional 1,200 shares have been purchased, in several transactions. The remaining 33,000 shares are categorized as trading securities and are accounted for in accordance with SFAS No. 115. The fair market value of the unsold shares at December 31, 1999 was $5,226. Unrealized losses amounted to $22,118 for the three-month period ended December 31, 1999. Management determines the fair market value of these shares based on quoted market prices as reflected on the OTCBB. All sales of WWNT shares have been made in the open market to non-related third parties. WWNT is located at 601 Cien St., Suite 235 in Kemah, Texas 77565. Its telephone number is (281) 334-9479. This is also the address and telephone of the Company's executive offices.

On September 12, 1999, the Company signed an agreement to acquire 3,100,000 newly issued, restricted, common shares of WWNT, constituting approximately 60.8% of the then outstanding total of 5,100,000 common shares of WWNT. The shares of WWNT were received by AIII in exchange for 100% of the shares of Modern Film Effects, Inc. dba Cinema Research Corporation ("CRC"). Prior to the merger with CRC, WWNT had only nominal assets and no operations during the three preceding years. Accordingly, the investment in WWNT was recorded at the historical cost basis of CRC at the effective date of the transaction. Since the purchase of the 3.1 million shares acquired in September 1999 resulted in majority ownership of WWNT, the Company consolidated WWNT as of September 30, 1999.

Recent Developments

On June 28, 1999, the Company entered into a definitive agreement to acquire 100% of the optical and digital title, special effects and the scan and record operations of Pacific Title/ Mirage Studios ("Pac Title").

On September 29, 1999 the Company announced that it had discontinued negotiations regarding the acquisition of the assets and operations of Pac Title. Due to unforeseen circumstances the Company decided not to proceed with the acquisition.

Business Operations of Har-Whit/Pitt's & Spitt's, Inc.

Har-Whit is (i) a manufacturer and seller of barbeque pits and accessories, and (ii) a custom sheet metal and light structural fabrication company specializing in stainless steel and aluminum. Har-Whit began selling barbeque pits in 1983, and began its fabrication business in 1973.

Products and Services

Har-Whit manufactures ten standard styles of high quality barbeque pits that it sells at retail at prices ranging from $625 to $4,395. In addition, Har-Whit manufacturers custom barbeque pits which have been sold at prices as high as approximately $35,000. Har-Whit's barbeque pits are sold under the name "Pitt's & Spitt's," which management believes has established a reputation for quality in the industry. In addition, Har-Whit offers a number of related spices, sauces, accessories, cooking tools, and cookbooks in its retail showroom and, on a very limited basis, through catalogs.

Har-Whit's custom fabrication business specializes in fabrication for commercial and industrial customers predominantly in the energy and environmental fields. Har-Whit also builds custom products for other manufacturers under sub-contract agreements, on an as needed basis, from specifications and drawings provided by the customer.

Har-Whit's primary raw material for both its barbeque pits and custom fabrication business is steel, and its principal suppliers are Triple S-Steel Supply, Vincent Metal Goods, and White Star Steel, which are all located in Houston, Texas. To date, Har-Whit has been able to receive shipments of raw materials within 48 hours of order.

Sales and Marketing

Har-Whit distributes its barbeque pits primarily through its retail outlet in Houston, Texas, as well as through individual mail orders. Har-Whit has over the years, advertised in various publications, in addition to television and radio. Har-Whit does little advertising and primarily markets its barbeque products and custom fabrication business through limited advertising, the Internet, and word of mouth.

Currently, Har-Whit has no contracts with distributors, no retail agreements, and no marketing plan. Management believes its ability to increase production is dependent, among other items, on its ability to increase its facilities. In addition, even if Har-Whit is able to increase production, there can be no assurance that there will be sufficient demand for its products.

Competition

Har-Whit competes against other manufacturers of barbeque pits, some of which have far greater financial, marketing, and other resources than Har-Whit. Har-Whit competes primarily on the basis of customer service and quality. Management believes its primary and most recognizable competitors in its primary sales markets are Klose Custom Barbeque Pits of Houston and Oklahoma Joe's of Oklahoma. There can be no assurance that Har-Whit will be able to successfully compete in this highly competitive marketplace.

Har-Whit competes in its custom fabrication business primarily on the basis of quality and service. Har-Whit competes against other custom fabricators for a limited amount of fabrication business. The recent downturn in oilfield activity has increased competitive pressures, and Har-Whit intends to increase its marketing emphasis on other industries, although currently no marketing plan has been developed. Due to Har-Whit's narrow specialization in stainless and aluminum products, it competes with a relatively small number of entities. Management believes its primary and most recognizable competitors in the custom fabrication field in the Houston area are Walkup Company, Robertson Metal Fabrication, Campo Sheet Metal Works, Inc., Maudlin & Son, and Precision Metal Fab Co. There can be no assurance that Har-Whit will be able to successfully compete in this marketplace.

Employees

As of August 1, 2000, Har-Whit employed 31 persons, on a full-time basis, including management, sales, office, and manufacturing employees. No employees are covered by a collective bargaining agreement. Management considers relations with its employees to be satisfactory.

Facilities

Har-Whit currently operates from one office in Houston, Texas, that it owns. In addition, Har-Whit has acquired land for expansion adjoining its current facility consisting of approximately 26,000 square feet for $28,000 and a five-year note of $30,000. Har-Whit is planning to add an additional 9,000 square feet to the existing manufacturing facilities on this land at a cost of approximately $250,000 if sufficient funding can be obtained, to effect its business strategy of increased sales as management believes a greater demand exists for its products. One of AIII's primary functions is to assist its subsidiaries to raise the necessary capital to support such growth, however, there is no assurance that Har-Whit will be able to raise adequate proceeds to effectuate any expansion plans. If Har-Whit is unable to raise sufficient proceeds to fund such expansion, it will continue to operate out of its current facilities and with its current equipment. If Har-Whit is unable to fund plant expansion and purchase new production equipment, it may not be able to effectuate its business strategy of increased sales.

Business Operations of Brenham Oil & Gas, Inc.

Brenham's sole asset is an oil, gas, and mineral royalty interest covering a twenty-four acre tract of land located in Washington County, Texas. The royalty interest is currently leased by Union Pacific Resources Company ("Union Pacific") for a term continuing until the covered minerals are no longer produced in paying quantities from the leased premises. Royalties on the covered minerals produced are paid to Brenham as follows: (i) for oil and other liquid hydrocarbons, the royalty is one-sixth of such production, (ii) for gas (including casinghead gas) the royalty is one- sixth of the net proceeds realized by Union Pacific on the sale thereof, less a proportionate part of ad valorem taxes and production, severance, or other excise taxes. In addition, Brenham is entitled to shut-in royalties of $1 per acre of land for every ninety-day period within which one or more of the wells on the leased premises, or lands pooled therewith, are capable of producing in paying quantities, but such wells are either shut-in or production is not being sold. Currently, Brenham is not actively seeking further royalty agreements. Brenham is operated from AIII's office in Kemah, Texas.

Competition

Brenham's profitability is dependent on Union Pacific's ability to generate profits from the tract of land on which Brenham owns its royalty interest. The oil and gas industry is highly competitive, and Union Pacific competes against companies with substantially larger financial and other resources. Union Pacific's competitors include major integrated oil and gas companies and numerous other independent oil and gas companies and individual producers and operators. Competitive factors include price, contract terms, and types and quality of service, including pipeline distribution logistics and efficiencies, all of which may reduce any royalty payments made to Brenham.

Government Regulation

As stated previously, Brenham's profitability is dependent on Union Pacific's profitability. As Union Pacific is regulated by various state and federal authorities there is no assurance that Union Pacific's profitability, and therefore Brenham's profitability, will not be adversely affected. As Brenham only owns a royalty interest on the subject land it is not directly responsible for any costs in connection with environmental laws, nor is it subject to penalties for non-compliance with any such laws. Union Pacific is subject to the following governmental regulations:

-	State Regulation of Oil and Gas Production. The State of Texas regulates the production and sale of oil and natural gas, including requirements for obtaining drilling permits, the method of developing new fields, the spacing and operation of wells and the prevention of waste of oil and gas resources. In addition, Texas regulates the rate of production and may establish maximum daily production allowable from both oil and gas wells on a market demand or conservation basis.
-	Environmental Regulations. Union Pacific's activities are also subject to existing federal and state laws and regulations governing environmental quality and pollution control. As of March 15, 1999, Union Pacific is in compliance, in all-material respects, with applicable environmental requirements. There can be no assurance that future developments, such as increasingly stringent environmental laws or enforcement thereof, will not cause Union Pacific to incur material environmental liabilities or costs, which may adversely effect its business.
-	Oil Price Regulations. Historically, regulatory policy affecting crude oil pricing was derived from the Emergency Petroleum Allocation Act of 1973, as amended, which provided for mandatory crude oil price controls until June 1, 1979, and discretionary controls through September 30, 1981. On April 5, 1979, President Carter directed the Department of Energy to complete administrative procedures designed to phase out, commencing June 1, 1979, price controls on all domestically produced crude oil by October 1, 1981. However, on January 28, 1981, President Reagan ordered the elimination of remaining federal controls on domestic oil production, effective immediately. Consequently, oil may currently be sold at unregulated prices.
-	Gas Price Regulations. The Natural Gas Act of 1938 regulates the interstate transportation and certain sales for resale of natural gas. The Natural Gas Policy Act of 1978 ("NGPA") regulates the maximum selling prices of certain categories of natural gas and provided for graduated deregulation of price controls for first sales of several categories of natural gas. With certain exceptions, all price deregulation contemplated under the NGPA as originally enacted in 1978 has already taken place. Under current market conditions, deregulated gas prices under new contracts tend to be substantially lower than most regulated price ceilings prescribed by the NGPA.

Business Operations of Texas Real Estate Enterprises, Inc.

TREE and its wholly owned subsidiary Midtowne own nine tracts of land in Harris, Chambers, and Galveston counties in Texas. See "Item 2. Description of Property." TREE is operated from AIII's office in Kemah, Texas.

All the properties owned by TREE are undeveloped commercial properties free of any mortgage obligations, however certain properties are subject to property taxes in the amount of approximately $357,000 in the aggregate. Such properties are available for sale; however, management will explore development possibilities of its properties if such possibilities are presented. At this time no development plans are being considered.

Competition

There is intense competition among companies in the real estate investment and development business. Sales and payments on real estate sales obligations depend, in part, on available financing and disposable income and, therefore, are affected by changes in general economic conditions and other factors.

The real estate development business and commercial real estate business are subject to other risks such as shifts in population, fluctuations in the real estate market, and unpredictable changes in the desirability of residential, commercial and industrial areas. There is no assurance that TREE will be able to compete in this market.

Employees

As of August 1, 1999, TREE employed one person, its president, on a full-time basis; all other operating functions are handled by the Company's personnel.

Regulation

TREE's real estate operations are subject to comprehensive federal, state, and local regulation. Applicable statutes and regulations may require disclosure of certain information concerning real estate developments and credit policies. In the future, if TREE decides to develop its properties, periodic approval is required from various agencies in connection with the design of developments, the nature and extent of improvements, construction activity, land use, zoning, and numerous other matters. Failure to obtain such approval, or periodic renewal thereof, could adversely affect the real estate development and marketing operations of TREE. Various jurisdictions also require inspection of properties by appropriate authorities, approval of sales literature, disclosure to purchasers of specific information, bonding for property improvements, approval of real estate contract forms and delivery to purchasers of a report describing the property.

A number of states and localities have adopted laws and regulations imposing environmental controls, disclosure rules and zoning restrictions which have impacted the management, development, use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities and mortgage lending with respect to some properties, and may therefore adversely affect TREE. Failure of TREE to disclose environmental issues in connection with a real estate transaction may subject it to liability to a buyer or lessee of property. Property management services also could subject TREE to environmental liabilities pursuant to applicable laws and contractual obligations to property owners. Insurance for such matters may not be available. Additionally, new or modified environmental regulations could develop in a manner, which have not, but could adversely affect TREE. TREE's financial results for the fiscal year 1998 have not been materially impacted by its compliance with environmental laws or regulations, and no material capital expenditures relating to such compliance are planned.

Business Operations of Acqueren, Inc.

Acqueren through its wholly owned subsidiary NPI is a supplier of products to retailers and wholesalers (i) in the automotive after-market, and (ii) in the consumer durable electrical products markets.

Products and Services

NPI's products in the automotive after-market include a variety of booster cables sold under the brand name "Mechanix Choice" and "Bitty Booster Cable." Also supplied under the brand name "Mechanix Choice," NPI markets portable hand lamps, cord sets, and a variety of battery testers, battery repair kits, and miscellaneous battery accessories.

The "Mechanix Choice" brand of booster cables was introduced in 1995, and its products are currently available at CSK Automotive, Family Dollar, Victor Automotive Products, Sam's Club, Caldor, and Bradlees, among others. NPI's "Bitty Booster Cable" brand of booster cables is currently distributed in the automotive after-market and through well-established food and drug retail channels.

NPI's consumer durable electrical products include flood light kits, clamp on lamps, household extension cords, tri-tap extension cords, heavy-duty extension cords, night-lights, and surge protection devices. All of NPI's consumer durable electrical products are UL Listed.

Beginning in late 1996, management changed its business strategy, and began to target what it believed to be the less competitive food and drug and variety retail industry. By adding more food and drug related items such as power strips, multiple outlet devices, cord sets, and night lights, NPI has been able to enter the consumer durables market at such locations as Family Dollar Stores, Bills Dollar Stores, and Dollar Tree Stores.

Currently, virtually all of NPI's products are manufactured overseas. NPI's products are manufactured based on NPI's specifications and design. Since 1995, NPI has changed all but one of its overseas suppliers, and as a result management believes it has been able to reduce purchasing costs and increase product quality. Currently, NPI has no long-term agreements with any overseas or domestic manufacturers for its products, but relies on management's personal contacts with such manufacturers in renewing its present agreements. There is no assurance that NPI will be able to renew its present agreements with manufacturers on terms economically favorable to NPI, if at all. The inability of NPI to renew its agreements on economically favorable terms would have a material adverse effect on NPI.

NPI orders the materials for its principal products from the following manufacturers: Apollo Wire and Cable supplies NPI's electrical cord sets; Longqou Dongli Wire and Cable supplies NPI's booster cables; Rite Tech supplies NPI's surge strips; and Dashing Electric supplies NPI's night lights. To date, NPI has typically received shipments from the above suppliers within 8-10 weeks of order. Management believes that if NPI should be unable to utilize any of the above suppliers, it would be able to find alternative suppliers on comparable terms.

Sales and Marketing

Currently, NPI has no agreements with distributors, wholesalers, or retailers, but sells its products from its warehouse through the use of independent sales agents and through its in-house personnel. NPI contracts with agents, which are responsible for contacting potential customers and clients in a pre-determined sales area. NPI provides these agents with manuals, brochures, and other promotional materials, which are used in the selling process. After sales are completed through the use of an agent, NPI directly bills the customer, and all payments are made directly to NPI. Agents are compensated solely on a commission basis, calculated on the net sales price of products, which are invoiced to customers. No commissions are paid until NPI receives payment from customers.

NPI also sells a substantial portion of its products under a customer friendly direct import program ("D/I program"). The D/I program offers NPI customers the additional services of arranging for overseas manufacturing and delivery to overseas freight forwarders. NPI can also arrange for the complete turn key deliveries of its products to its customer’s place of business in the United States. Under a turnkey D/I program, NPI arranges, at an additional cost to its customers, on site factory inspections of the goods prior to the container loading, ocean and domestic freight services, customs and brokerage services, as well as container unloading at the customer's facility. NPI's direct import sales are primarily guaranteed through a customer irrevocable bank letter of credit issued by the customer. Currently, management estimates that over one half of sales are made through the use of its D/I program. Management believes the D/I program provides to its customers the most cost effective means of obtaining large volumes of products. The average volume of NPI's direct import shipments are substantially larger than its warehouse shipments (management estimates that D/I program orders average a minimum of $40,000 to a high of $1,200,000, as compared to warehouse shipments which average $1,200), however, NPI is unable to realize the same gross profit margins on D/I program orders, as compared to warehouse shipments. Management estimates that D/I program gross profit margins range from a low of 8% to a high of 19%, while the gross profit margins on its warehouse sales range from a low of 19% to a high of 40%.

NPI has chosen not to target several of the larger retailers in the consumer market such as Home Depot, Lowes, Builders Square, Wal-Mart, K-Mart, and Ace Hardware due to its capital limitations and due to the extreme competitive market conditions for such accounts. While there is no assurance, management believes it will be able to increase margins by focusing solely on smaller and mid-market retailers which management believes have been ignored by larger producers.

In fiscal year 1999, Family Dollar Stores, West Coast Liquidations, and Consolidated Stores accounted for a large amount of NPI's revenues. There is no assurance that NPI will be able to retain these customers, and the loss of any of these customers may have an adverse effect on NPI.

Competition

In the safety products category of the automotive after-market, of which a substantial portion of NPI's products fall, NPI competes against a large number of suppliers many of which have far greater financial resources than NPI. In addition, management has seen little movement between suppliers at major national retailers, and as such, NPI's ability to increase market share will be limited. Management believes its primary competitors in the safety products market include General Cable, Coleman Cable, East Penn, Champion, and many other producers and importers. Based on current sales, management believes its market share of this safety products category to be approximately 4%. There can be no assurance that NPI will be able to successfully compete in this marketplace.

In the consumer durables electrical products market, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. Management believes its primary competitors in the consumer durables market include Pacific Electricord Company, Woods Wire, General Cable, Coleman Cable, and various other producers. Based on current sales, management believes its market share of the consumer durables electrical product market to be approximately 1.4%. There can be no assurance that NPI will be able to successfully compete in this marketplace.

Price is a highly significant factor in the safety products market and the consumer durables electrical products markets. Many of NPI's products are made to industry specifications, and are therefore essentially functionally interchangeable with those of competitors. However, NPI believes that significant opportunities exist to differentiate all of its products on the basis of quality, reliability, and customer service.

Intellectual Property

NPI has been issued the following trademarks: "Northeastern" (TM), expiring December 2006, "Jumpower" (TM), expiring February 2009, "The Bitty Booster Cable" (TM), expiring August 2008, "connections with quality" (TM), expiring October 2006, and "small enough to fit in your glove box strong enough to start your car" (TM), expiring October 2007.

Employees

As of July 11, 2000, NPI employed seven persons, on a full-time basis, including management, customer service, and warehouse employees. No employees are covered by a collective bargaining agreement. Management considers relations with its employees to be satisfactory.

Facilities

NPI currently operates from one facility in Nicholls, Georgia. Its facility is 30,000 square feet and is leased for $3,395 month. NPI has exercised an option to renew such lease for an additional two-year period with the monthly lease payments increased based on the consumer price index.

Business Operations of Unlimited Coatings and Armor Linings

Unlimited is a wholesaler of sprayed-on systems, technology and chemicals throughout the United States. Unlimited began its wholesale business in November 1995. Armor is a retailer that applies a polyurethane sprayed-on liners to truck beds and other products.

Products and Services

Armor operates a facility in Houston, Texas for the application of spray-on liners for truck beds, undercoating and rustproofing of vehicles, and wholesale and retail sales of truck accessories. Armor has established commercial applications of the coatings, which are applied for corrosion resistance and noise suppression in diverse uses. Applications include surfaces exposed to corrosive materials in chemical and refining plants, lining the interior of refuse containers (dumpsters), spraying floors and decks, and other applications where a tough surface, resistant to corrosion, moisture and wear is needed. The chemicals are supplied by Unlimited.

Unlimited uses a two-component polyurethane formula that within minutes of being sprayed into a truck bed, bonds directly to the metal thereby forming a protective cushion between cargo and the truck bed. The bed liner also reduces noise, prevents rust, mildew, corrosion, and prevents scratches and dings to the surface of the truck bed. The bed liners are crack and abrasion resistant, yet are flexible enough to expand and contract in extreme temperature conditions. In addition, the bed liners are skid resistant and will not break down or corrode when exposed to fertilizers and other corrosive chemicals. The bed liners come in various colors, including but not limited to, black, blue, brown, burgundy, green, and grey.

Unlimited’s wholesale operation is in the business of selling the sprayed-on polyurethane lining systems, technology, and chemicals. After the initial sale of the system, Unlimited installs the system and trains the purchaser to safely and properly operate and maintain the lining system. After selling the system, Unlimited will typically continue to provide chemicals necessary for operation.

Unlimited purchases the sprayed-on lining systems and chemicals from Artlux, S.A., and typically receives shipments within 48 hours of request.

Sales and Marketing

Unlimited has recently begun to advertise nationally for its wholesale operation in various trade publications, such as Body Shop Business, Truck Accessories News, Sema News, Trucking Times, and Restyling. In addition, Unlimited has, over the years, attended industry trade shows to market its wholesale business. Currently, Armor retail operation does not advertise its services except as in the Houston, Texas yellow pages, and relies primarily on word of mouth from former customers and truck dealers in and around the Houston area.

Unlimited currently has no marketing plan. Management believes its ability to increase sales of its sprayed-on polyurethane lining systems, technology and chemicals is dependent upon, among other items; its ability to acquire smaller or equally sized companies in the same industry. In addition, even if Unlimited is able to acquire competitors, there can be no assurance that it will be successful in integrating the competitor into its business or that it will provide added value.

Competition

As the majority of Unlimited revenues are generated from the wholesale operation, it competes primarily on a national level. Its current competitors include Rhino Liners, TOFF Liners, Linex, and Ultimate Linings. Armor current competitors include licensed distributors of products offered by Rhino Liners, TOFF Liners, Linex and Ultimate Linings.

The Company knows of no independent sources of information regarding Unlimited market. However, based on management’s knowledge of the industry, management believes Unlimited is the fourth largest wholesaler of systems, training, and chemicals used for sprayed-on truck bed linings. Management believes the industry leader is Rhino Liners, followed by Linex and Ultimate Linings. Unlimited markets through participation in trade shows and advertising in national trade magazines. Unlimited competes on the basis of price, quality, and service.

As Armor is a retailer, it competes with other retailers in the industry. The Company knows of no independent sources of information regarding Armors’ market. In addition, since Armor competes with numerous smaller operations, management does not know Armors’ competitive position in the industry. Armor competes on the basis of price, quality, and service.

Employees

As of August 1, 2000, Unlimited employed five persons, on a full-time basis, including management, sales, and office employees. As of August 1, 2000, Armor employed seven persons, on a full-time basis, including management, sales, and office employees. No employees are covered by a collective bargaining agreement. Management considers relations with its employees to be satisfactory.

Facilities

Unlimited and Armor currently operate from one location in Houston, Texas, leased for approximately $3,400 per month. The facilities are approximately 8,750 sq. ft. and the lease expires June 2003. Both companies believe their present facility is adequate for their current needs.

ITEM 2. DESCRIPTION OF PROPERTY

The Company operates Brenham and TREE from its office in Kemah, Texas. See Item 1. Description of Business: "Business Operations of Har-Whit/Pitt's & Spitt's, Inc.," "Business Operations of Acqueren, Inc.," "Business Operations of Unlimited Coatings," "Business Operations of Armor Linings," and for a description of properties for Har-Whit and NPI. The Company believes its various facilities are adequate to meet current business needs, except as discussed in Item 1, and that its properties are adequately covered by insurance.

The following table sets forth the properties owned by TREE, including all properties owned by its wholly owned subsidiary Midtowne. All properties listed are owned free of any mortgage obligations, however certain properties are subject to property taxes in the amount of approximately $357,000, as designated below, in the aggregate. TREE holds undeveloped commercial properties for sale, although management may pursue, without a vote of shareholders, development opportunities it believes to be economically favorable. At the present time TREE has no plans to develop any of its properties.

Property Description and Location

-	286 acres, State Highway 146, Galveston County, Texas
-	736 acres, Anahuac, Chambers County, Texas
-	23 acres, North U.S. 59, Houston, Harris County, T Texas
-	15 acres, North U.S. 59, Houston, Harris County, Texas
-	1 acre, Greens Road, Houston, Harris County, Texas
-	43 acres, Airport Boulevard, Houston, Harris County, Texas
-	17,346 sq. ft., S.E. Corner of South Main Street and Ruth Street, Houston, Harris County, Texas
-	4,410 sq. ft., N.E. Corner of Fannin and Blodgett, Houston, Harris County, Texas
-	22,248 sq. ft., N.E. Corner Almeda and Riverside Drive, Houston, Harris County, Texas

In November 1998, Acqueren deposited $100,000 on behalf of TREE as earnest money related to a contract with a third party for the option to buy a building in downtown Houston, Texas. The earnest money deposit is included in other assets in the accompanying consolidated balance sheet at December 31, 1998. In February 1999, TREE sold such option to unrelated third parties for $600,000, realizing a gain on sale of $500,000.

ITEM 3. LEGAL PROCEEDINGS

On December 10, 1998, the Company filed an Original Petition and Request for Temporary Injunction for breach of contract and common law and stock fraud in connection with the Company's acquisition of Acqueren, Inc. against TDA Industries, Inc. and Fred Friedman in the 56th Judicial District Court of Galveston, Texas. The Company has claimed the defendants misrepresented the amount of equity in Acqueren as represented in the acquisition agreement. On August 17, 1999,TDA Industries, Inc. filed an action in the United District Court in the Southern District of New York, alleging violations of various securities laws, common law fraud, and breach of contract. In November, 1999 the parties entered into a settlement agreement calling for the mutual release, with prejudice, their respective lawsuits, TDA to forfeit its rights to 500,000 AIII shares it had been entitled to as stock dividends, and for each party to deliver to InterBank Capital Group 75,000 shares of AIII (total of 150,000 shares) for its role in negotiating the settlement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's Common Stock is presently quoted under the symbol "EDII" on the National Quotations Bureau Pink Sheets. The market for the Common Stock is limited, sporadic and highly volatile. Prior to November 4, 1999, the Company's Common Stock were listed for trading on the OTC:BB. The following table sets forth the high and low bid prices per share of the Common Stock for the last two fiscal years as reported by the National Quotation Bureau. These prices reflect inter-dealer prices, without retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions. Further, as a result of the delisting of the Company's Common Stock on November 4, 1999, there has been limited trading activity in the Common Stock and such market has not been liquid. The Company is filing this Annual Report on Form 10-KSB/A together with other reports due under the Exchange Act in order to become current and thereby permit the Company's Common Stock to be listed on the OTC:BB.

Fiscal Year 1998	High	Low
First Quarter Ending March 31,	$.21	$.09
Second Quarter Ending June 30,	$.64	$.11
Third Quarter Ending September 30,	$.48	$.20
Fourth Quarter Ending December 31,	$.27	$.16
Fiscal Year 1999
First Quarter Ending March 31,	$.33	$.19
Second Quarter Ending June 30,	$.34	$.19
Third Quarter Ending September 30,	$.24	$.08
Fourth Quarter Ending December 31,	$.11	$.07
Fiscal Year 2000
First Quarter Ending March 31,	$.10	$.03
Second Quarter Ending June 30,	$.12	$.04
Third Quarter Ending September 30,	$.12	$.06
Period Ending October 31,	$.09	$.06

On October 31, 2000, the last bid price of the Common Stock as reported by the National Quotation Bureau was $0.0625. The Company believes that as of October 31, 2000, there were approximately 229 record owners of its Common Stock.

It is the present policy of the Company not to pay cash dividends and to retain future earnings to support the Company's growth. Any payment of cash dividends in the future will be dependent upon the amount of funds legally available therefore, the Company's earnings, financial condition, capital requirements and other factors that the Board of Directors may deem relevant. The Company does not anticipate paying any cash dividends in the foreseeable future. Further, under Nevada Revsied Statutes, Section 78.288, "no distribution may be made if, acter giving it effect, (a) the corporation would not be able to pay its debts as they become due; or (b) except as otherwise specifically allowed by the articles of incorporation, the corporation's total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissloved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution".

Recent Sales of Unregistered Securities

Current management gained control of the Company in October 1997. Management believes that all prior issuances of Common Stock aggregating 7,028,060 for a total purchase price of $178,456 were made in reliance on Section 4(2) of the Act.

The following information sets forth certain information, as of October 31, 2000, for all securities the Company sold since the Company began current operations in September 1996, without registration under the Act. There were no underwriters in any of these transactions, nor were any sales commissions paid thereon.

Securities Issued for Cash

1. In September 1997, the Company issued 500,000 shares of Common Stock to a current director of the Company at a purchase price of $0.10 per share. In September 1997 and May 1998, the Company issued 5,000,000 shares of Common Stock at a purchase price of $0.03 per share and 3,500,000 shares of Common Stock at an aggregate purchase price of $300,000 ($0.086 per share) to the brother of the CEO of the Company.

2. In December 1997, the Company issued 200,000 shares of Common Stock in exchange for shares of another corporation valued at $40,000. In August 1998, the Company returned such shares to their previous owner for $40,000 cash.

3. In May 1998, the Company issued 1,500,000 shares of Common Stock to directors and to a party associated with the Company at a purchase price of $0.10 per share. In January 2000, the Company issued 2,500,000 shares of Common Stock to a director at an aggregate purchase price of $40,000. In May 2000, the Company agreed to convert $250,000 of debt owed to Elk International Corporation, Ltd. into 15,000,000 shares of Common Stock, and additionally issued 15,000,000 shares of Common Stock for an aggregate of $250,000, which was paid to the Company prior to September 30, 2000.

4. In June 2000, the Company issued the Daniel Dror II Trust of 1998 10,000,000 shares of Common Stock for an aggregate of $200,000 at a purchase price of $0.02 per share.

Reference is made to Item 12, "Certain Relationships and Related Transactions" and the disclosure contained therein rearding transactions with affiliated person involving the sale and issuance of Common Stock.

The Company believes transactions in (1) through (4) were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. All recipients either received adequate information about the Company or had access, through employment or other relationships, to such information. In addition, the purchasers described above were "accredited investors" (as that term is defined in Rule 501(a)(3) promulgated under the Act).

5. In October 1997, the Company issued 250,000 shares of Common Stock to two accredited investors at a purchase price of $0.10 per share. In February 1998, the Company issued 50,000 shares of Common Stock to an accredited investor at a purchase price of $0.20 per share. In May 1998, the Company issued 100,000 shares of Common Stock to one accredited investor at a purchase price of $0.25 per share. In June 1998, the Company issued 110,000 shares of Common Stock to one accredited investor at a purchase price of $0.35 per share. In June 1998, the Company agreed to issue 4,500,000 shares of Common Stock to one accredited investor at an aggregate purchase price of $1,000,000 of which 2,000,000 shares had been paid for as of December 31, 1998, and of which $350,000 was still to be paid to the Company. Subsequent to fiscal year-end 1998, the subscription right was canceled and accordingly, the amount was eliminated against the related equity balance. In June 1998, the Company issued 500,000 shares of Common Stock to one accredited investor at a purchase price of $0.40 per share. In June 1998, the Company agreed to issue 1,000,000 shares of Common Stock to one accredited investor at a purchase price of $0.15 per share. The Company received the purchase price of $150,000 subsequent to fiscal year-end 1998. The Company believes the transactions in (4) were exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. All recipients either received adequate information about the Company or had access to such information. In addition, the purchasers described above were "accredited investors" (as that term is defined in Rule 501(a)(3) promulgated under the Act).

6. From January 1998 to February 1998, the Company issued 5,000,000 shares of Common Stock to one accredited investor at an aggregate purchase price of $500,000 ($0.10 per share). From February 1998 to April 1998, the Company issued 1,400,000 shares of Common Stock to one accredited investor at an aggregate purchase price of $200,000 ($0.143 per share). From May 1998 to June 1998, the Company issued 1,500,000 shares of Common Stock to one accredited investor at an aggregate purchase price of $300,000 ($0.20 per share).

The Company believes the transactions in (5) and (6) were exempt from registration pursuant to Rule 504 of Regulation D of the Act.

Securities Issued for Services Rendered

7. In July 1996, the Company issued 550,000 shares of Common Stock to former directors for management advisory services rendered. The value of these shares was deemed to be immaterial by prior management. In October 1996, the Company issued 10,000 shares of Common Stock to a former officer for management services rendered. The value of these shares was deemed to be immaterial by prior management. In September 1996, the Company issued 10,000 shares of Common Stock to an employee for receptionist services rendered.

8. In December 1997, the Company issued 1,400,000 shares of restricted common stock to a consulting firm for strategic planning assistance rendered to the Company. Such shares were valued at the market price of $.05 per share resulting in a $70,000 charge to general and administrative expense in 1997. In May 1997, the Company issued 40,000 shares of Common Stock to an advertising consultant for services rendered. The value of these shares was deemed to be immaterial by prior management.

9. In September 1997, the Company issued options to purchase 3,300,000 shares of Common Stock at an exercise price of $0.02 per share to current and former directors of the Company and to a party related to a director of the Company. In addition, 600,000 options to purchase shares were issued in September 1997 to a former officer and director. In October 1998, 500,000 of these options were repurchased by the Company. The remaining options to purchase 100,000 shares were transferred to an unrelated party who exercised these options in August 1998. In June 1998, options to purchase 2,000,000 shares of Common Stock were exercised by the brother of the CEO of the Company.

10. In October 1997, the Company issued 100,000 shares of Common Stock to a consultant of the Company for management advisory services rendered. Such shares were valued at the market value of $.05 per share. Accordingly, a $5,000 compensation expense was recorded. In October 1997, the Company issued six options each to purchase 200,000 shares of Common Stock to a party pursuant to a finder's fee agreement in connection with equity raising transactions at exercise prices of $0.02, $0.04, $0.06, $0.08, $0.10, and $0.20 per share. In February 1998, the options to purchase 200,000 shares of Common Stock at $0.02 and $0.04 were exercised, and as of December 1998 all remaining options were canceled.

11. In January 1998, the Company issued 610,000 shares of Common Stock to officers, directors, and employees for management advisory services rendered. These shares were valued at the market value of $.05 per share resulting in a $30,500 compensation expense.

12. In January 1998, the Company issued 100,000 shares of Common Stock to a former employee in exchange for the surrender of a previously issued option to purchase 100,000 shares of Common Stock at an exercise price of $0.02 per share. The issuance was recorded as $5,000 of compensation expense ($.05 per share). In January 1998, the Company issued 100,000 shares of Common Stock to a former director as part of a severance payment. This issuance was recorded as $5,000 compensation expense ($.05 per share).

13. In May 1998, the Company issued 190,000 shares of Common Stock to key employees of one of its subsidiaries, to an officer of the Company, and to a director of the Company for management advisory services rendered. The issuance of such shares was recorded at the market value ($.08 per share) at the date of grant as $15,200 of compensation expense. In May 1998, the Company issued an option to purchase 2,000,000 shares of Common Stock to the CEO of the Company at an exercise price of $0.12 per share.

14. In May 1998, the Company issued an option to purchase 4,000,000 of Common Stock to a party in connection with an exempt offering at an exercise price of $0.25 per share.

15. In August 1998, the Company issued an option to purchase 20,000 shares of Common Stock at an exercise price of $0.34 per share to an office of the Company as part of an employment agreement.

16. In January 1999, Ms. Laird-Ruthstrom was issued an option to purchase 45,000 shares of Common Stock at an exercise price of $0.02 per share for services rendered, which were exercise in August 1999. In January 1999, the Company issued Mr. Stump an option to purchase 100,000 shares of Common Stock at an exercise price of $0.24 per share and in March 1999; the Company issued an option to purchase 100,000 shares of Common Stock at an exercise price of $0.19 per share for services rendered. In October 1999, the Company canceled the above securities in exchange for the cancellation of $9,262 in debt. In January 1999, an employee of the Company was issued an option to purchase 15,000 shares of Common Stock at an exercise price of $0.24 per share for services rendered. In November 1999, Mr. Fields and Ms. Laird-Ruthstrom were each issued 200,000 and 50,000 shares of Common Stock, respectively, and three other employees were issued an aggregate of 175,000 shares of Common Stock for services rendered.

The Company believes transactions in (7) through (16) were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. All of the recipients were either: (a) accredited investors due to their positions with the Company as officers and directors, or (b) sophisticated persons with specific knowledge of the Company and with general expertise in financial and business matters that they were able to evaluate the merits and risks of an investment in the Company.

Securities Issued in Acquisitions

See Item 1 "Description of Business" for detailed discussion of these transactions and related values and values per share. Also see Note 2 to the Notes to Consolidated Financial Statements for further disclosure regarding acquisitions during 1999 and 1998.

17. In October 1996, the Company issued 2,527,000 of Common Stock, one- half of which was issued to current directors of the Company, in exchange for the outstanding shares of Pitt's & Spitt's, Inc. and Har-Whit, Inc.

18. In December 1997, the Company issued 22,000,000 shares of Common Stock in exchange for the outstanding shares of Brenham Oil & Gas, Inc., Texas Real Estate Enterprises, Inc., and GCA, Inc. to the Daniel Dror II 1976 Trust, Elk International Corporation, Ltd., and a former director of the Company. In May 1998, the Company on behalf of one of its subsidiaries issued 8,000,000 shares of Common Stock to Daniel Dror & Company, Inc. in exchange for a piece of property. In June 1998 and in December 1998, the Company on behalf of one of its subsidiaries issued a total of 2,100,000 shares of Common Stock to party associated with the Company and to the Daniel Dror II 1976 Trust in exchange for the outstanding shares of Midtowne Properties, Inc.

19. In June 1998, the Company entered into a purchase agreement to acquire Acqueren Inc. which provided for the issuance of 6,750,000 shares of Common Stock to the two primary shareholders of Acqueren, Inc., and provided for the remaining shareholders of Acqueren, Inc. to receive approximately 25.02 shares of common stock for each share of Acqueren, Inc. common stock exchanged for a total of 26,750,000 shares of AIII Common Stock. As of December 31, 1999, the Company had exchanged approximately 25,543,594 shares of Common Stock pursuant to the purchase agreement with the remaining shares held by the Company until the Acqueren shares are exchanged.

20. In September 1998, the Company issued 6,300,000 shares of Common Stock, and an option to purchase 400,000 shares of Common Stock at an exercise price of $0.20 per share to a current director in exchange for the outstanding shares of Modern Film Effects, Inc., Digital Research Corporation, and Electronic Pictures California, Inc.

The Company believes transactions in (17) through (20) were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. In addition, the recipients described above were "accredited investors" (as that term is defined in Rule 501(a)(3) promulgated under the Act).

See the discussion in Item 12, "Certain Relationships and Related Transactions with regard to the issuance and sale of shares of the Company's Common Stock to executive officers, directors, persons who own more than 5% of the Company's issued and outstanding Common Stock and members of the immediate family, including spouse, parents, children, siblings and in-laws of any such persons.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

General

The Company is a holding company, which currently has six wholly owned operating subsidiaries and one majority-owned (consolidating) subsidiary. Har-Whit is a manufacturer and distributor of barbeque pits and a custom sheet metal fabricator. TREE owns certain undeveloped real estate in Harris, Galveston and Chambers counties in Texas, some of which is held by its wholly owned subsidiary, Midtowne. TREE has no operating activities other than acquiring and holding real estate for investment purposes. Brenham has a non-operating royalty interest in a producing gas well. Acqueren invests in marketable securities and its wholly owned subsidiary, NPI. NPI is a supplier of automotive after-market products and consumer durable goods. Unlimited distributes specialty chemicals to the automotive after-market. Armor provides corrosion-resistant spray-on liners for trucks beds and wholesale/retail truck accessories. WWNT is an inactive public company held for future ventures. The acquisitions of Har-Whit, Acqueren, and Unlimited and were accounted for using the purchase method of accounting, whereby the purchase price of the acquisition was allocated based on the fair market value of the assets acquired and liabilities assumed. If the purchase price exceeded the net fair market value of the assets acquired, any remaining purchase price was allocated to goodwill. TREE, Brenham and WWNT were accounted for using the historical cost basis of the predecessor.

The historical financial statements of AIII include the acquisitions of acquired companies as of the effective dates of the purchases and the results of these companies subsequent to closing, as these transactions were accounted for under the purchase method of accounting.

The Company intends to continue to grow through the acquisition of companies, which can be acquired at reasonable earnings multiples and present opportunity for growth and profitability through the application of improved access to financing and management expertise afforded by synergistic relationships with the holding company and the other companies in the AIII group. Potential acquisitions are evaluated to determine that they would be accretive to earnings and equity, that the projected growth in earnings and cash flows are attainable and consistent with minimum expectations to yield desired returns to investors, and that management is capable of guiding the growth of operations, working in concert with others in the group to maximize opportunity.

The Company intends to grow through the acquisition of additional and complimentary businesses and to expand its holdings in its various businesses. The Company expects to face competition for acquisition candidates, which may limit the number of acquisition opportunities and may lead to higher acquisition prices. There can be no assurance that the Company will be able to identify, acquire or manage profitably additional businesses or to integrate any acquired businesses into the Company without substantial costs, delays or other operational or financial problems. Further, acquisitions involve a number of risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key personnel of the acquired business and risks associated with unanticipated events or liabilities, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. The timing, size and success of the Company's acquisition efforts and the associated capital commitments cannot be readily predicted. The Company currently intends to finance future acquisitions by using shares of its common stock and other forms of financing as the consideration to be paid. In the event that the common stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept common stock as part of the consideration for the sale of their businesses, the Company may be required to seek other forms of financing in order to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional equity or debt financing.

As the Company's business strategy has been to acquire various companies, it has collected excess cash to effect such acquisitions. The Company has invested, at various times, a portion of its excess cash in investment securities. The Company chooses stocks that it believes are undervalued, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the Company expects, or will fall. The Company only invests in liquid securities, in order to have immediate access to its cash reserves.

New Accounting Pronouncements

Derivative and Hedging Activities - In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect adoption of the new standard on January 1, 2001 to affect its financial statements.

Results of Operations - Consolidated AIII

Year Ended December 31, 1999 Compared With the Year Ended December 31, 1998

The net sales for the year ended December 31, 1999 were $13,396,256 as compared to $8,907,617 for December 31, 1998. The 51% increase is primarily attributable to inclusion of Unlimited and Armor sales since acquisition as well as Acqueren's sales for a twelve-month period. Unlimited had sales of $2,008,924 for the twelve-month period since acquisition on January 1, 1999. Armor had sales of $495,672 for the nine months since acquisition on April 1, 1999. NPI, a wholly owned subsidiary of Acqueren, had sales of $8,905,001 for the year ended December 31, 1999 as compared to $6,211,170 for the six-month period (since acquisition) ended December 31, 1998. Har-Whit's sales for the year ended December 31, 1999 were $1,986,659, a 26.3% decrease over the $2,696,447 reported in the prior year. The decrease was due primarily to increased competition for limited steel fabrication jobs due to slowing of growth in the energy field. No other subsidiaries had sales during the year.

Cost of sales as a percentage of net sales for the year ended December 31, 1999, was approximately 82.2%, with gross margin of 17.8%, as compared to approximately 79.5% cost of sales and 20.5% gross margin during the year ended December 31, 1998. The change is the result of the inclusion of twelve-months of operations for NPI, which sustained a gross margin of 10.5% in 1999.

Operating expenses for the year ended December 31, 1999 were $4,358,557, as compared to $2,470,761 for 1998. This increase of 76.4% is primarily the result of AIII corporate operating expenses of $2,048,787 in 1999 as compared to $918,246 in 1998. Accounting and auditing expenses for 1999 totaled approximately $850,000. Corporate expenses also included compensation of the CEO of $132,000, employee compensation of $300,028, travel expenses of $82,695 and other business acquisition expenses of $327,880. NPI operating expenses were $836,813 in 1999 as compared to $504,775 for the six-month period after acquisition in 1998. In their first year of operation in 1999, Unlimited and Armor had operating expenses of $122,937 and $482,653, respectively. WWNT had nominal expenses of $330.

Other income of $1,795,345 for 1999, included gain on sales of property right of $500,000, investment income of $1,134,884, royalty income of $46,586 interest income of $82,264 and other income, net of $31,611. This compares to total other income of $202,411 for 1998 which included investment income of $91,135, interest income of $45,936, other income of $27,471 and unrealized gains on sale of trading securities of $37,899. Other expenses of $960,441 for 1999 consisted of interest expense of $201,050 and unrealized loss on sale of trading securities of $759,391. This compares to total other expenses of $126,238 for 1998, which consisted of interest expense of $104,044 and loss on sale of assets of $22,194. The Company's increased market initiatives resulted in significant increase in realized and unrealized investment income and losses.

Loss on Discontinued Operations

On October 1, 1999, WWNT sold all of its shares of CRC to Cinema Investment Group, Inc. (Cinema) for $250,000 and assumption of liabilities of $1,200,000. In accordance with generally accepted accounting principles, the loss on disposal of CRC of $266,345 and the operating loss for the nine months prior to the sale of $963,525 are shown as a $1,229,870 loss from discontinued operations in 1999. Comparable reclassifications have been made for 1998.

Net Loss and Comprehensive Loss

Consolidated net loss before deemed dividends for the year ended December 31, 1999 was $2,365,680 as compared to $645,973 for 1998. The loss on discontinued operations of CRC, as discussed above, accounted for 50.1% of the loss. Unrealized losses on available-for-sale investments in equity securities of $18,964 are included in comprehensive loss in 1998. There are no such losses in 1999.

Liquidity and Capital Resources - AIII

Total assets at December 31, 1999, were $10,408,514, as compared to$13,268,181 ($9,948,750 after a retroactive treatment of CRC net assets to a single line item in 1998) at December 31, 1998, a decrease of 21.6%. The decrease is primarily due to the sale of CRC. Acquisitions during 1999 (Unlimited, Armor and WWNT) yielded additional assets totaling $1,840,914; however, CRC had total assets of $4,391,898 at December 31, 1998 and $3,766,131 at date of sale.

Total liabilities at December 31, 1999 were $4,725,405 as compared to $6,372,479 ($3,053,048 after a retroactive treatment of CRC net assets to a single line item in 1998) at December 31, 1998, and the decrease is the net result of the sale of CRC.

At December 31, 1999, AIII's current working capital was $2,177,505 as compared to $1,963,488 ($2,794,133, after a retroactive treatment of CRC net assets to a single line item in 1998) at December 31, 1998. Cash flows during 1999 decreased by $373,599; the beginning cash balance of $1,012,995 at January 1, 1999 decreased to $639,336 at December 31, 1999.

Cash flows used by operating activities were $1,794,739 in 1999 compared to $585,873 in 1998. The increase in cash flows used in operating activities were primarily the result of the purchase of trading securities in the amount of $1,402,576 and a $442,239 increase in accounts receivable in 1999. The increase in accounts receivable is due primarily to increased sales of NPI. Inventories, prepaid expenses, and other assets decreased by $184,637, net of amounts acquired, due primarily to increased volume for NPI and acquisition of Unlimited and Armor. Accounts payable and accrued expenses increased by $1,092,768 due to the volume of activity for NPI and acquisition of Unlimited and Armor.

Cash flows provided by investing activities were $1,031,426 in 1999 compared to $817,312 used in 1998. This is primarily due to Acqueren's sale of its available-for-sale securities in 1999.

Cash flows provided by financing activities were $389,714 in 1999 compared to $2,353,189 in 1998. This decrease is primarily due to a reduction in the sale of stock for cash in 1998.

To date, the Company has no commitments for any additional financing and there can be no assurance that any such financing will be available or, if it is available, that it will be available on acceptable terms. If adequate funds are not available to satisfy either short or long-term capital requirements, the Company may be required to limit its operations significantly. At December 31, 1999, the Company was in violation of certain financial ratios on it capital leases and has received a waiver for those violations from the lessor. Reference is made to Note 10 to the Notes to Consolidated Financial Statements regarding Capital Leases.

Further, subsequent the the year ended December 31, 1999, the Company entered into transactions involving the issuance of shares of Common Stock to Elk, a company controlled by Daniel Dror's brother, but of which Mr. Dror disclaims any beneficial ownership or interest, and to the Daniel Dror II Trust of 1998, for the purpose of providing the Company with additional working capital and improving debt to equity ratios, as follows:

(i) in May 2000 the Company agreed with Elk to convert $250,000 of debt owed to Elk into 15,000,000 shares of Common Stock, and issued 15,000,000 shares of Common Stock to Elk for cash consideration of $250,000, which was paid to the Company prior to September 30, 2000. The conversion of the debt to equity and the sale of Common Stock to Elk was at a price of $0.016 per share. The Company believes that the conversion price and the sale price is fair based upon the following: that Elk agreed to a two-year lock-up of the restricted shares, without registration rights or the availability of Rule 144 under the Act to sell the shares; and effective May 17, 2000 Elk agreed to loan the Company up to an additional $500,000. This loan commitment, which provides for an interest rate of 8% per annum, is for a period of one year from the commitment date and will be funded from time to time by Elk in amounts necessary to assist the Company in its working capital requirements;

and (ii) in June 2000 the Company agreed to issue Daniel Dror II Trust of 1998 10,000,000 shares of Common Stock for an aggregate of $200,000. The is equal to a purchase price of $0.02 per share. The Company believes that the sale price is fair based upon the following: the Daniel Dror II Trust of 1998 agreed to a two-year lock-up of the restricted shares, without registration rights or the availability of Rule 144 under the Act to sell the shares; and effective June 12, 2000 the Daniel Dror II Trust of 1998 agreed to loan the Company up to $200,000. This loan commitment also provides for an annual interest rate of 8%, is for a term of one year from the commitment date and will be funded from time to time by the Daniel Dror II Trust in amounts necessary to assist the Company in its working capital requirements.

The Company believes that the transactions with Elk and the Daniel Dror II of 1998, as discussed more fully in Item 12, "Certain Relationships and Related Transactions" are as fair as those obtainable from independent third parties, if in fact, any financing were available from independent third parties. Further, following the delisting of our Common Stock from the OTC:BB on November 4, 1999, the Company was not readily able to secure financing from non-affiliates at satisfactory terms and conditions and had to rely upon transactions with related and affiliated parties to secure financing, principally through the sale of the shares of Common Stock and the conversion of debt into equity.

The real estate portfolio owned by the Company is being marketed by Real America Corporation, an experienced real estate brokerage firm having over thirty years experience in the Houston, Texas real estate market. The Company has been advised by Real America as well as by the independent appraisers of the properties that in the present Houston real estate market the Company should maximize the properties value. At the present time a number of offers have been received on several of the properties with consideration far in excess of the present book value of the properties and on one occasion, above the appraised value. All of the properties have "For Sale" signs prominently displayed and are actively being marketed. The Company, relying on reputable MAI appraisers and having recently had all of the properties appraised, and fully aware of the currently strong demand in the local market, is of the opinion that no impairment of value exists. There is no assurance that the real estate market will not downturn, and if such an event occurs, there is no assurance that the Company will be able to realize these values.

As stated above, the Company has not recently sold any of its properties because it believes that it has not received adequate offers on the properties. The Company has not gathered information on comparable sales with respect to all of its current properties, and as such, there is no assurance that the Company’s strategy will result in the Company successfully selling its current properties for a gain well in excess of their currently carrying value. This lack of comparable sales creates uncertainty as to the actual value of some of the Company’s properties, and may hinder the Company’s ability to sell its properties at a gain over their current carrying value. However, the Company believes that its real estate properties are stated at the lower of cost or market, and accordingly, there is no impairment adjustment required.

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
	Page
Independent Auditors' Reports
Report on the 1999 consolidated financial statements	20
Report on the 1998 consolidated financial statements	20
Consolidated Financial Statements:
Balance Sheets – December 31, 1999 and 1998	21
Statements of Operations – Years ended December 31, 1999 and 1998	22
Statements of Stockholders’ Equity – Years ended December 31, 1999 and 1998	23
Statements of Cash Flows – Years ended December 31, 1999 and 1998	25
Notes to Consolidated Financial Statements	26


R. E. Bassie & Co., P.C.
*Certified Public Accountants*
A Professional Corporation

7171 Harwin Drive, Suite 306
Houston, Texas 77036-2197
Tel: (713) 266-0691 Fax: (713) 266-0692
E-Mail: [email protected]

Independent Auditors’ Report

The Board of Directors and Stockholders

American International Industries, Inc.:

We have audited the consolidated balance sheet of American International Industries, Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 1999 consolidated financial statements referred to above present fairly, in all material respects, the financial position of American International Industries, Inc. and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles.

/s/ R. B. Bassie & Co., P.C.

Houston, Texas

July 7, 2000

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

American International Industries, Inc.

Kemah, Texas

We have audited the accompanying consolidated balance sheets of American International Industries, Inc. as of December 31, 1997 and 1998, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American International Industries, Inc. at December 31, 1997 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.

BDO SEIDMAN, LLP

Houston, Texas

March 26, 1999


AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
	1999	1998
Assets
Current assets:
Cash	$ 639,396	$ 1,012,995
Restricted certificates of deposit (notes 3 and 8)	1,150,000	1,150,000
Trading securities (note 4)	1,006,779	418,770
Securities available-for-sale (note 4)	-	115,884
Accounts receivable, less allowance for doubtful accounts of
$135,614 in 1999 and $179,000 in 1998	1,609,561	1,200,754
Notes receivable	431,691	116,190
Inventories (note5)	1,199,947	988,824
Prepaid expenses and other current assets	45,510	43,855
Total current assets	6,082,884	5,047,272

Net assets of discontinued operations (note 3)	-	1,280,467
Real estate held for sale (note 6)	939,584	939,584
Property and equipment, net of accumulated
Depreciation and amortization (notes 7and 8)	1,588,222	1,430,128
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$132,729 in 1999and $32,476 in 1998 (notes 2 and 3)	1,604,031	850,506
Non-compete agreements, net of accumulated amortization of
$325,000 in 1999 and $225,000 in 1998 (notes 2 and 3)	175,000	275,000
Other assets	18,793	125,793
Total assets	$ 10,408,514	$ 9,948,750

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable and accrued expenses	$ 2,377,963	$ 1,841,350
Margin loan from financial institution	523,863	195,645
Current installments of notes payable to related parties (note 9)	471,000	100,000
Current installments of notes payable (note 8)	487,444	116,144
Current installments of capital lease obligations (note 10)	45,109	-
Total current liabilities	3,905,379	2,253,139
Notes payable to related parties, less current installments (note 9)	-	200,000
Notes payable, less current installments (note 8)	703,596	599,909
Capital lease obligations, less current installments (note 10)	46,132	-
Minority interest	70,298	-
Total liabilities	4,725,405	3,053,048

Stockholders' equity (notes 2, 3 and 11):
Preferred stock, $.001par value. Authorized
10,000,000 shares: none issued	-	-
Common stock, $.001 par value. Authorized 200,000,000 shares:
125,972,971shares issued and 125,720,971shares outstanding
In 1999, 121,353,971 shares issued and 121,115,971
sharesoutstandingin1998	125,721	121,116
Additional paid-in capital	16,393,094	15,726,799
Accumulated deficit	(10,801,678)	(8,345,998)
Total stockholders 'equity	5,717,137	7,501,917
Less common stock subscriptions	-	(550,000)
Less treasury stock, at cost (252,000 and 238,000 shares, respectively)	(34,028)	(37,251)
Accumulated other comprehensive loss	-	(18,964)
Total stockholders' equity	5,683,109	6,895,702
Commitments and contingent liabilities (notes 10 and 13)
Total liabilities and stockholders' equity	$ 10,408,514	$ 9,948,750
See accompanying notes to consolidated financial statements

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999 and 1998
	1999	1998
Revenues	$ 13,396,256	$ 8,907,617

Costs and expenses:
Cost of sales	11,008,413	7,265,621
Selling, general and administrative	4,358,557	2,470,761
Total operating expenses	15,366,970	9,736,382

Operating loss	(1,970,714)	(828,765)

Other income (expenses):
Interest income	82,264	45,936
Realized gains on investments	1,134,884	91,135
Unrealized gain and (losses) on investments	(759,391)	37,899
Gain (loss) on the sale of assets	493,682	(22,194)
Interest expense	(201,050)	(76,726)
Other income	84,515	27,471
Total other income	834,904	103,521

Net loss from continuing operations before income tax benefits	(1,135,810)	(725,244)
Deferred income tax benefit (note 12)	-	298,804
Net loss from continuing operations	(1,135,810)	(426,440)
Loss from discontinued operations (note 3)	(1,229,870)	(219,533)
Net loss	(2,365,680)	(645,973)
Deemed dividends (note 2)	(90,000)	(2,338,038)
Net loss applicable to common shareholders	$ (2,455,680)	$ (2,984,011)

Net loss per common share - basic and diluted:
Net loss from continuing operations	$ (0.01)	$ (0.03)
Net loss from discontinued operations	$ (0.01)	$ (0.00)
Net loss applicable to common shareholders	$ (0.02)	$ (0.03)

Weighted average common shares	123,951,124	87,985,486

Consolidated statements of comprehensive loss
Net loss	$ (2,365,680)	$ (645,973)
Unrealized gain (loss) on shares available-for-sale	18,964	(18,964)
Comprehensive loss	$ (2,346,716)	$ (664,937)
See accompanying notes to consolidated financial statements


AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended December 31, 1999 and 1998

					Common		Accumulated
			Additional		stock		other	Total
	Common Stock		paid-in	Accumulated	subscription	Treasury	comprehensive	stockholders'
	shares	amount	capital	deficit	receivable	stock	loss	equity
Balance, January 1, 1998	46,117,060	$46,117	$4,540,482	$(2,972,871)	$-	$-	$-	$1,613,728

Issuance of restricted shares for:
Acqueren, Inc. (note 2)	26,750,000	26,750	2,113,250	-	-	-	-	2,140,000
Cinema Research Corporation
and D-Rez Corporation (note 2)	6,300,000	6,300	1,285,700	-	-	-	-	1,292,000
Investment properties (note 6)	8,000,000	8,000	728,000	-	-	-	-	736,000
Mid town Properties (note 6)	2,100,000	2,100	1,662,900	-	-	-	-	1,665,000
Employee compensation (note 11)	1,000,000	1,000	110,700	-	-	-	-	111,700
Sale of shares for cash (note 11)	15,160,000	15,160	2,308,340	-	-	-	-	2,323,5000
Exercise of stock options (note 11)	2,500,000	2,500	51,500	-	-	-	-	54,000
Common stock subscribed (note 11)	4,000,000	4,000	546,000	-	(550,000)	-	-	-
Treasury stock acquired	-	-	-	-	-	(37,251)	-	(37,251)
Stock dividend issued (note 11)	9,188,911	9,189	2,379,927	(2,389,116)	-	-	-	-
Unrealized loss on shares
available-for sale	-	-	-	-	-	-	(18,964)	(18,964)
Deemed dividend (note 6 and 11)	-	-	-	(2,338,038)	-	-	-	(2,338,038)
Net loss	-	-	-	(645,973)	-	-	-	(645,973)

Balance, December 31, 1998	121,115,971	121,116	15,726,799	(8,345,998)	(550,000)	(37,251)	(18,964)	6,895,702

Issuance of restricted shares for:
Marald, Inc. (note 2)	3,500,000	3,500	648,500	-	-	-	-	652,000
Midtowne Properties (note 11)	1,000,000	1,000	89,000	-	-	-	-	90,000
Employee compensation (note 11)	10,000	10	21,990	-	-	-	-	22,000
Exercise of stock options (note 11)	345,000	345	6,555	-	-	-	-	6,900
Proceeds from stock subscriptions	-	-	-	-	450,000	-	-	450,000
Stock subscriptions
cancelled (note 11)	(250,000)	(250)	(99,750)	-	100,000	-	-	-
Treasury stock sales	-	-	-	-	-	3,223	-	3,223
Sale of available-for-sale shares	-	-	-	-	-	-	18,964	18,964

Deemed dividend (notes 6 and 11)	-	-	-	(90,000)	-	-	-	(90,000)
Net loss	-	-	-	(2,365,680)	-	-	-	(2,365,680)

Balance, December 31, 1999	125,720,971	$125,721	$16,393,094	$(10,801,678)	$ -	$(34,028)	$ -	$5,683,109
See accompanying notes to consolidated financial statements


AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998

	1999		1998
Cash flows from operating activities:
Net loss	$ (2,365,680)		$ (645,973)
Loss from discontinued operations	1,229,870		219,533
Net loss from continuing operations	(1,135,810)		(426,440)
Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:
Depreciation and amortization	408,048		245,001
Inventory reserve	(8,466)		62,682
Common stock issued for services	22,000		111,700
Deferred tax benefits	-		(298,804)
Realized gain on sale of securities	(1,134,884)		(91,135)
(Increase) decrease in market value of trading securities	759,391		(37,899)
Loss on disposal of equipment	6,320		21,994
Gain on sale of subsidiary	(143,928)		-
Purchase of trading securities, net	(1,402,576)		(94,091)
Changes in assets and liabilities, net of acquired assets and liabilities:
(Increase) decrease in accounts receivable	(442,239)		1,214,877
(Increase) decrease in inventories	1,701		178,516
Increase in prepaid expenses	46,993		27,595
(Increase) decrease in other assets	135,943		(143,744)
Increase (decrease) in accounts payable and accrued expenses	1,092,768		(1,356,125)
Net cash used in operating activities	(1,794,739)		(585,873)

Cash flows from investing activities:
Proceeds (purchase) of available-for-sale securities, net	1,167,605		(134,848)
Capital expenditures for property and equipment	(303,096)		(170,309)
Purchase of real estate property	-		(167,922)
Purchase of certificates of deposit	-		(1,150,000)
Notes receivable	178,000		(116,190)
Proceeds from disposition of assets	131,076		25,000
Cash received in acquisitions	-		896,957
Cash paid for acquisitions	(142,159)		-
Net cash provided by (used in) investing activities	1,031,426		(817,312)

Cash flows from financing activities:
Proceeds from issuance of stock	456,900		2,377,500
Proceeds from notes payable	99,261		96,467
Repayments on notes payable	(154,144)		(83,527)
Principal payments on capital lease obligations	(14,965)		-
(Purchase) sale of treasury stock	2,662		(37,251)
Net cash provided by financing activities	389,714		2,353,189

Net increase (decrease) in cash	(373,599)		950,004

Cash at beginning of year	1,012,995		62,991
Cash at end of year	$ 639,396		$ 1,012,995

Supplemental schedule of cash flow information:
Interest paid	$ 201,051		$ 72,941

Non-cash transactions:
Acquisition of land for common stock	$	-	$	305,444
Acquisition of property and equipment for note payable	$	-	$	79,682
Net purchase of securities on margin	$	428,218	$	195,645
Issuance of note payable in acquisition	$	-	$	(303,300)
Subscriptions of common stock	$	-	$	550,000
Deemed dividends	$	90,000	$	2,338,038
See accompanying notes to consolidated financial statements

AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

Organization, Ownership and Business

American International Industries, Inc. (the "Company" or "AIII"), formerly Black Tie Affair, Incorporated, operates as a diversified holding company with a number of wholly-owned subsidiaries and one majority-owned subsidiary.

As discussed in Note 3, the Company acquired five additional businesses in 1998 and 1999 as part of its acquisition and expansion plans. Four of these acquisitions, accounted for as purchases, resulted in the Company owning 100% of the stock of the acquired companies. Note 4 describes the sale of one of the 1998 acquisitions in 1999. Additionally, the Company acquired a majority interest in an inactive public company in 1999. The operations of each business are described in the above referenced notes.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Accounts Receivable

Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful amounts.

Inventories

Inventories are valued at the lower of cost or market on a first in, first out basis.

Investment Securities

The Company accounts for its investments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities for which the Company does not have the intent or ability to hold to maturity and equity securities not classified as trading securities are classified as available-for-sale. The cost of investments sold is determined on the specific identification or the first-in, first-out method. Trading securities are reported at fair value with unrealized gains and losses recognized in earnings, and available-for-sale securities are also reported at fair value but unrealized gains and losses are shown in the caption "unrealized gains (losses) on shares available for sale" included in stockholders' equity. Management determines fair value of its investments based on quoted market prices at each balance sheet date.

Property, Equipment and Depreciation

Property and equipment are recorded at cost less accumulated depreciation. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense. Depreciation is computed over the estimated useful lives of the assets (5-20 years) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Maintenance and repairs are charged to operations as incurred.

Real Estate Held for Sale

Real estate held for sale is carried at the lower of cost, predecessor carryover historical cost basis or fair market value, net of selling costs. Management assesses the value of real estate held for sale on a quarterly and annual basis to determine if any impairment to this net realizable value has occurred. Management closely monitors any changes in the real estate market, which would indicate that a change in the value of its holdings has occurred and also obtains independent third party appraisals on its holdings on an as-needed basis.

Intangible Assets

The Company's intangible assets represent goodwill acquired in the acquisitions discussed in Note 3 and the noncompete agreements. The Company amortizes goodwill over a 15-year period and the noncompete agreements over their term of 5 to 6 years on a straight-line basis.

Impairment of Long-Lived Assets

Realization of long-lived assets, including goodwill, is periodically assessed by the management of the Company. Accordingly, in the event that facts and circumstances indicate that property and equipment, and intangible or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if a write-down to market value is necessary. In management's opinion, there is no impairment of such assets at December 31, 1999 and 1998.

Revenue Recognition

The Company recognizes revenue at the time of shipment of product to its customers or completion of services provided.

Income Taxes

The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized.

Loss Per Share

The basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted net loss per common share is computed by dividing the net loss, adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 1999 and 1998, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. These securities include options to purchase 7,400,000 and 7,720,000 shares of common stock at December 31, 1999 and 1998, respectively, and subscriptions to purchase 4,000,000 shares of common stock at December 31, 1998.

Management's Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from these estimates.

Stock-based Compensation

The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations and to elect the disclosure option of SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly, compensation cost for stock options issued to employees is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock (see Note 11).

Concentration of Credit Risk

The Company maintains its cash with major domestic banks in amounts, which exceed the insured limit of $100,000 from time to time. The terms of these deposits are on demand to minimize risk. The Company has not incurred losses related to these deposits.

Fair Value of Financial Instruments

The Company estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company estimates of fair value are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumption and/or estimation methodologies may have a material effect on the estimated fair value amounts. The interest rates payable by the Company on its notes payable approximate market rates. The Company believes that the fair value of its financial instruments comprising accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 1999 presentation of loss on discontinued operations of a subsidiary.

New Accounting Pronouncements

Derivative and Hedging Activities. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect adoption of the new standard on January 1, 2001 to affect its financial statements.

(2) Acquisitions

Effective January 1, 1999, the Company issued 3,500,000 shares of its common stock for all outstanding shares of Marald, Inc., d.b.a. Unlimited Coatings, ("UC"), a Texas specialty products corporation. In addition, a finders fee of $45,000 was payable, in part to a party related to the CEO. Based upon the estimated fair market value of AIII’s stock ($0.19 per share), and the finder's fee, the total purchase consideration of the Company was approximately $697,000.

Effective April 1, 1999, the Company paid $143,000 and assumed certain equipment lease obligations of approximately $85,000 for all outstanding shares of Tough Trucks and Accessories, Inc., d.b.a. Armor Linings ("Armor"), a Texas transportation after-market corporation.

Effective September 30, 1999, the Company exchanged 100% of the shares of Modern Film Effects, Inc., d.b.a. Cinema Research Corporation (including Digital Research Corporation) ("CRC"), a California corporation and subsidiary of the Company, for 60.8% of the then outstanding total of 5,100,000 newly issued, restricted, common shares of World Wide Net, Inc. (WWN) (OTCBB). Prior to the acquisition of CRC, WWN had only nominal assets and no operations during the preceding years. Accordingly, the investment in WWN was recorded at the historical cost basis of CRC of $106,072 at the effective date of the transaction. Since this transaction resulted in majority ownership of WWN, the Company consolidated WWN as of December 31, 1999.

Effective July 1, 1998, the Company issued 26,750,000 shares of restricted common stock for 100% of the outstanding common stock of Acqueren, Inc., a Delaware corporation, and its wholly-owned subsidiary, Northeastern Plastics, Inc., (NPI) (collectively referred to as "Acqueren"). Based upon the estimated fair market value of the restricted common stock of AIII, the total purchase consideration of the Company was approximately $2,140,000 ($.08 per share). The purchase agreement provided for the two primary shareholders to receive 5,000,000 and 1,750,000 shares of AIII’s common stock in exchange for their 700,000 and 150,000 shares, respectively, of Acqueren’s stock. The purchase agreement further provided for the remaining stockholders of Acqueren to receive 25.02 shares of AIII’s common stock for each share of Acqueren’s stock. As of December 31, 1998 and 1999, 7,173,059 and 1,206,406 shares, respectively, had not been issued to various former shareholders of Acqueren for their shares of Acqueren’s common stock. Accordingly, those shares of AIII’s common stock are not considered outstanding in loss per share calculations for 1998 and 1999.

Effective September 24, 1998, the Company acquired 100% of the outstanding stock of CRC. The Company issued 6,300,000 shares of restricted common stock and options (exercisable in whole or in part) to purchase 400,000 shares of AIII common stock over a five-year period at $.20 per share. In addition, the Company issued a $379,500 non-interest bearing note payable to selling shareholders (seller). Based upon the estimated fair value of AIII’s restricted common stock of $1,260,000 ($.20 per share), stock options valued at $32,000 and the discounted present value of the note payable to seller of $303,000, the total purchase consideration of the Company was $1,595,300. The president (CEO) and the vice president of marketing (the seller shareholders) signed five and six-year employment contracts, respectively, which included noncompete covenants for the duration of the contracts. These contracts required aggregate compensation payments of approximately $175,000 annually, plus performance-based incentives.

Except as previously stated for WWN (and explained in Note 4), all of the above acquisitions have been accounted for using the purchase method with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition dates. Such allocations were based on evaluations and estimations.

The purchase allocation is summarized as follows:

	1999	1998
Current assets	$374,547	$4,877,985
Noncurrent assets	22,429	164,019
Property and equipment	190,737	3,806,265
Goodwill	835,984	1,117,913
Current liabilities	(444,123)	(4,732,281)
Long-term liabilities	(112,028)	(1,498,601)
Minority interests	(11,462)	-
	$856,084	$3,735,300

The following presents the unaudited pro forma results of operations of AIII for the years ended December 31, 1999 and 1998, as if these purchase transactions would have been consummated as of January 1, 1999 and 1998.

	1999	1999
Pro forma sales	$13,561,480	$14,823,668
Pro forma operating loss	$(1,935,366)	$(1,748,519)
Pro forma net loss applicable to common shareholders	$(2,453,669)	$(4,043,339)
Pro forma basic and diluted net loss per share	$(.02)	$(.04)
Weighted average shares outstanding	124,699,735	94,297,221

In December 1997, the Company purchased the outstanding stock of Brenham Oil and Gas (Brenham) for 6,000,000 shares of restricted common stock. Brenham owns a non-operating royalty interest in a gas well and has no other operations. Also in December 1997, the Company purchased Texas Real Estate Enterprises, Inc. (TRE) and G.C.A. Incorporated (GCA), an unaffiliated entity, for a total, combined consideration of 16,000,000 shares of restricted common stock. TRE and GCA jointly owned a 286-acre parcel of real estate on Galveston Bay, Texas and have on other operations.

Brenham and TRE were acquired from a trust for the benefits of the son of the Chief Executive Officer (CEO) of the Company and the brother of the CEO of the Company, respectively. The purchase price for Brenham was based upon the present value of estimated future cash flows from this interest over a 5-year period which amount totaled $300,000. The purchase price of TRE and GCA was based upon the fair market value of the underlying real estate as determined by an independent appraisal. Since the Brenham and TRE acquisitions were made through entities under common control, the Company has accounted for such acquisitions at the predecessor carry-over historical cost basis. The difference between such costs and the estimated fair value of the assets acquired was recognized as a deemed (non-cash) dividend. Shown below is a summary of the recorded transactions as of December 31, 1997.

	Carry-over Cost Basis	Fair Value	Deemed Dividend
Brenham	$-	$300,000	$300,000
TRE (Note 6)	$225,000	$1,800,000	$1,575,000

(3) Discontinued Operations – Sale of CRC

Effective October 1, 1999, WWN sold all its shares of CRC to Cinema Investment Group, Inc. ("Cinema"). WWN received a note receivable for $250.000. Cinema assumed liability for notes payable of $1,200,000; however, such notes are guaranteed by the pledge of certificates of deposit of $1,000,000 owned by AIII at December 31, 1999. Since net assets exceeded proceeds of the sale, the Company recognized a loss of $266,345 at date of disposal.

	Net assets at October 1, 1999	$516,345
	Proceeds from the sale	(250,000)
	Loss on disposal of CRC	$266,345

CRC, acquired in the fourth quarter of 1998, comprised the Media/Entertainment segment of the Company’s total operations. Shown below is a summary of certain elements of CRC’s operations, financial position and cash flows reflected in the Company’s consolidated financial statements from the period of acquisition in 1998 to the date of disposition in 1999:

		1999	1998
Income statement data:
	Revenues	$2,685,251	$1,305,422
	Cost and expenses	(3,648,776)	(1,497,637)
	Operating loss	(963,525)	(219,533)
	Loss from discontinued operations	(1,229,870)	(219,533)

Balance sheet data:
	(at September 30, 1999 and December 31, 1998)
	Current assets	$381,860	$592,044
	Property and equipment, net	3,274,026	3,630,244
	Total assets	3,766,131	4,391,898
	Current liabilities	(2,353,539)	(1,915,279)
	Other liabilities	(896,247)	(1,196,152)
	Net assets of discontinued operations	516,345	1,280,467

Cash flow data:
	Cash flows from operations	$(45,095)	$N/A
	Cash flows from investing activities	(126,013)	N/A
	Cash flows from financing activities	(80,735)	N/A
	Net cash flows from discontinued operations	$(251,843)	$N/A

(4) Investment Securities

Trading

In the third quarter of 1998, the Company began investing excess funds in marketable equity securities. In order to reduce the cost of the investment and associated risk in such securities, the Company sold call options for the number of shares purchased. The securities and related call options are carried at market value with any changes in market value during the period of the stock or call option included as a component of net income. For the years ended December 31, 1998 and 1999, the Company recognized net increases (decreases) in the market value of such equity securities of $37,899 and $(759,391), respectively, as components of net loss. As of December 31, 1998 and 1999, the Company had borrowings from margin accounts with financial institutions of $195,645 and $523,863.

As of December 31, 1998 and 1999, the trading securities and related call options are summarized below.

	1999				1998
		Security		Options		Security		Options
	Security	Market	Option	Market	Security	Market	Option	Market
	Cost	Value	Proceeds	Value	Cost	Value	Proceeds	Value
Equity Security

Billings Concepts Corp.
50,000 shares of common	$250,000	325,000	14,762	17,500
Stock 20,000 shares of
common stock					$223,256	220,000	-	-
Ciena Corporation
2,000 shares of
common stock					25,326	29,250	3,462	2,124
Corel Corporation
1,000 shares in
common stock	18,003	15,125	-	-
Intel Corporation
4,000 shares of
common stock	330,636	329,248	-	-
Loral Space and
Communications
10,000 shares of
common stock					132,289	178,120	18,812	28,750
Rochester Medical
30,200 shares of
common stock	290,540	215,175	-	-
UBID, Incorporated
7,000 shares of
common stock	308,409	185,500	63,992	50,995
World Wide Net,
Incorporated
33,500 shares of
common stock	25,125	5,226	-	-
	$1,222,713	1,075,274	78,754	68,495	$380,871	427,370	22,274	30,874

Available for Sale

In accordance with the provisions of SFAS No. 115, the Company’s investment in the common stock of a publicly traded Company was classified as available-for-sale equity securities and, accordingly, is carried at fair value. Unrealized losses of such securities at December 31, 1998 of $18,964 are included as a component of stockholder’s equity, and are comprehensive loss items in the consolidated statement of operations. The Company’s cost in these securities, determined on the specific identification or the first-in, first-out method, was $134,848 at December 31, 1998. At December 31, 1999, the Company had no available-for-sale equity securities.

(5) Inventories

Inventories consisted of the following:

	December 31
	1999	1998
Raw materials	$46,351	$78,683
Work-in-process	244,315	169,618
Finished goods	909,281	740,523
	$1,199,947	$988,824

(6) Real Estate Held for Sale

Real estate held for sale is summarized as follows:

	December 31
	1999	1998
286 undeveloped acres on Galveston Bay, Texas	$225,000	$225,000
42.6 undeveloped acres of land in Southeast Houston, Texas and commercial properties in Harris County, Texas (1)	186,390	186,390
736 undeveloped acres of land in Anahuac, Texas (2)	176,572	176,572
23 acres of undeveloped land in Harris County, Texas	164,800	164,800
Other properties	186,822	186,822
	$939,584	$939,584

1. In June 1998, the Company purchased a real estate company, Mid-Towne Properties, Inc. ("Mid-Towne") for 2,100,000 shares of AIII plus the assumption of property taxes of approximately $300,000. Mid-Towne has no operations other than its ownership of the 42.6 acres of land. Mid-Towne was 60% owned by a trust for the benefit of the son of the CEO of the Company. Since the Mid-Towne acquisition was made through an entity under common control, the Company has accounted for the acquisition at the predecessor carry-over historical cost basis of $186,390, plus the assumed property tax liability of $300,000. The difference between the total cost basis and the fair value of the asset acquired plus the property tax liability of $300,000 assumed of $1,965,000 was recognized as a deemed (non-cash) dividend. Mid-Towne had no material activity in 1998 and 1999.

2. In May 1998, the Company purchased 736 acres of undeveloped land in Anahuac, Texas ("Anahuac") from a company then owned by the CEO of the Company who is also a stockholder in the Company. The consideration paid for the land consisted of 8,000,000 shares of newly issued, restricted common stock of AIII. Since the Anahuac acquisition was made through an entity under common control, the Company has accounted for the acquisition at the predecessor carry-over historical cost basis of $176,572. The difference between the cost basis and the fair value of the asset acquired of $736,000 was recognized as a deemed (non-cash) dividend. This acreage had no material activity in 1998 and 1999.

(7) Property and Equipment

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

		December 31
	Years	1999	1998

Land		$508,487	$386,812
Building and improvements	20	688,521	688,521
Machinery and equipment	8	523,313	415,210
Office equipment	7	131,905	28,202
Automobiles	5	126,308	93,900
		1,978,534	1,612,645
Less accumulated depreciation and amortization		(390,312)	(182,517)
Net property and equipment		$1,588,222	$1,430,128

(8) Notes Payable to Banks

Notes payable to banks consisted of the following:

	December 31
	1999	1998

Note payable to a bank, 9.75% per annum, due in monthly payments of principal and interest of $7,895 through February 2003 with remaining amount due in March 2003 for Har-Whit	$531,873	$574,276

Line of credit with a bank for $125,000, 9.5% per annum, interest only due monthly with payment of principal due at maturity in May 2000 for Marald, Inc.	125,000	-

Line of credit with a bank for $100,000, 9.5% per annum, interest only due monthly with payment of principal due at maturity in August 2000 for Marald, Inc.	99,917	-

Line of credit with a bank for $150,000, 8% per annum, interest only due monthly with payment of principal due at maturity (collateralized by AIII’s $150,000 certificate of deposit) in May 2000 for Har-Whit	150,000	60,000

Other notes payable	284,250	81,777
	1,191,040	716,053
Less current portion	(487,444)	(116,144)
	$703,596	$599,909

Each of AIII’s subsidiaries that have outstanding notes payable have secured such notes by that subsidiary’s inventory, accounts receivable, property and equipment and guarantees from AIII. In addition, as of December 31, 1998, CRC had a note payable totaling $1,000,000, which was collateralized by a $1,000,000 restricted certificate of deposit. The Company continued to collateralize this note subsequent to the sale of CRC.

Principal repayment provisions of long-term debt are as follows at December 31, 1999:

	2000	$487,444
	2001	234,638
	2002	92,099
	2003	60,126
	2004 to maturity	316,733
	Total	$1,191,040

(9) Notes Payable to Related Parties

In connection with the acquisitions discussed in Note 2, the Company had the following notes payable to related parties outstanding at December 31, 1999 and 1998:

	December 31
	1999	1998
Note payable to principal selling stockholder of Acqueren, 6% per annum, annual payment of $100,000 due in August 1999 and 2000 with remainder due in August 2001	$-	$300,000

Note payable to selling stockholder of WWN, 8% per annum, due on demand	221,000	-

Note payable to former director of interest, imputed at prime, due on demand	250,000	-

Total notes payable to related parties ,000	471,000	300,000
Less current portion	(471,000)	(100,000)
Notes payable to related parties, long-term portion	$-	$200,000

Interest expense for the years ended December 31, 1999 and 1998 on these related party notes was approximately $148,000 and $15,000, respectively.

(10) Capital Leases

The Company has the following future aggregate minimum annual lease payments required under capital leases as of December 31, 1999:

	2000	$54,483
	2001	35,549
	2002	14,403
	Total minimum lease payments	104,435
	Less amount representing interest	(13,194)
	Present value of net minimum lease payments	91,241
	Less current portion	(45,109)
	Long-term portion	$46,132

Interest rates on the capitalized leases range from 6.7% to 15.5%. Certain of the leases contain restrictive covenants regarding various financial ratios and capital distributions. At December 31, 1999, the Company was in violation of certain financial ratios and has received a waiver for those violations from the lessor through January 2000.

(11) Capital Stock and Stock Options

The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, $.001 par value per share of which none are presently outstanding. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights and sinking fund provisions. The Company has no present plans for the issuance of Preferred Stock.

The Company is authorized to issue up to 200,000,000 shares of Common Stock, of which 125,972,971 were issued and 125,720,971 outstanding at December 31, 1999, and 7,415,000 were reserved for issuance pursuant to the exercise of outstanding stock options as of December 31, 1999.

In November 1998, the Board of Directors ratified the purchase of 110,000 shares and the remaining options to buy 500,000 shares of the Company for $20,000 from a former director. The Company then canceled the option acquired. Since the option had been determined to have nominal value at the time of issuance, no purchase cost was assigned to it. Accordingly, the $20,000 was recorded as the cost of the purchase of treasury stock.

Prior to January 1, 1998, the Company sold 5,000,000 newly issued restricted shares to a corporation controlled by the brother of the CEO of the Company for $150,000. In connection with this sale, the Company granted this related party the option to purchase an additional 2,000,000 shares at $.02 per share and such option was for three years and vested immediately. In June 1998, this option was exercised by the related party and the Company received $40,000.

The Company issued 500,000 options to each of the two former owners as an enticement to return to manage the operations of Har-Whit and P&S and also issued 300,000 options to the outside legal counsel of the Company to purchase common stock of AIII for legal services performed. These options are exercisable at $.02 per share through December 2002 and such options were immediately exercisable. At the date of grant, those options were determined to have no material value. Further, the two individuals who manage Har-Whit and P&S were issued 100,000 shares individually of the Company's common stock in January 1998 for management services rendered. This issuance was recorded as $10,000 of compensation expense in 1998 based on the market value of the shares ($.05 per share) at the date of grant. In May 1998, these two individuals each were granted the right to purchase 250,000 shares of the Company's common stock at $.25 per share.

In connection with the sale of newly issued restricted common stock in May 1998, the Company granted an investor the option to purchase an additional 4,000,000 shares at $.25 per share, which were immediately exercisable through the year 2002.

In 1998, the Company issued 200,000 shares of common stock to its CEO in exchange for executive and management services rendered. Such award was recorded at the date of grant as a $13,000 compensation expense based on the market value (approximately $.07 per share) of the shares issued. Further, in accordance with a May 1998 employment agreement, the Company granted an option to purchase 2,000,000 shares at $.12 per share through May 2001, which were immediately exercisable, to its Chief Executive Officer. Since the option price exceeded the market value of AIII's stock at the time of the grant, there was no charge to expenses for this option. In addition, the Company recorded additional paid-in capital and compensation expense of $56,000 representing the fair value of services rendered to the Company.

In May 1998, the Company sold 3,500,000 newly issued restricted shares to a corporation controlled by the brother of the CEO of the Company for total consideration of $300,000.

In May 1998, an employee was issued 50,000 shares of Common Stock in exchange for services rendered.

In addition in January and May 1998, the Company issued 600,000 shares of restricted common stock to employees and directors for management advisory services. These awards were recorded as $32,700 of compensation expense at the market value (ranging from $.05 to $.08 per share) of the shares issued at the date of grant.

During 1998, the Company sold 11,660,000 shares of restricted common stock through various private sales for between $.10 and $.40 per share for total proceeds of $2,023,500. Also in 1998, holders of 500,000 options exercised their rights and purchased stock for between $.02 and $.04 per share. This issuance resulted in $14,000 being paid to the Company. At December 31, 1998, the Company had a total of 4,000,000 shares of stock subscribed for between $.10 and $.22 per share with expected total proceeds of $550,000. Subsequent to year-end, subscription rights of $100,000 were canceled with the remainder paid by an alternate subscriber.

In July 1998, the Company declared a 10% stock dividend that was payable to stockholders of record as of August 30, 1998. Such dividends resulted in issuance of 9,188,911 shares to stockholders and was accounted for at the market value as of August 30, 1998 ($.26 per share).

In August 1998, the Company issued an option to purchase 20,000 shares of common stock at an exercise price of $0.34 per share to an officer of the company as part of an employment agreement.

In November 1998, the Board of Directors authorized management to purchase from time to time up to 10 million shares of the Company's common stock, as deemed appropriate by management. To date the company has purchased a total of 220,000 shares from two former officers of the Company. The purchases were made in two separate transactions in November 1998. In one transaction $20,000 was paid for 110,000 of the Company's shares and in the other transaction $12,500 was paid for 110,000 of the Company's shares. In both instances, the Company either paid at market or below market value for the treasury shares. Those transactions were funded from the Company's general operating funds. The Company does not intend to repurchase significant numbers of its shares in the future.

In January 1999, the Company issued an option to purchase 45,000 shares of common stock at an exercise price of $.02 per share to an officer of the Company as part of an employment agreement. Also in January, the Company issued an option to purchase 15,000 shares of common stock at exercise price of $.24 per share in exchange for services rendered.

In February 1999, a former officer of the Company exercised a vested option to purchase 300,000 shares of common stock at $.02 per share.

In October 1999, the Board of Directors authorized management to issue an additional 1,000,000 shares of common stock to the former owners of Mid town Properties who are related parties, due to significantly higher appraised values than originally estimated at date of acquisition. Since the original acquisition was made through entities under common control, the value of these shares, $90,000, has been recognized as a deemed dividend.

The Company was required to adopt the disclosure portion of SFAS No. 123. This statement requires the Company to provide pro forma information regarding net loss applicable to common stockholders and loss per share as if compensation cost for the Company's stock options granted had been determined in accordance with the fair value based method prescribed in SFAS 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1999 and 1998 as follows:

	December 31
	1999	1998
Dividend yield	0%	0%
Expected volatility	90%	90%
Risk free interest	6.5%	6.5%
Expected lives	5 years	5 years

Under the accounting provisions of SFAS 123, the Company's net loss applicable to common stockholders and loss per share would have been increased to the pro forma amounts indicated below:

	December 31
	1999	1998
Net loss applicable to common stockholders:
As reported	$(2,455,680)	$(2,684,011)
Pro forma	$(2,458,830)	$(2,828,211)
Loss per share:
As reported	$(.02)	$(.03)
Pro forma	$(.02)	$(.03)

A summary of the status of the Company's stock options to employees as of December 31, 1999, and 1998 changes during the periods ending on those dates is presented below:

	Shares	Weighted-Average Exercise Price December 31, 1999	Shares	Weighted-Average Exercise Price December 31, 1998
Outstanding at beginning of period	3,020,000	12	1,000,000	.02
Granted	60,000	.13	2,020,000	.12

Exercised	(45,000)	(.02)	-	-
Canceled	(20,000)	.34	-	-
Outstanding and exercisable at end of period	3,015,000	.12	3,020,000	.09

Weighted average fair value of options granted during the period	60,000	.13	2,020,000	.12

The following table summarizes information about fixed stock options to employees outstanding at December 31, 1999:

Exercise Price	Number Out-standing and Exercisable at December 31, 1999	Weighted Average Remaining Contractual Life (Years) at December 31, 1999
$ .02	1,000,000	3.00
$ .12	2,000,000	1.42
$ .24	15,000	2.00
$ .02 - 24	3,015,000	1.96

(12) Income Taxes

A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended December 31, are as follows:

	December 31
	1999	1998
Tax benefit computed at statutory rate for continuing operations	$(420,000)	$(246,583)
Non-deductible permanent difference	-	42,196
Change in valuation allowance, net of valuation allowance of acquired subsidiaries	420,000	(94,417)
Tax benefit for continuing operations	$ -	$ (298,804)
Tax expense (benefit) of discontinued operations	$ -	$ -

Deferred taxes are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The components of deferred income tax assets are as follows:

	December 31
	1999	1998
Deferred tax assets:
Net operating loss	$2,137,000	$ 1,734,583
Provision for doubtful accounts		21,000
Other	21,000	18,000
Total deferred tax asset	2,158,000	1,773,583
Valuation allowance	(1,571,000)	(1,536,642)
Net deferred asset	587,000	236,941

Deferred tax liability:
Capital leases	107,000
Difference in carry value of property and equipment	480,000	236,941
Total deferred tax liability	587,000	236,941
Net deferred tax liability	$ -	$ -

At December 31, 1998, the Company provided a 100% valuation allowance for the deferred tax asset because it could not be determined whether it was more likely than not that the deferred tax asset would be realized.

The Company has net operating loss carryforwards in excess of $2,100,000 as of December 31, 1999, to offset future taxable income, which expire 2019.

(13) Commitments and Contingencies

Prior to January 1, 1998, Acqueren relocated its operations from Brooklyn, New York to Nicholls, Georgia. In accordance with the move the Company executed a lease from an unrelated party for the Company's new facility. The current lease agreement expires October 9, 2001, and provides for annual rent of $40,740. Rent expenses of $39,960 and $31,600, respectively, was recorded at December 31, 1999 and 1998.

In connection with the relocation to Nicholls, Georgia. Acqueren, through its wholly owned subsidiary, NPI, terminated its union contract in New York. The union has claimed a deficiency for unfunded pension liabilities. Management has accrued $160,000 at December 31, 1999 relating to this potential liability. Management estimates that such an amount will be sufficient to cover any potential obligation to this union.

NPI sells automotive and electrical products primarily to companies in the United States and Canada. For the years ended December 31, 1999 and 1998, over seventy percent of its sales were to one customer. Management of the Company performs ongoing credit evaluations and makes provision for uncollectible amounts when deemed necessary.

Various key officials of the Company have entered into employment agreements with the Company. The CEO of the Company entered into a three-year employment agreement which provides for a monthly salary of $1,000 plus a bonus as determined by the Board of Directors. The two key management personnel of Har-Whit/Pitts and Spitts, who were also Directors of the Company, entered into three-year employment contracts expiring in 2000 that require payments of $5,000 per month to each director plus a bonus at the discretion of the Board of Directors. The president of NPI previously entered into an at-will employment agreement that provides an annual salary of $124,000 plus a bonus based upon operating results of this subsidiary. The employment agreement also grants the president of NPI an option to purchase NPI common stock equal to 5% of NPI's equity at an exercise price of 5% of the total stockholder's equity, if NPI conducts an initial public offering of its common stock during the time of his employment.

The Company leases automobiles under operating leases expiring in various years through June 30, 2001. Future aggregate rental payments under these non-cancelable operating leases require annual payments of approximately $20,000 through 2001.

On December 10, 1998, the Company filed an Original Petition and Request for Temporary Injunction for breach of contract and common law and stock fraud in connection with the Company's acquisition of Acqueren, Inc. against TDA Industries, Inc. ("TDA") and its former principal stockholder in the 56th Judicial District Court of Galveston, Texas. The Company claims that the defendants misrepresented the amount of Acqueren's equity as of the date of the purchase agreement. The Company is seeking actual damages in the amount of not less than $1,100,000, in addition to further relief, which it may be entitled to. On August 17, 1999, the former shareholders of Acqueren filed an action in New York, alleging misrepresentation by AIII. Management expects the outcome of such litigation will not have a material adverse effect on the Company.

(14) Related Party Transactions

The Company advanced the Chief Executive Officer $27,190 as of December 31, 1998. The officer executed a promissory note to the Company due upon demand. This note bears interest at prime and is included in notes receivable as of December 31, 1999.

Other related party transactions are discussed in Notes 2, 6, 9, 11 and 13.

(15) Segment Information

The Company has three reportable segments and corporate overhead: industrial/commercial, oil and gas, and real estate. The industrial/commercial segment includes (1) a supplier of automotive after-market products; (2) a manufacturer and distributor of barbecue pits and custom sheet metal products for customers predominately in the energy industry; (3) distributors of specialty chemicals for the automotive after-market, including specializing in the application of spray-on bed liners for truck beds; and (4) a holding company for future commercial ventures. The oil and gas segment owns an oil, gas and mineral royalty interest in Washington County, Texas. Prior to 1999, the Company had a media/entertainment segment which they sold in 1999. The comparative segment information reflects media entertainment data prior to restatement. The corporate overhead includes the Company's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.

The Company's reportable segments are strategic business units that offer different technology and marketing strategies. Most of the businesses were acquired as subsidiaries and the management at the time of the acquisition was retained.

Consolidated net revenues, net operating losses, and identifiable assets were as follows:

		December 31,
		1999	1998
Net Revenues:
	Industrial/Commercial	$13,396,256	$ 8,907,617
	Oil and gas	-	-
	Real estate	-	-
	Corporate	-	-
		$13,396,256	$8,907,617

Income (loss) from operations:
	Industrial/Commercial	$ 159,042	$ 213,072
	Oil and gas	(6,813)	(8,300)
	Real estate	(74,486)	(115,291)
	Corporate expenses	(2,048,457)	(918,246)
		$(1,970,714)	$(828,765)
Identifiable assets:
	Industrial/commercial	$8,507,502	$6,183,083
	Media/Entertainment	-	1,280,467
	Oil and gas	70,006	63,763
	Real estate	996,065	576,772
	Corporate	834,941	1,844,665
		$10,408,514	$9,948,750

The Company's areas of operations are principally in the United States. No single foreign country or geographic area is significant to the consolidated financial statements.

(16) Subsequent Events

In January 2000, the Company sold 2,500,000 shares of the Company's restricted common stock for $40,000 to a director of the Company.

In May 2000, the Company sold 30,000,000 shares of the Company's restricted common stock to a company controlled by the brother of the CEO of AIII for total consideration of $500,000. Of this amount, $250,000 was paid by conversion of an existing debt. The Company received cash for the remaining $250,000. The company that purchased the restricted common stock agreed to a two-year lock-up agreement whereby the stock is restricted for a two-year period, without registration rights.

In June 2000, the Company sold to the Daniel Dror Trust II of 1998 10,000,000 shares of the Company's restricted common stock at a price of $200,000.

ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

This information was "previously reported," as defined in Rule 12b-2 of the Securities Exchange Act of 1934 in the Company's Form 8-K filed with the SEC on July 5, 2000.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Pursuant to the Company’s Certificate of Incorporation and its By-Laws, the members of the Board of Directors serve for one-year terms. The Company's directors and executive officers are:

Name	Age	Position
Daniel Dror, Sr.	60	Chairman of the Board, Chief Executive Officer
Erick Friedman	60	Director
John W. Stump III	56	Chief Financial Officer
Rebekah Laird-Ruthstrom	45	Secretary and Treasurer

Daniel Dror, Sr. has served as chairman of the board and chief executive officer of the Company since September 1997. From September 1993 until April 1999, Mr. Dror has served as chairman of the board and chief executive officer of Daniel Dror and Company, Inc. an investment and business management company. From April 1994 to November 1996, Mr. Dror served as chairman of the board and chief executive officer of Microtel International, Inc., a public company in the telecommunication business. From 1982 until 1993, Mr. Dror served as chairman of the board and chief executive officer of Kleer-Vu Industries, Inc., a public company.

Erick Friedman has served as director of the Company since May 1998. Since 1989, Mr. Friedman has been employed by Yale University School of Music as a professor of music. Since 1968, Mr. Friedman has invested in various companies.

John W. Stump III has served as chief financial officer of the Company since August 1998. From December 1996 to October 1997, Mr. Stump served as chief executive officer of Changes International. From April 1996 to December 1996, Mr. Stump served as chief operating officer and chief financial officer of Nutrition Resources, Inc. From February 1993 to April 1996, Mr. Stump served as Acquisitions Analyst for Movie Gallery, Inc. Mr. Stump is a Certified Public Accountant and has over twenty years of financial and accounting management experience including public reporting and investor relations.

Rebekah Laird-Ruthstrom has served as secretary, treasurer, and executive assistant secretary of the Company since February 1998. From 1982 until 1993, Ms. Laird-Ruthstrom served as executive assistant of Kleer-Vu Industries, Inc. Since September 1993, Ms. Laird-Ruthstrom served as assistant secretary, treasurer, and executive assistant of Daniel Dror and Company, Inc., and since April 1999 she has served as vice president. From July 1994 to April 1997, Ms. Laird-Ruthstrom served as executive assistant of Microtel International, Inc.

Section 16(a) Compliance

Section 16(a) of the Securities and Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Company’s Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Company pursuant to Section 16(a). Based solely on the reports received by the Company and on written representations from reporting persons, the Company believes that the directors, executive officers, and greater than ten percent (10%) beneficial owners complied with all applicable filing requirements during the fiscal year ended December 31, 1999, except as follows: Ms. Laird-Ruthstrom who failed to timely file a Form 4 in December 1999, which was filed in August 2000; Elk International Corporation, Ltd. which failed to timely file Form 4s in October, November, December 1999, and a Form 5 in February 2000, which was filed August 2000; and Mr. Friedman who failed to timely file a Form 4 in November and December 1999, which was filed in August 2000.

ITEM 10. EXECUTIVE COMPENSATION

The following tables contain compensation data for the Chief Executive Officer and other named executive officers of the Company for the fiscal year ended December 31, 1999; with respect to this information for Mr. Fields, compensation is reported for the Company's fiscal year (NPI’s fiscal year end is June 30):

					Long Term Compensation
		Annual Compensation			Awards		Payouts
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)
Name and Principal Position	Year	Salary	Bonus	Other Annual Compensation	Restricted Stock Award(1)	Securities Underlying Options/SAR	LTIP Payouts	All other compensation
		($)	($)	($)	($)	(#)	($)	($)
Daniel Dror, President, CEO	1999	$132,000	0	0	0	0	0	0
Daniel Dror, President, CEO	1998	$150,000(6)	0	$5,750(3)	$23,640(4)	2,000,000(5)	0	0
Marc Fields President NPI	1999	$124,332	0	0	$8,000(7)	0	0	0
Marc Fields President NPI	1998	$124,000	0	0	0	0	0	0
(1) The issuance of Common Stock was awarded for services rendered.
(2) Mr. Dror began serving as CEO of the Company in September 1997.
(3) Represents total payments made by the Company for automobile owned by the Company which Mr. Dror utilizes for the fiscal year.
(4) Consists of: (a) 100,000 shares of Common Stock granted in January 1998, and (b) 100,000 shares of Common Stock granted in May 1998, pursuant to an employment agreement.
(5) In May 1998, Mr. Dror was granted an option to purchase 2,000,000 shares of Common Stock at an exercise price of $0.12 per share expiring in May 2001, which was amended in May 2000 to adjust the exercise price to $.04 per share and extend the expiration date to May 2003.
(6) In November 1998, Mr. Dror executed a promissory note payable to the Company for $91,294, in consideration for advances made to Mr. Dror by the Company in the same amount, which note was forgiven. As such, the salary amount includes $91,294 for 1998.
(7) Consists of 200,000 shares of Common Stock granted in November 1999.

Employment Agreements

In May 1998, Mr. Dror entered into a three-year employment agreement with the Company, which provided for compensation of 100,000 shares of Common Stock and options to purchase 2,000,000 shares of Common Stock at $0.12 per share expiring in May 2001. In October 1998, Mr. Dror's employment agreement dated May 1998 was amended pursuant to which he entered into a new three-year employment agreement with the Company, which provides for a monthly salary of $1,000. In January 1998 and May 1998 Mr. Dror was issued 100,000 shares of Common Stock as restricted stock award compensation having a value of $23.640. The employment agreement provides for a bonus to be determined by the Board of Directors. The employment agreement may be terminated by the Company, upon death or disability of Mr. Dror, or with cause, which includes, without limitation, gross negligence, the failure to perform essential duties, and the willful engaging in misconduct injurious to the Company.

In September 1994, Mr. Fields entered into an employment agreement with NPI to serve as president and chief operating officer of NPI on an at-will basis, which provided for an annual salary of $110,000, which was raised to $124,000 in 1998. The employment agreement provides for a bonus of 10% of the amount equal to NPI’s operating income, less rent and interest expense, which exceeds $500,000. The employment agreement grants Mr. Fields an option to purchase NPI common stock equal to 5% of NPI’s equity at an exercise price of 5% of the total shareholder’s equity, if NPI conducts an initial public offering of its common stock during Mr. Field’s employment. The employment agreement provides for a disability insurance policy as well as a life insurance policy in the name of Mr. Fields’ spouse in the amount of approximately three times Mr. Fields salary. The employment agreement provides that upon termination NPI has the option to have Mr. Fields sign a one-year non-compete agreement in exchange for one year’s base salary.

In March 1999, Juan Carlos Martinez, president of Marald, entered into a two-year employment agreement with the Company, which provides for a monthly salary of $7,500. The employment agreement provides for a bonus to be determined by the Board of Directors. The employment agreement may be terminated by the Company, upon death or disability of Mr. Martinez, or with cause, which includes, without limitation, gross negligence, the failure to perform essential duties, and the willful engaging in misconduct injurious to the Company.

The Company or its subsidiaries do not maintain life insurance on any of its directors or employees. The directors serve without cash compensation, but can be granted stock as discussed in "Certain Relationships and Transactions."

Stock Options And Warrants

The Company did not issue any options during fiscal year 1999 to its named executive officers.

Aggregated Option Exercises In Fiscal Year 1999 and Year-End Option Values

Name	Shares Acquired on Exercise	Value Realized	Number of Securities Underlying Unexercised Options		Value of Unexercised in-the-money Options⁽¹⁾
			Exercisable	Unexercisable	Exercisable	Unexercisable
Daniel Dror, Sr.	0	0	2,000,000	0	$0	0
Marc Fields	0	0	0	0	0	0
(1) Computed based on the differences between the fair market value on December 31, 1999 of $.04 per share and the exercise price of the option.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of October 31, 2000, the number and percentage of outstanding shares of Company Common Stock owned by (i) each person known to the Company to beneficially own more than 5% of its outstanding Common Stock, (ii) each director, (iii) each named executive officer, and (iv) all executive officers and directors as a group.

Name and address of beneficial owner⁽¹⁾	Number of shares of common stock beneficially owned	Percentage of ownership(5)
Daniel Dror, Sr.	2,000,000⁽²⁾	1.2%
Elkana Faiwuszewicz	37,560,000 ⁽¹⁾	23.1%
Marc Fields	0	0
Erick Friedman	7,200,000	4.4%
John W. Stump III	0	0
Rebekah Laird-Ruthstrom	16,131,000⁽³⁾	9.9%
Daniel Dror II Trust of 1998⁽⁴⁾	12,715,000	7.8%
All executive officers and directors as a group (4 persons)	25,331,000	15.6%

The business address of each principal stockholder is the same as the address of the Company's principal executive offices except: Mr. Fields whose business address is 11601 Highway 32 in Nicholls, Georgia 31554; Mr. Faiwuszewicz whose business address is P.O. Box SS-19084, Nassau, Bahamas; and Mr. Daniel Dror II whose business address is 1412 N. Blvd., Houston, Texas 77006.
(1) The Elk International Corporation, Ltd. holds 36,560,000 shares listed above, and the president of Elk International Corporation, Ltd. is Elkana Faiwuszewicz, Mr. Dror's brother. Mr. Dror has no interest nor is he an officer or director of Elk International Corporation, Ltd.
(2) Consists of an option to purchase 2,000,000 shares of Common Stock at an exercise price of $0.04 per share.
(3) Includes: (a) 7,901,0000 shares of Common Stock held by the Daniel Dror II 1976 Trust, of which Ms. Laird-Ruthstrom is trustee, and (b) 8,080,000 shares of Common Stock held by Daniel Dror & Company, Inc., of which Ms. Laird-Ruthstrom is an officer.
(4) The trustee and sole beneficiary of the Daniel Dror II Trust of 1998 is Daniel Dror II. Daniel Dror has no affiliation with this trust.
(5) Based upon 162,256,222 shares of Common Stock outstanding at October 31, 2000.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See the discussion under Part II, Item 5, "Recent Sales of Unregistered Securities" with regard to the transactions involving the sale of unregistered shares discussed below. The calculation of the sale price of restricted shares and the exercise price for the options granted, as discussed below, takes into consideration the following: the Company’s Common Stock did not trade actively over the periods discussed below; the spread between the high asked and low bid during the dates involved; the relative lack of liquidity applicable to the Company’s Common Stock following ther delisting of the Company's Common Stock from the OTC:BB; and that the Company was unable to secure financing from unaffiliated parties due to the fact that its shares of Common Stock were delisted from the NASDAQ OTC:BB in November 1999 following which its shares were quoted on the "pink sheets." The market for the Common Stock traded on the "pink sheets" is limited, sporadic and highly volatile.

In January 1998, Mr. Dror was issued 100,000 shares of Common Stock and in May 1998, Mr. Dror was issued an additional 100,000 shares of Common Stock, pursuant to an employment agreement in consideration for services. The employment agreement, which was amended in its entirety in October 1998, was for a term of three years. Reference is made to Item 10, "Executive Compensation" which reflects that during the year ended December 31, 1998, the shares issued to Mr. Dror were valued at $23,640. In May 1998 Mr. Dror was also granted an option to purchase 2,000,000 shares of Common Stock at an exercise price of $0.12 per share, which was amended in May 2000 to $0.04 per share, the average closing bid price of the shares during the five day period prior to the date of the grant. The option was also granted in connection with the employment agreement, and was amended to have an expiration date of May 2003, from the previous expiration date of May 2001.

During fiscal year 1998, the Company advanced as a loan to Mr. Dror a total of $74,404. In November 1998 Mr. Dror executed a promissory note payable to the Company in the amount of $74,404 payable on demand at prime interest rate.

In September 1997, Elk International Corporation, Ltd. ("Elk"), which is controlled by Mr. Dror's brother, was granted an option to purchase 2,000,000 shares of Common Stock at a purchase price of $0.02 per share, which option was exercised in June 1998. Daniel Dror disclaims any beneficial ownership or interest in and is not a shareholder, officer or director of Elk. The option exercise price was based upon the average closing bid price of the shares during the five-day period prior to the date of the grant. In September 1997, Elk was issued 5,000,000 shares of Common Stock at a purchase price of $0.03 per share, which was the average closing bid price of the shares during the five day period prior to the date of issuance, in May 1998, Elk, was issued 3,500,000 shares of Common Stock for an aggregate purchase price of $300,000 or $0.086 per share, the average closing bid price of the shares during the five day period prior to the date of issuance.

In December 1998, Daniel Dror II, the son Daniel Dror, was employed by the Company at a monthly salary of $750. GCA, Inc. was purchased by the Company in December 1997 from an unrelated party for 6,000,000 shares of Common Stock. At the date of the transaction, GCA and TREE jointly owned a 286-acre parcel of real estate on Galveston Bay, Texas and certain other operations. In November 1998 Mr. Dror purchased GCA, Inc., a Texas corporation from the Company for $100, at which time GCA had no assets. Prior to Mr. Dror's acquisition of GCA, Inc. for nominal consideration, and as of November 1998, all assets of GCA, Inc., which consisted of certain real estate, had been transferred to TREE. Further, at the date of Mr. Dror’s purchase of GCA, Inc., and as of November 30, 1998, GCA, Inc. was not in good standing with the State of Texas. See "Item 1. Description of Business-General" and the discussion under "Texas Real Estate Enterprises, Inc." for further discussion regarding GCA, Inc. and the transaction. Also see Note 2 to the Notes to Consolidated Financial Statements for additional disclosure regarding the transaction between the Company and GCA.

In May 1998, Ms. Laird-Ruthstrom, the Company’s secretary, was issued 50,000 shares of Common Stock in exchange for services rendered, which shares were valued at $4,000 based upon the average closing bid price of the shares during the five day period prior to the date of issuance. In January 1999, Ms. Laird-Ruthstrom was granted an option to purchase 45,000 shares of Common Stock at an exercise price of $0.02 per share for services rendered. The exercise price was based upon the average closing bid price of the shares during the five-day period prior to the date of issuance.

In May 1998, the Company entered into a one-year renewable lease agreement with a corporation affiliated with Mr. Dror, for the Company's office in Kemah, Texas at a monthly rental rate of $750. The Company did not renew the lease. At the date of the lease, the monthly rental was based on the fair market value of the property.

In May 1998, the Company entered into a one-year renewable lease agreement with Elk for Mr. Dror's home office in Houston, Texas at a monthly rental rate of $800. The Company has renewed the lease. The Company believes that this rental rate is the fair value of the facilities used for the Company’s business.

In January 1999, the Company granted Mr. Stump, its chief financial officer, an option to purchase 100,000 shares of Common Stock at an exercise price of $0.24 per share and in March 1999, the Company granted Mr. Stump an additional option to purchase 100,000 shares of Common Stock at an exercise price of $0.19 per share for services rendered. The option exercise prices were based upon the average closing bid price of the shares during the five-day period prior to the dates of the grants. In October 1999, the Company canceled the above options in exchange for the cancellation of $9,262 in debt owed by Mr. Stump to the Company.

Effective January 1999, the Company purchased Marald, Inc. in exchange for 3,500,000 shares of Common Stock, and a finder’s fee of $45,000 was paid to a party related to Mr. Dror. In addition, under the terms of the acquisition agreement, the Company has agreed to provide chemicals at a discount to Toro Spray-On Liners, Inc., an entity partially owned by the above-related party.

In January 2000, the Company agreed to issue Mr. Erick Friedman, a director, 2,500,000 shares of Common Stock for an aggregate of $40,000, or a price of $0.016 per share. The Company believes this is based upon the fair market value of restricted shares of its Common Stock and the average closing bid price of the shares during the five day period prior to the date of issuance.

In May 2000, the Company agreed to convert $250,000 of debt owed to Elk into 15,000,000 shares of Common Stock, and additionally issued 15,000,000 shares of Common Stock for an aggregate of $250,000, which was paid to the Company prior to September 30, 2000. The conversion of the debt to equity is equal to a price of $0.016 per share. The Company believes this is based upon the fair market value of restricted shares of its Common Stock and the average closing bid price of the shares during the five-day period prior to the date of issuance. Further, the conversion price and the sale price reflects the following: that Elk agreed to a two-year lock-up of the restricted shares, without registration rights or the availability of Rule 144 under the Act to sell the shares; and effective May 17, 2000 Elk agreed to loan the Company up to an additional $500,000. This loan commitment, which provides for an interest rate of 8% per annum, is for a period of one year from the commitment date and will be funded from time to time by Elk in amounts necessary to assist the Company in its working capital requirements. As a result, the Company has not charged as additional interest expense the discount between the conversion price and the average closing bid price of the shares during the five-day period prior to the date of the conversion of the debt to equity.

In June 2000, the Company agreed to issue Daniel Dror II Trust of 1998 10,000,000 shares of Common Stock for an aggregate of $200,000. The is equal to a purchase price of $0.02 per share. The Company believes this is based upon the fair market value of restricted shares of its Common Stock and the average closing bid price of the shares during the five-day period prior to the date of issuance, which was between $0.02 and $0.04 per share. Further, the purchase price reflects the following: that the Daniel Dror II Trust of 1998 agreed to a two-year lock-up of the restricted shares, without registration rights or the availability of Rule 144 under the Act to sell the shares; and effective June 12, 2000 the Daniel Dror II Trust of 1998 agreed to loan the Company up to $200,000. This loan commitment also provides for an annual interest rate of 8%, is for a term of one year from the commitment date and will be funded from time to time by the Daniel Dror II Trust in amounts necessary to assist the Company in its working capital requirements. As a result, the Company has not charged as non-cash expense the discount between the purchase price and the average closing bid price of the shares during the five-day period prior to the date of the transaction.

See the Note to Consolidated Financial Statements, "Subsequent Events" with regard to the 42.5 million shares of Common Stock issued to related parties. Further, reference is also made to Item 6, Part II, and the disclosure under "Manangement’s Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company’s limited liquidity.

The Company obtains approval from its entire Board of Directors prior to any acquisitions. If any transactions are executed or contemplated with a related party or affiliate of the Company, such relationship is disclosed prior to a vote of the Board of Directors. Prior to entering into any real estate transaction with affiliated parties, the Company obtains appraisals from MAI Appraisers for Board of Director consideration. Prior to entering into any financing arrangement with any affiliated parties, including the loan commitments and other debt and equity transactions with Elk and the Daniel Dror II Trust of 1998, disclosure is made to the Board of Directors regarding the terms and conditions of such related party transactions. Mr. Dror, the Company's chief executive officer and chairman, abstained from voting at the meetings of the Board of Directors at which the transactions with Elk and the Trust were approved. Further, the Company believes that the terms of each transaction made with related parties or affiliates discussed above are as fair as those obtainable from independent third parties, if in fact terms were available from independent third parties. Further, following the delisting of our shares from the OTC:BB on November 4, 1999, we were unable to secure financing from non-affiliates at satisfactory terms and conditions and had to rely upon transactions with related and affiliated parties to secure financing, principally through the sale of our shares of Common Stock and the conversion of debt into equity. As of April 1999, the Company determined that any advances or loans made by the Company to any related parties or affiliates will be made at an interest rate no lower than the current prime rate plus 2%.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

The following exhibits are to be filed as part of the Annual Report:

Exhibit No.	Identification of Exhibit
3(i) (1)	Certificate of Incorporation of the Company, and Amendments thereto.
3(ii) (1)	Amended and Restated By-laws of the Company
4.1 (1)	Common Stock Certificate, American International Industries, Inc.
4.2 (1)	Common Stock Certificate, Acqueren, Inc.
4.3 (1)	Common Stock Certificate, Har-Whit/Pitt's & Spitt's, Inc.
10.1 (1)	Daniel Dror, Sr. Employment Agreement dated May 14, 1998
10.2 (1)	Daniel Dror, Sr. Employment Agreement dated October 16, 1998
10.3 (1)	Marc Fields Employment Agreement
10.4 (2)	Shabang! Merchant Service Agreement
10.5 (3)	American International Industries, Inc. Lease
10.6 (2)	Brenham Oil and Gas, Inc. Royalty Interest
10.7 (2)	Brenham Oil and Gas Interest Lease
10.8 (2)	Northeastern Plastics, Inc. Lease
10.9 (4)	Juan Carlos Martinez Employment Agreement
10.10 (4)	Marald, Inc. Acquisition Agreement
21.1 (2)	List of Subsidiaries
27	Financial Data Schedule

1.	Filed previously on registration statement Form 10-SB SEC File No. 0-25223.
2.	Filed previously on the Company's annual report for the fiscal year ended December 31, 1998 on Form 10-KSB, SEC File No. 0-25223.
3.	Filed previously on registration statement Form 10-SB/A File No. 0-25223.
4.	Filed previously on registration statement Form 10-SB/A (second amendment) File No. 0-25223.

b. There have been no reports filed on Form 8-K.

SIGNATURES

In accordance with the Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

American International Industries, Inc.

By /s/ Daniel Dror

Daniel Dror

President, Chief Executive Officer and Director

By /s/ John W. Stump, III

John W. Stump, III

Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Daniel Dror	Chairman of the Board and Chief Executive Officer	November 1, 2000
Daniel Dror

/s/ Erick Friedman	Director	November 1, 2000
Erick Friedman