U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                                   (Mark One)
               [X] Annual Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 1998
                                       or
             [ ] Transition Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                           Commission File No. 0-28378
                                  AMREIT, INC.
                 (Name of small business issuer in its charter)
         Maryland                                        76-0410050
(State or other jurisdiction of                       (I.R.S. Employer
Incorporation or organization)                        Identification No.)

8 Greenway Plaza, Suite 824
Houston, Texas                                            77046
(Address of principal executive offices)                (Zip Code)

Issuer's telephone number, including area code:  (713) 850-1400

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Shares of Common
                                                               Stock

Check  whether  the issuer  (1) has 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 issuer was required to file such  reports),  and (2) has
been subject to such filing requirements for the past 90 days: Yes X No_____

Check if there is no  disclosure of delinquent  filers in response to Item 405
of Registration S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or informative
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.  [X]

Issuer's revenues for its most recent fiscal year:    $3,028,026

Aggregate market value of the voting stock held by non-affiliates of the issuer:
                          No Established Trading Market

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  2,372,744 shares of Common Stock as
                                            of March 24, 1999


<PAGE>






                       DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the  Prospectus of  Registrant  dated June 18, 1996  (included in
Registration  Statement No. 0-28378 of Registrant) and as supplemented  February
28,  1997,  October  16,  1997,  December  1,  1997 and  February  11,  1998 are
incorporated by reference into Part III.

2.  Issuer  incorporates  by  reference  into  Part III  portions  of its  Proxy
Statement for the 1999 Annual Meeting of Shareholders.

Transitional Small Business Disclosure Format (check one): Yes    No  X


                                       2
<PAGE>
                                     PART I

Item 1.    Description of Business

General

AmREIT, Inc., which changed its name from American Asset Advisers Trust, Inc. in
conjunction  with the Merger (as  described  below) which was  completed in June
1998 ("Issuer" or the "Company"),  was  incorporated in the state of Maryland on
August 17, 1993. The Company is a real estate  investment  trust (a "REIT") that
acquires,  develops,  owns and  manages  high-quality,  freestanding  properties
leased to major retail businesses under long-term commercial net leases. Through
a wholly-owned subsidiary, the Company also provides advisory services to eleven
real estate limited partnerships.

The Company  focuses on acquiring  frontage  retail  properties that are located
primarily on corner or out-parcel  locations in strong commercial corridors near
traffic  generators,  such as major  regional  malls.  These  properties,  which
attract  a  wide  array  of  established   retail  tenants,   offer   attractive
opportunities for stable current return and potential capital  appreciation.  In
addition, management believes that the location and design of properties in this
niche  provide  flexibility  in  use  and  tenant  selection  and  an  increased
likelihood of advantageous re-lease terms.

The Company has been successful in attracting  tenants that operate in different
retail  segments,  including  Radio  Shack  (leased  to the Tandy  Corporation),
Blockbuster  Music (lease guaranteed by Viacom,  Inc.),  Popeye's Famous Chicken
(lease guaranteed by AFC, Inc.), OfficeMax, Inc., Just For Feet, Inc., Hollywood
Video (leased to Hollywood Entertainment Corp.) and Bank United, a Federal
Savings Bank.

Properties  acquired by the Company are generally newly  constructed or recently
constructed  as of the time of  acquisition.  To date,  the Company has acquired
only properties that are subject to a lease in order to avoid the risks inherent
in initial leasing. The Company's leases typically provide that the tenant bears
responsibility for substantially all property costs and expenses associated with
ongoing  maintenance  and  operation  such  as  utilities,  property  taxes  and
insurance.  Some of the tenants'  leases require that the Company is responsible
for roof and  structural  repairs.  In these  instances,  the  Company  normally
requires warranties and/or guarantees to mitigate the potential costs of repairs
during the primary terms of the leases.

The Company's leases  typically do not limit the Company's  recourse against the
tenant  and any  guarantor  in the event of a default,  and for this  reason are
considered  "full-credit"  leases.  The  Company's  properties  were 100 percent
leased at December 31, 1998.

A further  description  of the  Company's  business is included in  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
included in Item 6 of this Form 10-KSB.

The objectives of the Company are:

         (1) to provide regular  distributions to shareholders.  The Company has
         paid  quarterly  distributions  to  shareholders  since  July  1994 and
         intends to continue paying  quarterly  distributions  to  shareholders.
         Distribution payments may fluctuate during the life of the Company.

         (2) to  provide  shareholders  with  long-term  appreciation  on  their
         investment.  Management  believes  that the  Company  can  realize  its
         objective of long-term  appreciation of its property portfolio based on
         the fact that most of the leases on the properties which the Company

                                       3

<PAGE>

         currently owns contain, and the Company expects that most of the leases
         on the  additional  properties  that  it  will  acquire  will  contain,
         periodic rent escalation provisions over the original and renewal terms
         of such leases.  Because the Company's  properties are and are expected
         to  continue  to be  valued on the basis of their  ability  to  produce
         income,  the Company  believes that  successive  periodic rental income
         increases resulting from such escalation provisions should increase the
         value of the  Company's  properties  over the  long  term.  There is of
         course  no  assurance  the  Company  will  in  fact  realize  portfolio
         appreciation.

         (3) to conserve  capital.  The Company will attempt to conserve capital
         by  endeavoring  to continue to invest in a  diversified  portfolio  of
         quality real estate under long-term leases to creditworthy tenants. The
         amount of money  raised in future  offerings  will affect the number of
         properties  the Company will be able to purchase.  The more  properties
         the Company  acquires,  the more diversified it will be and the less it
         will be  affected  by any  single  property  that does not  perform  as
         expected.

There is no assurance these objectives can be achieved.

The Merger

From 1993 to June 5, 1998,  the  Company  and  American  Asset  Advisers  Realty
Corporation ("AAA") were party to an advisory  agreement,  pursuant to which AAA
provided certain management,  advisory and acquisition services. AAA received an
annual fee,  payable monthly,  equal to 5% of rental income.  Under the advisory
agreement,  AAA generally  was  responsible  for  administering  the  day-to-day
investment  operations  of  the  Company,   including  investment  analysis  and
development,  acquisitions,  due diligence,  and asset management and accounting
services.  These duties  included  collecting  rental  payments,  inspecting and
managing the properties, assisting the Company in responding to tenant inquiries
and notices, providing information to the Company about the status of the leases
and the properties,  maintaining the Company's accounting books and records, and
preparing  and filing  various  reports,  returns  or  statements  with  various
regulatory  agencies.  In addition,  AAA served as the  Company's  consultant in
connection with policy  decisions to be made by the Board of Directors,  managed
the Company's  properties  and rendered other services as the Board of Directors
deemed appropriate.

Historically,  the Company did not have a large enough asset base to provide the
economies  of scale  needed to  efficiently  support the  extensive  general and
administrative  expenses of an in-house  management  team. As a result,  AAA had
incurred the full expense of a management and  acquisition  team while receiving
advisory and acquisition fees that have offset this expense.  In 1997,  however,
due to the Company's historical and anticipated growth, management believed that
the efficiencies  derived from being externally  advised had diminished and that
it would be more cost effective to become  self-administered.  As a result, at a
special  meeting of the Company's  Board of Directors held on December 31, 1997,
the Board of Directors,  other than Mr. H. Kerr Taylor,  who abstained  from the
vote due to his interest in the  transaction,  approved an agreement and plan of
merger with AAA, which when approved by the  shareholders of the Company on June
5,  1998  at  a  special   meeting,   resulted   in  the   Company   becoming  a
self-administered  and self-managed  real estate investment trust. The Agreement
and Plan of Merger provided for the merger of AAA into a wholly owned subsidiary
of the Company pursuant to which all of the outstanding  common stock of AAA was
exchanged for up to 900,000 shares (the "Share  Consideration") of the Company's
common  stock (the  "Merger").  The common  stock of AAA was wholly owned by the
president and director of the Company.  Effective  June 5, 1998,  213,260 shares
were issued and the balance (the "Share Balance") of the Share  Consideration is
to be paid over a six year period to the extent certain goals are achieved after
the Merger.  None of the Share  Balance has been  earned  subsequent  to June 5,
1998. Upon consummation of the Merger on June 5, 1998,  certain employees of AAA
became  employees  of the  Company,  and any  obligation  to pay fees  under the
advisor agreement between the Company and AAA was terminated.

                                       4

<PAGE>



Properties

At December 31, 1998, the Company owned  seventeen  properties,  eleven directly
and six through joint ventures, all in fee simple. Eight of these properties are
located in Texas,  two each are located in Louisiana and Georgia and one each in
Arizona, Delaware, Kansas, Mississippi and Missouri. Although the specific terms
of each lease vary, a summary of the terms of the leases is as follows:

The primary term of the leases ranges from ten to twenty years.  Fourteen of the
leases also provide for two to four five-year  renewal  options.  The leases are
all "triple-net" leases under which the tenants are responsible for the property
taxes,  insurance and operating costs.  Annual rental income ranges from $59,641
to $406,648.  Fifteen of the leases provide for either percentage rents based on
sales in excess of certain  amounts,  periodic  escalations in the annual rental
rates or both.

As of December 31, 1998,  three of the Company's  properties  each accounted for
more than 10% of the  Company's  total  assets.  Summarized  as follows  are the
significant items pertaining to each of these leases:

On July 1, 1998, the Company acquired a newly  constructed  property on lease to
Just For Feet, Inc. for a purchase price of $3,928,997.  This 1.59 acre property
is being  operated  as a Just For Feet retail  store on U.S. 59 at First  Colony
Boulevard in Sugar Land,  Texas.  The  improvements  are a single-tenant  retail
building that contains  approximately  16,900 square feet.  The lease  agreement
extends for fifteen years,  however the tenant has the option to renew the lease
for two  additional  terms of five years each.  The lease has  provisions for an
escalation in the rent after the fifth and tenth years of the lease. The Company
recorded $190,853 of revenue from this property in 1998.

On June 3, 1998, the Company acquired a newly  constructed  property on lease to
Just For Feet, Inc. for a purchase price of $3,751,555. This 2.561 acre property
is being operated as a Just For Feet retail store on Lake Woodlands Drive in The
Woodlands,  Texas.  The  improvements  are a single-tenant  retail building that
contains  approximately  16,900  square feet.  The lease  agreement  extends for
fifteen  years,  however  the  tenant  has the option to renew the lease for two
additional  terms of five years each. The lease has provisions for an escalation
in the rent after the fifth and tenth years of the lease.  The Company  recorded
$213,851 of revenue from this property in 1998.

On  September  11,  1996,  the  Company  acquired  a 51.9%  interest  in a newly
constructed  property on lease to Just For Feet,  Inc.  through a joint  venture
with two entities  with common  management  for the combined  purchase  price of
$3,680,383. This 2.938 acre property is being operated as a Just For Feet retail
store on the  northwest  corner of North  Oracle  Road and Old  Tucson  Florence
Highway in Tucson, Arizona. The improvements are a single-tenant retail building
that contains  approximately 15,200 square feet. The lease agreement extends for
twenty  years,  however  the  tenant  has the  option to renew the lease for two
additional  terms of five years each. The lease has provisions for an escalation
in the rent after the  fifth,  tenth,  and  fifteenth  years of the  lease.  The
Company recorded $406,648 of revenue from this property in 1998.

For information  regarding the results of operations and financial  condition of
Just For Feet,  Inc. refer to their Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended January 31, 1998.

The Company's leases specify the amount, if any, of insurance  coverage required
to be  carried by each  tenant.  Management  of the  Company  believes  that the
insurance  policies  required  to be carried by the  tenants  combined  with the
insurance  carried by the Company will adequately  cover the replacement cost of
the properties and any personal liability losses which the Company may sustain.

                                       5

<PAGE>

Financing - Borrowing Policies

The Company may incur  unsecured  and secured  borrowings,  so long as the total
amounts of such  borrowings  do not exceed 300% of the Company's net assets on a
consolidated basis.

Competitive Conditions

The  Company  generally   competes  with  other  REIT's,   real  estate  limited
partnerships  and other  investors,  including,  but not limited  to,  insurance
companies,  pension  funds  and  financial  institutions,  in  the  acquisition,
leasing,   financing  and  disposition  of  investments  in  net-leased   retail
properties.

Employees

At December 31, 1998,  the Company had 8 employees,  of which all were full-time
employees.

Item 2.     Description of Property

At December 31, 1998,  the Company  owned  seventeen  properties  in fee simple,
eleven directly and six through joint ventures with related parties.  Properties
are  located  in  Texas,  Georgia,  Arizona,  Missouri,   Louisiana,   Delaware,
Mississippi  and Kansas.  Reference is made to the  Schedule III -  Consolidated
Real Estate Owned and Accumulated Depreciation filed with this Form 10-KSB for a
listing of the properties and their respective costs.

Land - The Company's property sites range from  approximately  34,000 to 125,000
square feet, depending upon building size and local demographic  factors.  Sites
purchased by the Company are in high traffic  corridors  and have been  reviewed
for traffic and demographic pattern and history.

Buildings - The buildings  are all single tenant and are generally  rectangular.
They are positioned for good exposure to traffic flow and are  constructed  from
various  combinations of stucco,  steel,  wood, brick and tile.  Buildings range
from  approximately  2,350 to 24,000  square  feet.  Buildings  are suitable for
possible  conversion to various  uses,  although  modifications  may be required
prior to use for  other  operations.  There  are no  plans  for  renovations  or
improvements.

Leases  - The  primary  term of the  leases  ranges  from ten to  twenty  years.
Fourteen of the leases also provide for two to four five-year  renewal  options.
The leases are all  "triple-net"  leases whereby the tenants are responsible for
the property taxes,  insurance and operating costs.  Annual rental income ranges
from $59,641 to $406,648.  Fifteen of the leases  provide for either  percentage
rents based on sales in excess of certain amounts,  periodic  escalations in the
annual rental rates or both.

Geographic  Location  -  The  properties  are  generally  located  within  major
metropolitan  areas (Standard  Metropolitan  Statistical Areas) with populations
that exceed  250,000.  For additional  information,  see Note 6 to the financial
statements included in this Form 10-KSB.

As of December 31, 1998, a total of $32,667,057  has been invested in properties
by the  Company on a  consolidated  basis.  This  includes  land,  building  and
acquisition costs. A further  description of the Company  properties,  including
acquisition  fees  and  certain  acquisition  expenses,  is  included  in Item 1
"Properties"  and  in  Schedule  III  -  Consolidated   Real  Estate  Owned  and
Accumulated Depreciation of this Form 10-KSB.

                                       6

<PAGE>

Item 3.     Legal Proceedings

The Company does not have any material legal proceedings pending.

Item 4.     Submission of Matters to a Vote of Security Holders

No matters  were  submitted  to  shareholders  during the fourth  quarter of the
fiscal year.

                                       7

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                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters

As of March 24, 1999, there were approximately 1,065 record holders of 2,372,744
shares of the Company's common stock, net of 11,373 shares held in treasury.  No
established public trading market currently exists for the stock.

For the years ended December 31, 1998 and 1997,  the Company paid  distributions
of $1,591,545 and $1,093,439,  respectively.  A summary of the  distributions by
quarter is as follows:

      Quarter Ended                                1998                1997
      -------------                                ----                ----
      March 31                                  $ 341,965           $ 227,387
      June 30                                     387,634             257,901
      September 30                                428,990             289,679
      December 31                                 432,956             318,472

The  second  quarter of 1994  marked  the  beginning  of the  Company's  regular
operations and,  consequently,  the beginning of regular quarterly  distribution
payments.  The  Company  intends to continue  the  payment of regular  quarterly
distributions.  Other  than  certain  loan  covenants,  there are  currently  no
material  legal  restrictions  that  would  limit the  Company's  ability to pay
distributions.

For every two shares of stock acquired  pursuant to the Company's initial public
offering, an investor also received one warrant. These warrants were exercisable
at $9 per share  between  March 17, 1997 and March 15,  1998.  A total of 57,316
shares were issued from the exercise of the Warrants.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

The Company is a fully  integrated,  self-administered  real  estate  investment
trust. The Company was organized on August 17, 1993 to acquire,  either directly
or through  joint  venture  arrangements,  undeveloped,  newly  constructed  and
existing net-lease real estate that is located primarily on corner or out-parcel
locations in strong commercial corridors, to lease on a net-lease basis to major
retail  businesses  and to hold the  properties  with the  expectation of equity
appreciation  producing a steadily  rising income  stream for its  shareholders.
Through a wholly-owned  subsidiary,  the Company also provides advisory services
to eleven real estate limited partnerships.

Liquidity and Capital Resources

Cash flow from  operations has been the principal  source of capital to fund the
Company's ongoing operations. The Company's issuance of common stock and the use
of the Company's  credit  facility  have been the  principal  sources of capital
required to fund its growth.

In order to continue to expand and develop its portfolio of properties and other
investments,  the  Company  intends to finance  future  acquisitions  and growth
through the most advantageous sources of capital available to the Company at the
time. Such capital sources may include proceeds from public or private offerings
of the Company's debt or equity securities, secured or unsecured borrowings from
banks or other lenders,  or the disposition of assets,  as well as undistributed
funds from  operations.  For the years ended  December  31,  1998 and 1997,  the
Company generated $1,510,069 and $1,080,157,  respectively, in net cash provided
by operating activities.

                                       8

<PAGE>

The Company's leases typically provide that the tenant bears  responsibility for
substantially   all  property  costs  and  expenses   associated   with  ongoing
maintenance and operation, including utilities, property taxes and insurance. In
addition,  the Company's leases generally provide that the tenant is responsible
for roof and structural repairs. Certain of the Company's properties are subject
to leases under which the Company retains  responsibility  for certain costs and
expenses associated with the property.  Because many of the properties which are
subject to leases that place these  responsibilities on the Company are recently
constructed,  management  anticipates  that capital demands to meet  obligations
with respect to these properties will be minimal for the foreseeable  future and
can be met with funds from  operations and working  capital.  The Company may be
required  to use bank  borrowing  or other  sources  of  capital in the event of
unforeseen significant capital expenditures.

The initial issuance of 20,001 shares of stock for $200,010 was to AAA. On March
17, 1994, the Company commenced an offering of 2,000,000 Shares of Common Stock,
together  with  1,000,000  Warrants  (collectively   "Securities").   Until  the
completion  of the offering in March 1996,  the  Securities  were offered on the
basis of two (2) Shares of Common Stock and one (1) Warrant for a total purchase
price of $20.00.  The Shares and  Warrants  are  separately  transferable  by an
investor. Each Warrant entitled the holder to purchase one Share for $9.00 until
March 15, 1998. The offering period for the initial public  offering  terminated
on March 15, 1996 with gross proceeds totaling  $10,082,520  (1,008,252 shares).
In addition,  $515,844  (57,316  shares) was  received  from the exercise of the
Warrants.  On June 18, 1996, the Company commenced a follow-on offering of up to
$29,250,000  (2,853,659  shares) of additional  shares of its common stock.  The
offering  terminated on May 22, 1998 with gross  proceeds  totaling  $10,827,300
(1,056,946 shares).

In December  1997,  the Company  entered into an amended and restated  unsecured
revolving  credit  facility (the  "Amended  Credit  Facility")  with a borrowing
capacity  up to $15  million.  The actual  amount  available  to the Company was
dependent on certain  covenants such as the value of  unencumbered  assets.  The
Amended  Credit  Facility bore interest at 2.00% over varying  London  Interbank
Offered  Rates and it was  being  used to  acquire  additional  properties.  The
Amended Credit Facility was terminated in November 1998.

In November 1998,  the Company  entered into an unsecured  credit  facility (the
"Credit Facility"),  which is being used to provide funds for the acquisition of
properties and working  capital,  and repaid all amounts  outstanding  under the
Company's prior credit facility. Under the Credit Facility, which has a one year
term,  the  Company  may  borrow  up to $30  million  subject  to the  value  of
unencumbered  assets.  The Credit Facility contains covenants which, among other
restrictions,  require the  Company to  maintain a minimum net worth,  a maximum
leverage  ratio,  and  specified  interest  coverage and fixed  charge  coverage
ratios.  The Credit  Facility  bears  interest at an annual rate of LIBOR plus a
spread ranging from 1.625% to 2.150%,  set quarterly  depending on the Company's
leverage ratio. As of December 31, 1998,  $10,580,110 was outstanding  under the
Credit Facility.

As of December 31, 1998, the Company had acquired eleven properties directly and
six properties  through joint ventures with entities with common  management and
had invested $27,348,958, exclusive of any minority interests, including certain
acquisition  expenses related to the Company's  investment in these  properties.
These  expenditures  resulted  in a  corresponding  decrease  in  the  Company's
liquidity.

Until  properties are acquired by the Company,  proceeds are held in short-term,
highly liquid  investments which the Company believes to have appropriate safety
of principal. This investment strategy has allowed, and continues to allow, high
liquidity to facilitate  the Company's use of these funds to acquire  properties
at such time as properties suitable for acquisition are located. At December 31,
1998, the Company's cash and cash equivalents totaled $48,520.

The Company made cash  distributions to the Shareholders  during each quarter of
1998 and 1997, distributing a total of $1,591,545 and $1,093,439,  respectively,
for each such fiscal year.

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<PAGE>

Inflation  has had very  little  effect on income  from  operations.  Management
expects  that  increases  in store  sales  volumes due to  inflation  as well as
increases  in the  Consumer  Price Index  (C.P.I.),  may  contribute  to capital
appreciation of the Company properties. These factors, however, also may have an
adverse impact on the operating margins of the tenants of the properties.

Funds From Operations

Funds from operations (FFO) increased $468,301 or 48% to $1,436,063 in 1998 from
$967,762 in 1997.  The Company has  adopted  the  National  Association  of Real
Estate  Investment  Trusts (NAREIT)  definition of FFO. FFO is calculated as net
income (computed in accordance with generally  accepted  accounting  principles)
excluding gains or losses from sales of property,  depreciation and amortization
of real estate assets, and nonrecurring items of income or expense. For purposes
of the table  below,  FFO  excludes  nonrecurring  merger  costs  and  potential
acquisition  costs.   Management   considers  FFO  an  appropriate   measure  of
performance  of an equity REIT because it is predicated on a cash flow analysis.
FFO does not represent cash provided by operating  activities in accordance with
generally accepted  accounting  principles and is not necessarily  indicative of
cash available to meet cash needs.  The Company's  computation of FFO may differ
from the  methodology  for  calculating FFO utilized by other equity REIT's and,
therefore,  may not be comparable  to such other  REIT's.  FFO is not defined by
generally  accepted  accounting  principles  and  should  not be  considered  an
alternative to net income as an indication of the Company's performance.

Below is the reconciliation of net income to funds from operations:

                                                  1998                    1997
                                                  ----                    ----
Net income (loss)                             $(1,805,786)           $   538,857
Plus depreciation of real estate assets           349,888                146,015
Plus merger costs                               2,427,658                282,890
Plus potential acquisition costs                  464,303                      -
                                              -----------            -----------
Total funds from operations                   $ 1,436,063            $   967,762
                                              ===========            ===========

Cash distributions paid                       $ 1,591,545            $ 1,093,439
Distributions in excess of FFO                $   155,482            $   125,677

Cash  flows from  operating  activities,  investing  activities,  and  financing
activities are presented below:

                                                  1998                   1997
                                                  ----                   ----
Operating activities                        $  1,510,069           $  1,080,157
Investing activities                        $ (7,687,454)          $(11,708,075)
Financing activities                        $  4,824,165           $ 10,413,347

Results of Operations

Years Ended December 31, 1998 and 1997:

During the years ended  December 31, 1998 and 1997, the Company owned and leased
17 and 11 properties, respectively. During the years ended December 31, 1998 and
1997, the Company  earned  $2,741,757 and  $1,556,815,  respectively,  in rental
income from operating leases and earned income from direct financing leases. The
76 percent  increase in rental income and earned income during 1998, as compared
to 1997, is primarily attributable to rental income earned on the six properties
acquired during 1998. In addition, rental and earned income increased during

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<PAGE>

1998 as a result of the fact that the three properties acquired during 1997 were
operational for a full fiscal year in 1998. Rental and earned income is expected
to increase in 1999 as the Company acquires additional properties and due to the
fact  that the six  properties  acquired  during  1998  will  contribute  to the
Company's income for a full fiscal year in 1999.

During the years ended December 31, 1998 and 1997,  the Company's  expenses were
$4,315,253 and $716,627,  respectively.  The $3,598,626  increase in expenses is
primarily  attributable  to  $2,427,658  of merger  costs  incurred  during 1998
related to the acquisition of the Company's  advisor,  AAA, on June 5, 1998. The
increase is also  attributable to (i) $464,303 increase in costs incurred during
1998 related to potential  acquisition costs related to the proposed acquisition
of  properties,  (ii) a $209,099  increase  in  depreciation  as a result of the
depreciation  of the  additional  properties  owned  during  1998,  and  (iii) a
$396,707  increase in interest  expense as a result of higher average  borrowing
levels.  In  addition,  the increase in expenses is  attributable  to a $449,646
increase  in general  operating  and  administrative  expenses.  Pursuant to the
Merger, the Company acquired AAA and became internally  managed.  Effective June
5, 1998, the  reimbursements  and fees paid to AAA were replaced with the actual
personnel and other operating costs associated with being internally managed.

Year 2000 Compliance

The Year  2000  problem  ("Y2K")  concerns  the  inability  of  information  and
non-information   technology   systems  to   properly   recognize   and  process
date-sensitive  information  beyond January 1, 2000.  The Company's  information
technology system consists of a network of personal  computers and servers built
using  hardware  and  software  from  mainstream  suppliers.  The Company has no
internally  generated  programmed  software  coding  to  correct,  as all of the
software  utilized  by the  Company  is  purchased  or  licensed  from  external
providers.

In 1998,  the  Company  formed a Year 2000  committee  (the "Y2K  Team") for the
purpose  of  identifying,   understanding  and  addressing  the  various  issues
associated  with the Year 2000  problems.  The Y2K Team consists of members from
the Company,  including  representatives from senior management,  accounting and
computer consultants. The Y2K Team's initial step in assessing the Company's Y2K
readiness  consists of  identifying  any systems  that are  date-sensitive  and,
accordingly,  could have potential Y2K problems.  The Y2K Team is in the process
of  conducting  inspections,  interviews  and  tests  to  identify  which of the
Company's systems could have a potential Y2K problem.

The  Company's   information  system  is  comprised  of  hardware  and  software
applications  from  mainstream  suppliers;  accordingly,  the Y2K Team is in the
process of contacting the respective vendors and manufacturers to verify the Y2K
compliance of their products.  In addition,  the Y2K Team has also requested and
is evaluating  documentation  from other  companies with which the Company has a
material  third party  relationship,  including  the  Company's  tenants,  major
vendors,  financial  institutions and the Company's  transfer agent. The Company
depends on its tenants for rents and cash flows, its financial  institutions for
availability  of cash and financing and its transfer agent to maintain and track
investor  information.  Although  the  Company  continues  to  receive  positive
responses from its third party relationships regarding their Y2K compliance, the
Company  cannot be assured that the tenants,  financial  institutions,  transfer
agent and other vendors have adequately  considered the impact of the Year 2000.
The Company does not expect the Y2K impact of third parties to have a materially
adverse effect on its results of operation or financial position.

The Company has identified  and has  implemented  upgrades for certain  hardware
equipment. In addition, the Company has identified certain software applications
which will require  upgrades to become Year 2000 compliant.  The Company expects
all of these upgrades as well as any other  necessary  remedial  measures on the
information technology systems used in the business activities and operations of
the Company to be completed by September  30, 1999.  The Company does not expect
the aggregate cost of the Year 2000 remedial measures to exceed $10,000.

                                       11

<PAGE>

Based upon the progress the Company has made in addressing its Year 2000 issues,
the Company does not foresee  significant  risks  associated  with its Year 2000
compliance at this time. The Company plans to address its significant  Year 2000
issues  prior to being  affected  by them;  therefore,  it has not  developed  a
comprehensive  contingency plan. However, if the Company identifies  significant
risks related to its Year 2000 compliance,  the Company will develop contingency
plans as deemed necessary at that time.

Forward-Looking Statements

Certain  information  presented in this Form 10-KSB constitutes  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933 and
Section  21E of the  Securities  Exchange  Act of  1934.  Although  the  Company
believes that the expectations reflected in such forward-looking  statements are
based upon  reasonable  assumptions,  the Company's  actual results could differ
materially  from  those set  forth in the  forward-looking  statements.  Certain
factors that might cause such a  difference  include the  following:  changes in
general economic conditions, changes in real estate market conditions, continued
availability of proceeds from the Company's debt or equity capital,  the ability
of the Company to locate suitable  tenants for its properties and the ability of
tenants to make payments under their respective leases.

Item 7.   Financial Statements.

The  response  to this item is  submitted  in Item  13(a) of this  report and is
incorporated herein by reference.

Item 8.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosures.

None.

                                       12

<PAGE>


                                    PART III

Item 9. Directors and Executive Officers

Reference is made to the Company's  definitive  proxy statement to be filed with
the Commission pursuant to Regulation 14(a).

Item 10.   Executive Compensation

Reference is made to the Company's  definitive  proxy statement to be filed with
the Commission pursuant to Regulation 14(a).

Item 11. Security Ownership of Certain Beneficial Owners and Management

Reference is made to the Company's  definitive  proxy statement to be filed with
the Commission pursuant to Regulation 14(a).

Item 12. Certain Relationships and Related Transactions

Reference is made to the Company's  definitive  proxy statement to be filed with
the Commission pursuant to Regulation 14(a).

                                       13

<PAGE>


                                     PART IV

Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.

(a)    (1)    Financial Statements

              Independent Auditors' Report
              Consolidated Balance Sheet, December 31, 1998
              Consolidated Statements of Operations for the Years Ended
                December 31, 1998 and 1997
              Consolidated  Statements of Shareholders' Equity
                for the  Years  Ended  December  31, 1998 and 1997  
              Consolidated Statements of Cash Flows for the Years Ended 
                December 31, 1998 and 1997  
              Notes to Consolidated Financial Statements for the Years
                Ended December 31, 1998 and 1997

       (2)    Financial Statement Schedules: See (d) below

       (3)    Exhibits   See (c) below

(b)           Reports on Form 8-K filed after September 30, 1998:

              None

(c)           Exhibits

              3.1     Articles of Incorporation (included as Exhibit 3.1 of the
                      Exhibits to  Registration  Statement No.  33-70654 of the
                      Company and incorporated herein by reference).

              3.2     Articles of Amendment  to the  Articles of  Incorporation
                      (included  as  Exhibit  3 (ii)  of the  Company's  Annual
                      Report on Form 10-K for the year ended  December 31, 1994
                      and incorporated herein by reference).

              3.3     Articles of Amendment  to the  Articles of  Incorporation
                      dated December 16, 1997 (included as Exhibit 3 (v) of the
                      Exhibits to the  Company's  Annual  Report on Form 10-KSB
                      for the year ended  December  31,  1997 and  incorporated
                      herein by reference).

              3.4     Amended and  Restated  By-Laws,  dated  November 12, 1997
                      (included  as  Exhibit  3  (vi)  of the  Exhibits  to the
                      Company's Annual Report on Form 10-KSB for the year ended
                      December 31, 1997 and incorporated herein by reference).

              4       Form  of  Sales  Warrant  (included  as  Exhibit  4.3  to
                      Registration   Statement  No.  33-70654  of  Company  and
                      incorporated herein by reference).

              10.1    Lease  between  Ironwood  Development   Corporation,   as
                      landlord and Tandy Corporation,  a Delaware  corporation,
                      dated August, 1991 (included as Exhibit 10 (b) (2) of the
                      Exhibits to the Company's  Annual Report on Form 10-K for
                      the year ended December 31, 1995 and incorporated  herein
                      by reference).

                                       14

<PAGE>



              10.2    Assignment and  Assumption of the Lease between  Ironwood
                      Development   Corporation  and  American  Asset  Advisers
                      Trust,  Inc., dated June 14, 1994 (included as Exhibit 10
                      (b) (1) of the Exhibits to the Company's Annual Report on
                      Form  10-K for the year  ended  December  31,  1994,  and
                      incorporated herein by reference).

              10.3    Assignment of  Guaranties  and  Warranties  from Ironwood
                      Development Corporation to American Asset Advisers Trust,
                      Inc., dated June 14, 1994 (included as Exhibit 10 (b) (4)
                      of the Exhibits to the  Company's  Annual  Report on Form
                      10-K  for  the  year   ended   December   31,   1995  and
                      incorporated herein by reference).

              10.4    Real Estate Sales Agreement  between  America's  Favorite
                      Chicken  Company and AAA Net Realty  Fund X, Ltd.,  dated
                      June 13,  1994  (included  as  Exhibit  10 (b) (5) of the
                      Exhibits to the Company's  Annual Report on Form 10-K for
                      the year ended December 31, 1995 and incorporated  herein
                      by reference).

              10.5    Lease (the "AFCC  Lease")  between AAA Net Realty Fund X,
                      Ltd., as landlord and America's Favorite Chicken Company,
                      as tenant,  dated June 13, 1994  (included  as Exhibit 10
                      (b) (6) of the Exhibits to the Company's Annual Report on
                      Form  10-K  for the  year  ended  December  31,  1995 and
                      incorporated herein by reference).

              10.6    Assignment  of the  Agreement  and the Lease form AAA Net
                      Realty  Fund X, Ltd. to American  Asset  Advisers  Trust,
                      Inc.  (included  as Exhibit 10 (b) (7) of the Exhibits to
                      the  Company's  Annual  Report  on Form 10-K for the year
                      ended  December  31,  1995  and  incorporated  herein  by
                      reference).

              10.7    First  Amendment  to AFCC  Lease,  dated  July  22,  1994
                      (included  as Exhibit 10 (b) (8) of the  Exhibits  to the
                      Company's  Annual  Report on Form 10-K for the year ended
                      December 31, 1995 and incorporated herein by reference).

              10.8    Agreement for Purchase and Sale of Real Estate (the "KCBB
                      Contract")  between KCBB, Inc. and AAA Net Realty Fund X,
                      Ltd.,  dated October 12, 1994 (included as Exhibit 10 (b)
                      (9) of the  Exhibits to the  Company's  Annual  Report on
                      Form  10-K  for the  year  ended  December  31,  1995 and
                      incorporated herein by reference).

              10.9    Lease (the "KCBB Lease") between KCBB,  Inc., as landlord
                      and Sound Warehouse,  Inc., as tenant, dated November 19,
                      1993  (included as Exhibit 10 (b) (10) of the Exhibits to
                      the  Company's  Annual  Report  on Form 10-K for the year
                      ended  December  31,  1995  and  incorporated  herein  by
                      reference).

              10.10   Guaranty  of  KCBB  Lease  by  Blockbuster  Entertainment
                      Corporation  (included  as  Exhibit  10 (b)  (11)  of the
                      Exhibits to the Company's  Annual Report on Form 10-K for
                      the year ended December 31, 1995 and incorporated  herein
                      by reference).

              10.11   Amendment  to the KCBB  Contract  (included as Exhibit 10
                      (b) (12) of the Exhibits to the  Company's  Annual Report
                      on Form 10-K for the year  ended  December  31,  1995 and
                      incorporated herein by reference).

                                       15


<PAGE>



              10.12   Joint Venture  Agreement  between the Company and AAA Net
                      Realty Fund X, Ltd.,  dated October 27, 1994 (included as
                      Exhibit  10  (b)  (3) of the  Exhibits  to the  Company's
                      Annual  Report on Form 10-K for the year  ended  December
                      31, 1994, and incorporated herein by reference).

              10.13   Assignment and Assumption of the Lease between KCBB, Inc.
                      and AAA Joint  Venture  94-1,  dated  November  11,  1994
                      (included  as Exhibit 10 (b) (4) of the  Exhibits  to the
                      Company's  Annual  Report on Form 10-K for the year ended
                      December 31, 1994, and incorporated herein by reference).

              10.14   Assignment  from KCBB,  Inc. to AAA Joint  Venture  94-1,
                      dated  November 11, 1994 (included as Exhibit 10 (b) (15)
                      of the Exhibits to the  Company's  Annual  Report on Form
                      10-K  for  the  year   ended   December   31,   1995  and
                      incorporated herein by reference).

              10.15   Assignment from KCBB,  Inc., to AAA Joint Venture 94-1 of
                      warranties,  dated November 11, 1994 (included as Exhibit
                      10 (b)  (16)  of the  Exhibits  to the  Company's  Annual
                      Report on Form 10-K for the year ended  December 31, 1995
                      and incorporated herein by reference).

              10.16   Agreement for Purchase and Sale of Real Estate (the "KCBB
                      Contract II") between KCBB,  Inc. and the Company,  dated
                      August 9, 1995  (included  as  Exhibit 10 (b) (17) of the
                      Exhibits to the Company's  Annual Report on Form 10-K for
                      the year ended December 31, 1995 and incorporated  herein
                      by reference).

              10.17   Lease  (the "KCBB  Lease  II")  between  KCBB,  Inc.,  as
                      landlord and Blockbuster  Music Retail,  Inc., as tenant,
                      dated August 9, 1995  (included as Exhibit 10 (b) (18) of
                      the Exhibits to the Company's  Annual Report on Form 10-K
                      for the year ended  December  31,  1995 and  incorporated
                      herein by reference).

              10.18   Amendment  to  Agreement  for  Purchase  and Sale of Real
                      Estate  Assigning  Agreement  to AAA Joint  Venture  95-2
                      (included  as Exhibit 10 (b) (19) of the  Exhibits to the
                      Company's  Annual  Report on Form 10-K for the year ended
                      December 31, 1995 and incorporated herein by reference).

              10.19   Joint Venture  Agreement  between the Company and AAA Net
                      Realty Fund XI, Ltd.,  dated August 24, 1995 (included as
                      Exhibit  10 (b)  (20) of the  Exhibits  to the  Company's
                      Annual  Report on Form 10-K for the year  ended  December
                      31, 1995 and incorporated herein by reference).

              10.20   Assignment  and  Assumption  of the KCBB Lease II between
                      KCBB,  Inc. and AAA Joint Venture 95-2,  dated  September
                      12, 1995 (included as Exhibit 10 (b) (21) of the Exhibits
                      to the Company's  Annual Report on Form 10-K for the year
                      ended  December  31,  1995  and  incorporated  herein  by
                      reference).

              10.21   Assignment  from KCBB,  Inc. to AAA Joint Venture 95-2 of
                      Contracts  and  Warranties,   dated  September  12,  1995
                      (included  as Exhibit 10 (b) (22) of the  Exhibits to the
                      Company's  Annual  Report on Form 10-K for the year ended
                      December 31, 1995 and incorporated herein by reference).

                                       16


<PAGE>



              10.22   Agreement  for the  Purchase  and  Sale  of  Real  Estate
                      between Turner Adreac, L.C. and the Company,  dated March
                      31, 1995 (included as Exhibit 10 (b) (23) of the Exhibits
                      to the Company's  Annual Report on Form 10-K for the year
                      ended  December  31,  1995  and  incorporated  herein  by
                      reference).

              10.23   Assignment  of  Rents,  Leases  and  Profits  from
                      Turner  Adreac,  L.C. to American  Asset  Advisers
                      Trust,  Inc.,  dated March 31, 1995  (included  as
                      Exhibit  10  (b)  (24)  of  the  Exhibits  to  the
                      Company's  Annual Report on Form 10-K for the year
                      ended December 31, 1995 and incorporated herein by
                      reference).

              10.24   Lease (the AOneCare Lease@) between Turner Adreac,
                      L.C. and OneCare Health Industries,  Inc., a Texas
                      non-profit  corporation,  dated  February 17, 1995
                      (included  as Exhibit 10 (b) (25) of the  Exhibits
                      to the  Company's  Annual  Report on Form 10-K for
                      the year ended December 31, 1995 and  incorporated
                      herein by reference).

              10.25   Assignment  and  Assumption  of the OneCare  Lease
                      between  Turner  Adreac,  L.C. and American  Asset
                      Advisers  Trust,  Inc.,  dated  September 26, 1995
                      (included  as Exhibit 10 (b) (26) of the  Exhibits
                      to the  Company's  Annual  Report on Form 10-K for
                      the year ended December 31, 1995 and  incorporated
                      herein by reference).

              10.26   Assignment of Warranties from Turner Adreac,  L.C. to the
                      Company, dated September 26, 1995 (included as Exhibit 10
                      (b) (27) of the Exhibits to the  Company's  Annual Report
                      on Form 10-K for the year  ended  December  31,  1995 and
                      incorporated herein by reference).

              10.27   Agreement  for  Purchase  and Sale of Real  Estate
                      between   Company   and  Tucson   Oracle   Limited
                      Partnership   (AZ  LP),  dated  January  19,  1996
                      (included  as Exhibit 10 (b) (28) of the  Exhibits
                      to the  Company's  Annual  Report on Form 10-K for
                      the year ended December 31, 1995 and  incorporated
                      herein by reference).

              10.28   First  Amendment to Agreement for the Purchase and
                      Sale of Real  Estate  between  Company  and Tucson
                      Oracle Limited Partnership (AZ LP), dated June 10,
                      1996  (included  as  Exhibit  10 (b)  (29)  of the
                      Exhibits to the  Company's  Annual  Report on Form
                      10-K  for the year  ended  December  31,  1996 and
                      incorporated herein by reference).

              10.29   Lease   (the  "Just  For  Feet   Lease")   between
                      Cumberland America Development  Company,  Inc. and
                      Just  for  Feet,   Inc.,  dated  August  10,  1995
                      (included  as Exhibit 10 (b) (30) of the  Exhibits
                      to the  Company's  Annual  Report on Form 10-K for
                      the year ended December 31, 1996 and  incorporated
                      herein by reference).

              10.30   First  Amendment to Just For Feet Lease,  dated  February
                      29, 1996 (included as Exhibit 10 (b) (31) of the Exhibits
                      to the Company's  Annual Report on Form 10-K for the year
                      ended  December  31,  1996  and  incorporated  herein  by
                      reference).

              10.31   Second  Amendment  to Just For Feet Lease,  dated May 29,
                      1996  (included as Exhibit 10 (b) (32) of the Exhibits to
                      the  Company's  Annual  Report  on Form 10-K for the year
                      ended  December  31,  1996  and  incorporated  herein  by
                      reference).


                                       17

<PAGE>



              10.32   Third  Amendment to Just For Feet Lease,  dated  January,
                      1997  (included as Exhibit 10 (b) (33) of the Exhibits to
                      the  Company's  Annual  Report  on Form 10-K for the year
                      ended  December  31,  1996  and  incorporated  herein  by
                      reference).

              10.33   Joint  Venture  Agreement  between the Company and
                      AAA Net  Realty  Fund X, Ltd.  and AAA Net  Realty
                      Fund XI,  Ltd.,  dated April 5, 1996  (included as
                      Exhibit  10  (b)  (34)  of  the  Exhibits  to  the
                      Company's  Annual Report on Form 10-K for the year
                      ended December 31, 1996 and incorporated herein by
                      reference).

              10.34   Bill of Sale and Assignment between Tucson Oracle Limited
                      Partnership  and AAA Joint Venture 96-1,  dated September
                      6, 1996  (included as Exhibit 10 (b) (35) of the Exhibits
                      to the Company's  Annual Report on Form 10-K for the year
                      ended  December  31,  1996  and  incorporated  herein  by
                      reference).

              10.35   Joint Venture  Agreement  between the Company and AAA Net
                      Realty Fund XI, Ltd.,  dated August 8, 1996  (included as
                      Exhibit  10 (b)  (36) of the  Exhibits  to the  Company's
                      Annual  Report on Form 10-K for the year  ended  December
                      31, 1996 and incorporated herein by reference).

              10.36   Revolving  Credit  Agreement,  dated  November  6,
                      1998, by and among AmREIT,  Inc.,  certain lenders
                      and Wells Fargo Bank, as the Agent,  relating to a
                      $30,000,000  loan (included as Exhibit 10.1 of the
                      Exhibits to the Company's Quarterly Report on Form
                      10-QSB for the quarter  ended  September  30, 1998
                      and incorporated herein by reference).

              11      Computation of earnings per common share.

              21      Subsidiaries of the Company.

              27      Financial Data Schedule.

Items 5, 6 and 7 of Part II and Item 13 of Part IV of this Form  10-KSB  contain
the  financial  statements,  financial  statement  schedule and other  financial
information.  No  Annual  Report  or proxy  material  has yet been  provided  to
security holders with respect to 1999.

(d)           Financial Statements Schedules

              Schedule III - Consolidated Real Estate Owned and Accumulated
              Depreciation

                                       18

<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Issuer has duly  caused this report to be signed on its behalf
on the 31st of March 1999 by the undersigned, thereunto duly authorized.

                                          AmREIT, Inc.

                                          /s/ H. Kerr Taylor
                                          ------------------
                                          H. Kerr Taylor, President and
                                          Chief Executive Officer




Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed  below by the  following  persons on behalf of the Issuer and in
the capacities and on the dates indicated.



/s/ H. Kerr Taylor                                      March 31, 1999
------------------
H. KERR TAYLOR
President, Chairman of the Board, Chief Executive
Officer and Director (Principal Executive Officer)


/s/ Robert S. Cartwright, Jr.                           March 31, 1999
-----------------------------
ROBERT S. CARTWRIGHT, JR., Director


/s/ George A. McCanse, Jr.                              March 31, 1999
--------------------------
GEORGE A. McCANSE, JR., Director


/s/ L. Larry Mangum                                      March 31, 1999
-------------------
L. LARRY MANGUM, Chief Financial Officer and
Treasurer (Principal Accounting Officer)



                                       19


<PAGE>








                          ANNUAL REPORT ON FORM 10-KSB
                       ITEMS 7, 13(a)(1) AND (2) AND 13(d)


                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                        AND FINANCIAL STATEMENT SCHEDULE
                      FOR THE YEAR ENDED DECEMBER 31, 1998


                          AMREIT, INC. AND SUBSIDARIES

                                      F-1

<PAGE>



                          AMREIT, INC. AND SUBSIDIARIES
                          INDEX TO FINANCIAL STATEMENTS




                                                                            Page

FINANCIAL STATEMENTS:

Independent Auditors' Report                                                 F-3
Consolidated Balance Sheet, December 31, 1998                                F-4
Consolidated Statements of Operations for the Years Ended
    December 31, 1998 and 1997                                               F-5
Consolidated Statements of Shareholders' Equity
    for the Years Ended December 31, 1998 and 1997                           F-6
Consolidated Statements of Cash Flows for the Years Ended
    December 31, 1998 and 1997                                               F-7
Notes to Consolidated Financial Statements for the Years Ended
    December 31, 1998 and 1997                                       F-8 to F-16



FINANCIAL STATEMENT SCHEDULE:
Schedule III Consolidated Real Estate Owned and Accumulated
    Depreciation for the Year Ended December 31, 1998                       F-17


All other financial statement schedules are omitted as the required  information
is either  inapplicable  or is included in the  financial  statements or related
notes.

                                      F-2

<PAGE>



INDEPENDENT AUDITORS' REPORT

To the Board of Directors
AmREIT, Inc.

We have audited the accompanying  consolidated balance sheet of AmREIT, Inc. and
subsidiaries   (the  "Company")  as  of  December  31,  1998,  and  the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the two years in the period ended  December  31,  1998.  Our audits also
included the financial  statement  schedule listed in the Index. These financial
statements and the financial  statement  schedule are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an  opinion  on the
financial statements and financial statement schedule 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,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of the Company as of December  31,
1998,  and the results of its  operations and its cash flows for each of the two
years in the  period  ended  December  31,  1998 in  conformity  with  generally
accepted accounting  principles.  Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.





DELOITTE & TOUCHE LLP

Houston, Texas
March 12, 1999


                                      F-3

<PAGE>


                          AMREIT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1998

 ASSETS
 Cash and cash equivalents                                      $        48,520
 Accounts receivable                                                     13,138
 Prepaid expenses                                                        13,534
 Investment in joint venture                                            362,149
 Property:
   Escrow deposits                                                       10,000
   Land                                                              11,663,291
   Buildings                                                         17,832,096
   Furniture, fixtures and equipment                                     68,979
                                                                ---------------
                                                                     29,574,366
   Accumulated depreciation                                            (696,384)
                                                                ---------------
     Total property                                                  28,877,982
                                                                ---------------
 Net investment in direct financing leases                            3,171,670
 Other assets:
   Preacquisition costs                                                 355,623
   Accrued rental income                                                245,588
   Other                                                                 49,342
                                                                ---------------
     Total other assets                                                 650,553
                                                                ---------------
 TOTAL ASSETS                                                   $    33,137,546
                                                                ===============

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Liabilities:
   Note payable                                                 $    10,580,110
   Accounts payable                                                     201,279
   Security deposit                                                      15,050
                                                                ---------------
     TOTAL LIABILITIES                                               10,796,439
                                                                ---------------
 Minority interest                                                    5,218,999
 Commitments (Note 11)
 Shareholders' equity:
   Preferred stock, $.01 par value,
     10,001,000 shares authorized, none issued
   Common stock, $.01 par value,
     100,010,000 shares authorized,
     2,384,117 shares issued                                             23,841
   Capital in excess of par value                                    21,655,867
   Accumulated distributions in excess of earnings                   (4,451,107)
   Cost of treasury stock, 11,373 shares                               (106,493)
                                                                ---------------
     TOTAL SHAREHOLDERS' EQUITY                                      17,122,108
                                                                ---------------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $    33,137,546
                                                                ===============

 See Notes to Consolidated Financial Statements.

                                       F-4

<PAGE>


 AMREIT, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS

                                                For the Years Ended December 31,
                                                      1998            1997
                                                      ----            ----
 Revenues:
   Rental income from operating leases          $   2,401,048  $   1,217,187
   Earned income from direct financing leases         340,709        339,628
   Interest income                                     98,692        153,895
   Service fees and other income                      187,577              -
                                                      -------        -------

     Total revenues                                 3,028,026      1,710,710
                                                    ---------      ---------

 Expenses:
   General operating and administrative               562,110        112,464
   Reimbursements and fees to related party            40,607        106,504
   Interest                                           402,707          6,000
   Depreciation                                       355,114        146,015
   Amortization                                        62,754         62,754
   Merger costs (Note 8)                            2,427,658        282,890
   Potential acquisition costs                        464,303              -
                                                      -------        -------

     Total expenses                                 4,315,253        716,627
                                                    ---------        -------

 Income (loss) before minority interest
   in net income of consolidated joint ventures    (1,287,227)       994,083

 Minority interest in net income of
   consolidated joint ventures                       (518,559)      (455,226)
                                                     --------       --------

 Net income (loss)                              $  (1,805,786) $     538,857
                                                =============  =============


 Basic earnings (loss) per share                $       (0.81) $        0.34
                                                =============  =============
 Diluted earnings (loss) per share              $       (0.81) $        0.33
                                                =============  =============

 Weighted average number of common
   shares outstanding                               2,226,403      1,563,048
                                                    =========      =========
 Weighted average number of common
   shares outstanding
   plus dilutive potential common shares            2,226,403      1,624,217
                                                    =========      =========

  See Notes to Consolidated Financial Statements.

                                       F-5



<PAGE>


                          AMREIT, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>



                                                                            Accumulated
                                                              Capital in    distributions     Cost of
                                           Common Stock        excess of     in excess of    treasury
                                         Number    Amount      par value       earnings       stock          Total
                                         ------    ------      ---------       --------       -----          -----
<S>                                    <C>        <C>        <C>            <C>              <C>          <C>


 Balance at December 31, 1996          1,204,925  $ 12,049   $ 10,780,847   $    (499,194)   $       -    $ 10,293,702

   Net income                                  -         -              -         538,857            -         538,857

   Distributions ($.72 per share)              -         -              -      (1,093,439)           -      (1,093,439)

   Issuance of common stock              663,288     6,633      6,783,642               -            -       6,790,275

   Stock issuance costs                        -         -       (899,189)              -            -        (899,189)
                                        --------  --------       --------        --------     --------        --------

 Balance at December 31, 1997          1,868,213    18,682     16,665,300      (1,053,776)           -      15,630,206

   Net income (loss)                           -         -              -      (1,805,786)           -      (1,805,786)

   Distributions ($.73 per share)              -         -              -      (1,591,545)           -      (1,591,545)

   Issuance of common stock              515,904     5,159      5,252,768               -            -       5,257,927

   Stock issuance costs                        -         -       (262,201)              -            -        (262,201)

   Cost of treasury stock, 11,373 shares       -         -              -               -     (106,493)       (106,493)
                                        --------  --------       --------        --------     --------        --------

 Balance at December 31, 1998          2,384,117  $ 23,841   $ 21,655,867   $ (4,451,107)    $(106,493)    $ 17,122,108
                                       =========  ========   ============   ============     =========     ============




</TABLE>


 See Notes to Consolidated Financial Statements.

                                       F-6


<PAGE>


                          AMREIT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                For the Years Ended December 31,
                                                        1998            1997
                                                        ----            ----
 Cash flows from operating activities:
   Net income (loss)                            $   (1,805,786) $       538,857
   Adjustments to reconcile net income
     (loss) to net cash provided by 
     operating activities:
       Amortization                                     62,754           62,754
       Depreciation                                    355,114          146,015
       Merger costs                                  2,283,322                -
       Decrease (increase) in accounts
         receivable                                    111,462         (119,481)
       Increase in prepaid expenses                    (13,534)               -
       Increase in accounts payable                    106,961           72,588
       Cash receipts from direct 
         financing leases less than 
         income recognized                             (10,474)          (9,398)
       Decrease in escrow deposits,
         net of minority interest 
         partners                                        1,100           27,150
       Increase in accrued rental income               (77,409)         (93,554)
       Increase in other assets                        (22,000)               -
       Increase in minority interest                   518,559          455,226
                                                       -------          -------
         Net cash provided by operating
           activities                                1,510,069        1,080,157
                                                     ---------        ---------
 Cash flows from investing activities:
   Acquisition of real estate                       (7,337,349)     (11,409,725)
   Additions of furniture, fixtures
     and equipment                                      (5,019)               -
   Investment in joint venture                        (362,149)               -
   Change in preacquisition costs                       17,063         (298,350)
                                                        ------         -------- 
     Net cash used in investing activities          (7,687,454)     (11,708,075)
                                                    ----------      ----------- 
 Cash flows from financing activities:
   Proceeds from issuance of stock, net              2,480,782        5,891,086
   Common stock repurchases                           (106,493)               -
   Prepaid issuance costs                                    -          101,399
   Proceeds from note payable                        4,601,778        5,981,489
   Distributions paid to shareholders               (1,591,545)      (1,093,439)
   Distributions to minority interest 
     partners                                         (560,357)        (467,188)
                                                      --------         -------- 
     Net cash provided by financing
       activities                                    4,824,165       10,413,347
                                                     ---------       ----------
 Net decrease in cash and cash equivalents          (1,353,220)        (214,571)
 Cash and cash equivalents at beginning
   of year                                           1,401,740        1,616,311
                                                     ---------        ---------
 Cash and cash equivalents at end of year       $       48,520  $     1,401,740
                                                ==============  ===============

 Supplemental disclosure of non-cash 
   financing activities:
   Real estate and escrow deposit 
     contributed by partners of the 
     consolidated joint ventures
     (minority interest)                        $            -  $     1,677,659
                                                ==============  ===============
   Issuance of stock in lieu of note payment    $      270,564  $             -
                                                ==============  ===============
   Issuance of stock in connection with Merger  $    2,244,380  $             -
                                                ==============  ===============

 See Notes to Consolidated Financial Statements.

                                        F-7


<PAGE>



                          AMREIT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

AmREIT,  Inc.,  formerly  American Asset Advisers Trust,  Inc.  ("Issuer" or the
"Company"),  was  incorporated  in the state of Maryland on August 17, 1993. The
Company is a real estate  investment  trust (a "REIT") that acquires,  develops,
owns and manages  high-quality,  freestanding  properties leased to major retail
businesses  under  long-term  commercial  net  leases.  Through  a  wholly-owned
subsidiary,  the Company also provides  advisory  services to eleven real estate
limited partnerships.

BASIS OF CONSOLIDATION

The consolidated  financial statements include the accounts of AmREIT, Inc., its
wholly-owned subsidiaries, AmREIT Realty Investment Corporation ("ARIC"), AmREIT
Operating  Corporation ("AOC"), and AmREIT Opportunity  Corporation ("AOP"), and
its six joint ventures with related parties.  The three subsidiaries were formed
in June,  July and April  1998,  respectively.  ARIC was  organized  to acquire,
develop,  hold and sell real estate in the  short-term  for capital gains and/or
receive fee income. The Company owns 100% of the outstanding preferred shares of
ARIC. The preferred shares are entitled to receive dividends equal to 95% of net
income and are  expected  to be paid from cash flows,  if any.  AOC and AOP were
formed with the intention to qualify and to operate as a real estate  investment
trust  under  federal  tax  laws.  All  significant  intercompany  accounts  and
transactions  have been  eliminated in  consolidation.  The Company owns greater
than  50% of the  aforementioned  joint  ventures  and  exercises  control  over
operations.

BASIS OF ACCOUNTING

The  financial  records of the Company are  maintained  on the accrual  basis of
accounting whereby revenues are recognized when earned and expenses are recorded
when incurred.

CASH AND CASH EQUIVALENTS

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid debt instruments  purchased with an original  maturity of three months or
less to be cash  equivalents.  Cash  and  cash  equivalents  consist  of  demand
deposits at commercial banks and money market funds.

REAL ESTATE

Real  estate is leased to others  on a net lease  basis  whereby  all  operating
expenses  related to the properties,  including  property  taxes,  insurance and
common area  maintenance are the  responsibility  of the tenant.  The leases are
accounted for under the operating method or the direct financing method.

                                      F-8

<PAGE>

Under the operating  method,  the properties are recorded at cost. Rental income
is  recognized  ratably over the life of the lease and  depreciation  is charged
based upon the estimated useful life of the property. Under the direct financing
method,  properties are recorded at their net investment  (see Note 3). Unearned
income is deferred  and  amortized to income over the life of the lease so as to
produce a constant periodic rate of return.

Expenditures  related to the development of real estate are carried at cost plus
capitalized carrying charges,  acquisition costs and development costs. Carrying
charges,  primarily interest and loan acquisition costs, and direct and indirect
development  costs related to buildings  under  construction  are capitalized as
part of construction in progress. The Company capitalizes acquisition costs once
the  acquisition  of the  property  becomes  probable.  Interest of $316,492 and
$155,108 was capitalized on properties under construction  during 1998 and 1997,
respectively.

Management  reviews its properties for impairment  whenever events or changes in
circumstances indicate that the carrying amount of the assets, including accrued
rental income, may not be recoverable through operations.  Management determines
whether an impairment in value  occurred by comparing the estimated  future cash
flows (undiscounted and without interest charges),  including the residual value
of the  property,  with the  carrying  cost of the  individual  property.  If an
impairment  is  indicated,  a loss will be recorded  for the amount by which the
carrying value of the asset exceeds its fair value.

DEPRECIATION

Buildings  are  depreciated  using the  straight-line  method over an  estimated
useful life of 39 years.

OTHER ASSETS

Other assets include organization costs and loan acquisition costs. Organization
costs of $313,768  incurred in the  formation of the Company are  amortized on a
straight-line  basis  over  five  years.  Accumulated  amortization  related  to
organization  costs as of December 31, 1998 totaled  $286,426.  Loan acquisition
costs of $24,000  incurred in  obtaining  property  financing  are  amortized to
interest expense on a straight-line  basis over the term of the debt agreements.
Accumulated  amortization  related to loan acquisition  costs as of December 31,
1998 totaled $2,000.

STOCK ISSUANCE COSTS

Issuance  costs  incurred in the  raising of capital  through the sale of common
stock are treated as a reduction of shareholders' equity.

STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION

There has been no cash paid for income  taxes  during 1998 or 1997.  During 1998
and 1997, the Company paid interest of $635,177 and $149,108,  respectively,  of
which $316,492 and $149,108 were capitalized on properties under construction.

                                      F-9

<PAGE>



FEDERAL INCOME TAXES

The Company is qualified as a real estate  investment  trust  ("REIT") under the
Internal Revenue Code of 1986, and is, therefore,  not subject to Federal income
taxes  provided it meets all conditions  specified by the Internal  Revenue Code
for retaining its REIT status,  including the  requirement  that at least 95% of
its real estate  investment  trust taxable  income is distributed by March 15 of
the following year.

EARNINGS PER SHARE

Basic  earnings  per share has been  computed by  dividing  net income to common
shareholders  by the  weighted  average  number  of common  shares  outstanding.
Diluted  earnings  per share has been  computed by dividing net income to common
shareholders  (as  adjusted) by the  weighted  average  number of common  shares
outstanding plus dilutive potential common shares.

The  following  table  presents  information  necessary to  calculate  basic and
diluted earnings per share for the periods indicated:

                                                 For the Year Ended December 31,
                                                 1998                      1997
                                                 ----                      ----
BASIC EARNINGS (LOSS) PER SHARE
     Weighted average common shares
       outstanding                            2,226,403                1,563,048
                                           ============             ============
         Basic earnings (loss) per share   $       (.81)            $        .34
                                           ============             ============

DILUTED EARNINGS (LOSS) PER SHARE
     Weighted average common shares
       outstanding                            2,226,403                1,563,048
     Shares issuable from assumed
       conversion of warrants                         -                   61,169
                                           ------------             ------------
     Weighted average common shares
       outstanding, as adjusted               2,226,403                1,624,217
                                           ============             ============
       Diluted earnings (loss)
         per share                         $       (.81)            $        .33
                                           ============             ============

EARNINGS (LOSS) FOR BASIC AND DILUTED
  COMPUTATION
    Net income  (loss) to common
      shareholders (basic and diluted
      earnings per share computation)      $ (1,805,786)            $    538,857
                                           ============             ============


USE OF ESTIMATES

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 during the reporting period.
Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company believes the carrying value of financial  instruments  consisting of
cash,  cash  equivalents,  accounts  receivable  and accounts and notes  payable
approximate their fair value.

                                      F-10

<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and  Hedging  Activities."  The  Statement,  which is  effective  for all Fiscal
quarters of fiscal years  beginning after June 1, 1999,  establishes  accounting
and reporting standards for derivative instruments, including certain derivative
instruments   embedded  in  other  contracts,   (collectively   referred  to  as
derivatives) and for hedging  activities.  The Statement requires that an entity
recognize all  derivatives  as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company is currently  reviewing
the  Statement  to see  what  impact,  if  any,  it will  have on the  Company's
consolidated financial statements.

2. OPERATING LEASES

A  summary  of  minimum  future  rentals,   exclusive  of  any  renewals,  under
noncancellable operating leases in existence at December 31, 1998 is as follows:

                           1999          $     2,860,477
                           2000          $     2,885,305
                           2001          $     2,894,342
                           2002          $     2,929,325
                           2003          $     2,948,914
                           2004-2016     $    21,782,827

3. NET INVESTMENT IN DIRECT FINANCING LEASES

The Company's net investment in its direct financing leases at December 31, 1998
included:


 Minimum lease payments receivable                          $  6,780,584
 Unguaranteed residual value                                   1,557,904
 Less: Unearned income                                         5,166,818
                                                            ------------
                                                            $  3,171,670
                                                            ============

A summary  of minimum  future  rentals,  exclusive  of any  renewals,  under the
noncancellable direct financing leases follows:

                           1999                $      333,165
                           2000                $      336,590
                           2001                $      343,251
                           2002                $      363,233
                           2003                $      363,226
                           2004-2016           $    5,041,100


                                      F-11

<PAGE>



4. JOINT VENTURES

INVESTMENT IN JOINT VENTURE

On June 29, 1998, the Company  entered into a joint venture  agreement with GDC,
Ltd. The joint venture was formed to develop a multi-tenant retail center and to
sell to a third  party upon  completion.  The  Company's  interest  in the joint
venture is  approximately  6.67% and is accounted for using the cost method.  In
addition,  the Company shall receive a preferred  return on its investment.  The
Company is not required to contribute any additional money to the joint venture.

CONSOLIDATED JOINT VENTURES

The Company  consolidates  its joint ventures listed below due to its ability to
control  operations.  Pursuant to the Joint Venture  Agreements that incorporate
the  provisions  to the Texas Revised  Partnership  Act, the Company as majority
owner may make management decisions,  such as the sale of the property,  without
the consent of the minority joint venture interests.

On October 16,  1997,  the Company  entered  into a joint  venture  with AAA Net
Realty XI, Ltd., an entity with common management.  The joint venture was formed
for the  purchase of a property,  which is being  operated as a Hollywood  Video
store in  Lafayette,  Louisiana.  The property was purchased on October 31, 1997
after the  construction  was  completed.  The  Company's  interest  in the joint
venture is 74.58%.

On February 11,  1997,  the Company  entered  into a joint  venture with AAA Net
Realty XI, Ltd.  The joint  venture  was formed for the  purchase of a property,
which  is  being  operated  as a Just For  Feet  retail  store  in Baton  Rouge,
Louisiana. The property was purchased on June 9, 1997 after the construction was
completed. The Company's interest in the joint venture is 51%.

On September 23, 1996,  the Company  formed a joint  venture,  AAA Joint Venture
96-2,  with AAA Net Realty  Fund XI, Ltd.  The joint  venture was formed for the
purpose of  acquiring  a parcel of land in The  Woodlands,  Texas upon which the
tenant,  Bank United,  constructed  a branch bank  building at its cost.  At the
termination of the lease the improvements will be owned by the joint venture.
The Company's interest in the joint venture is 51%.

On April 5, 1996, the Company  formed a joint  venture,  AAA Joint Venture 96-1,
with AAA Net Realty Fund XI, Ltd. and AAA Net Realty Fund X, Ltd., entities with
common  management,  for the  purpose of  acquiring  a  property  which is being
operated as a Just For Feet retail  store in Tucson,  Arizona.  The property was
purchased on September 11, 1996 after construction was completed.  The Company's
interest in the joint venture is 51.9%.

On September 12, 1995,  the Company  formed a joint  venture,  AAA Joint Venture
95-2,  with AAA Net Realty Fund XI, Ltd. for the purpose of acquiring a property
in Wichita,  Kansas on lease to  Blockbuster  Music  Retail,  Inc. The Company's
interest in the joint venture is 51%.

On October 27, 1994, the Company formed a joint venture, AAA Joint Venture 94-1,
with AAA Net Realty  Fund X, Ltd.  for the  purpose of  acquiring  a property in
Independence,  Missouri on lease to Blockbuster Music Retail, Inc. The Company's
interest in the joint venture is 54.84%.

                                      F-12

<PAGE>



5. NOTES PAYABLE

In November 1998,  the Company  entered into an unsecured  credit  facility (the
"Credit Facility"),  which is being used to provide funds for the acquisition of
properties and working  capital,  and repaid all amounts  outstanding  under the
Company's prior credit facility. Under the Credit Facility, which has a one-year
term,  the  Company  may  borrow  up to $30  million  subject  to the  value  of
unencumbered  assets.  The Credit Facility contains covenants which, among other
restrictions,  require the  Company to  maintain a minimum net worth,  a maximum
leverage  ratio,  and  specified  interest  coverage and fixed  charge  coverage
ratios.  The Credit  Facility  bears  interest at an annual rate of LIBOR plus a
spread  ranging  from 1.625% to 2.150%  (6.938% as of December  31,  1998),  set
quarterly  depending on the Company's  leverage  ratio. As of December 31, 1998,
$10,580,110 was outstanding under the Credit Facility.

As part of the Merger,  the Company  assumed a 5-year  lease  agreement  for its
office telephone  system.  The lease terminates in September 2000, at which time
the Company has the option to purchase the  equipment.  Monthly  lease  payments
total  $313.  Future  minimum  lease  payments  required  under  this  lease are
summarized as follows:

                           1999           $      3,760
                           2000           $      2,820

6. MAJOR TENANTS

The  Company's  operations  are  related  to  the  acquisition  and  leasing  of
commercial real estate  properties.  The following  schedule  summarizes  rental
income by lessee  for 1998 and 1997 under both  operating  and direct  financing
methods of accounting:
                                                          1998            1997
                                                          ----            ----
Tandy Corporation
  (Mesquite, Texas)                                 $    108,900    $    108,900
America's Favorite
  Chicken Company (Smyrna, Georgia)                       98,265          97,931
Blockbuster Music Retail, Inc.
  (Independence, Missouri and
   Wichita, Kansas)                                      377,901         377,901
OneCare Health Industries, Inc.
  (Houston, Texas)                                       202,800         201,638
Just For Feet, Inc.
  (Tucson, Arizona; Baton Rouge, Louisiana;
   The Woodlands, Texas and Sugar Land, Texas)         1,096,233         590,192
Bank United (The Woodlands, Texas and
  Houston, Texas)                                        157,801         157,801
Hollywood Entertainment Corp. (Lafayette,
  Louisiana and Ridgeland, Mississippi                   273,931          22,452
OfficeMax, Inc. (Lake Jackson, Texas
  and Dover, Delaware)                                   406,622               -
D F & R Operating Company, Inc.
  (Peachtree City, Georgia)                                3,288               -
Krispy Kreme Doughnuts of the Gulf
  Coast, Ltd. (Houston, Texas)                            16,016               -
                                                    ------------    ------------
  Total                                             $  2,741,757    $  1,556,815
                                                    ============    ============

                                      F-13

<PAGE>



7. FEDERAL INCOME TAXES

The differences  between net income for financial reporting purposes and taxable
income before distribution deductions relate primarily to temporary differences,
to certain  organization  costs  which are  amortized  for  financial  reporting
purposes  only and to merger  costs and  potential  acquisition  costs which are
expensed for financial reporting purposes.

For income tax purposes,  distributions paid to shareholders consist of ordinary
income, capital gains and return of capital as follows:
                                             1998                     1997
                                             ----                     ----
Ordinary Income                        $       780,588        $        795,918
Return of capital                              810,957                 297,521
                                       ---------------        ----------------
                                       $     1,591,545        $      1,093,439
                                       ===============        ================

8. MERGER TRANSACTION

On June 5, 1998,  the Company's  shareholders  voted to approve an agreement and
plan of merger with AAA,  whereby the stockholder of AAA agreed to exchange 100%
of the  outstanding  shares of common stock of AAA for up to 900,000 shares (the
"Share Consideration") of the Company's common stock (the "Merger").  The common
stock of AAA was wholly owned by the president and director of the Company. As a
result of the Merger,  the Company became a fully integrated,  self-administered
real estate investment trust ("REIT") effective June 5, 1998.  Effective June 5,
1998,  213,260  shares were issued and the balance (the "Share  Balance") of the
Share  Consideration  is to be paid over a six year period to the extent certain
goals are achieved  after the Merger.  None of the Share Balance has been earned
subsequent  to June 5,  1998.  The  market  value of the  common  shares  issued
effective  June 5, 1998 was  $2,185,915  which  was  accounted  for as  expenses
incurred in acquiring AAA from a related party. In addition, the Company assumed
an  obligation  to  the  stockholder  of  AAA in the  amount  of  $97,407.  This
obligation and the related  accrued  interest of $3,157 were  subsequently  paid
with the issuance of 9,811 shares.  In connection  with the Merger,  the Company
incurred  costs  during 1998 and 1997 of $144,336  and  $282,890,  respectively,
consisting  primarily  of legal and  accounting  fees,  valuation  opinions  and
fairness opinions.  For accounting purposes, AAA was not considered a "business"
for  purposes of  applying  APB Opinion  No. 16,  "Business  Combinations,"  and
therefore,  the market value of the common  shares  issued in excess of the fair
value of the net tangible  assets  acquired  was charged to expense  rather than
capitalized as goodwill.  To the extent the Share Balance is paid over time, the
market value of the common shares  issued will also be charged to expense.  Upon
consummation  of the Merger on June 5,  1998,  certain  employees  of AAA became
employees  of the  Company,  and any  obligation  to pay fees under the  advisor
agreement between the Company and AAA was terminated.

9.   RELATED PARTY TRANSACTIONS

See Note 8 regarding the Merger and Note 4 regarding  joint  venture  agreements
with related parties.

                                      F-14

<PAGE>



RELATED PARTY TRANSACTIONS SUBSEQUENT TO THE MERGER:

Beginning  June 5, 1998, the Company  provides  property  acquisition,  leasing,
administrative and management services for eleven affiliated real estate limited
partnerships  (the  "Partnerships").  The  president and director of the Company
owns  between  45% and 100% of the  stock  of the  companies  that  serve as the
general partner of the  Partnerships.  Service fees of $138,340 were paid by the
Partnerships to the Company for 1998.

RELATED PARTY TRANSACTIONS PRIOR TO THE MERGER:

Prior to June 5, 1998, the Company was a party to an Omnibus Services  Agreement
with AAA whereby AAA provided property acquisition,  leasing, administrative and
management  services for the Company.  Service fees of $40,607 were incurred and
charged to expense  for the period  beginning  January 1, 1998  through  June 5,
1998. Service fees of $106,504 were incurred and charged to expense for 1997.

AAA  had  incurred  certain  costs  in  connection  with  the  organization  and
syndication of the Company.  Reimbursement of these costs become  obligations of
the Company in accordance with the terms of the offering.  Costs of $56,164 were
incurred  by AAA for the  period  ended  June 5,  1998 in  connection  with  the
issuance and marketing of the Company's  stock.  Costs of $164,985 were incurred
by AAA  during  1997 in  connection  with  the  issuance  and  marketing  of the
Company's stock. These costs are reflected as issuance costs and are recorded as
a reduction to capital in excess of par value.

Acquisition fees,  including real estate commissions,  finders fees,  consulting
fees and any other  non-recurring  fees  incurred in connection  with  locating,
evaluating  and  selecting   properties  and  structuring  and  negotiating  the
acquisition  of  properties  are  included  in  the  basis  of  the  properties.
Acquisition  fees of $123,389 were incurred and paid to AAA for the period ended
June 5, 1998.  Acquisition  fees of  $1,059,805  were  incurred  and paid to AAA
during  1997.  Acquisition  fees paid to AAA included  $355,623  that was earned
prior to purchasing certain properties.

10. PROPERTY ACQUISITIONS IN 1998

On December 18, 1998, the Company acquired a parcel of land for a purchase price
of $773,800 upon which the tenant, D F & R Operating Company,  Inc., constructed
a  restaurant  building  at its  cost.  At the  termination  of the  lease,  the
improvements will be owned by the Company.  This property is being operated as a
Don Pablo's Mexican  restaurant on State Highway 54 in Peachtree City,  Georgia.
The lease agreement extends for ten years,  however the tenant has the option to
renew the lease for four  additional  terms of five  years  each.  The lease has
provisions for an escalation in the rent after the fifth year of the lease.  The
Company recorded $3,288 of revenue from this property in 1998.

                                      F-15

<PAGE>



On November 23, 1998, the Company acquired a newly constructed property on lease
to Krispy  Kreme  Doughnuts  of the Gulf  Coast,  Ltd.  for a purchase  price of
$1,371,742.  This  property is being  operated as a Krispy Kreme  restaurant  on
Westheimer  Road in  Houston,  Texas.  The lease  agreement  extends for fifteen
years,  however the tenant has the option to renew the lease for four additional
terms of five years each. The lease has provisions for an escalation in the rent
after the fifth and tenth years of the lease.  The Company  recorded  $16,016 of
revenue from this property in 1998.

On July 1, 1998, the Company acquired a newly  constructed  property on lease to
Just For Feet,  Inc. for a purchase price of $3,928,997.  This property is being
operated as a Just For Feet retail store on U.S. 59 at First Colony Boulevard in
Sugar Land,  Texas. The lease agreement  extends for fifteen years,  however the
tenant has the option to renew the lease for two additional  terms of five years
each. The lease has provisions for an escalation in the rent after the fifth and
tenth years of the lease.  The Company  recorded  $190,853 of revenue  from this
property in 1998.

On June 3, 1998, the Company acquired a newly  constructed  property on lease to
Just For Feet,  Inc. for a purchase price of $3,751,555.  This property is being
operated  as a Just  For  Feet  retail  store  on Lake  Woodlands  Drive  in The
Woodlands,  Texas.  The lease agreement  extends for fifteen years,  however the
tenant has the option to renew the lease for two additional  terms of five years
each. The lease has provisions for an escalation in the rent after the fifth and
tenth years of the lease.  The Company  recorded  $213,851 of revenue  from this
property in 1998.

On April 14, 1998, the Company acquired a newly constructed property on lease to
OfficeMax,  Inc.  for a purchase  price of  $2,848,793.  This  property is being
operated as an OfficeMax  store on U.S. Route 13 in Dover,  Delaware.  The lease
agreement extends for fifteen years,  however the tenant has the option to renew
the lease for four additional terms of five years each. The lease has provisions
for an escalation in the rent after the fifth and tenth years of the lease.  The
Company recorded $196,793 of revenue from this property in 1998.

On February 20, 1998, the Company acquired a newly constructed property on lease
to OfficeMax,  Inc. for a purchase price of  $2,405,666.  This property is being
operated as an OfficeMax store on the northwest  corner of State Highway 332 and
This Way in Lake Jackson,  Texas. The lease agreement extends for fifteen years,
however the tenant has the option to renew the lease for three  additional terms
of five years each. The lease has provisions for an escalation in the rent after
the fifth and tenth years of the lease. The Company recorded $209,829 of revenue
from this property in 1998.

11. COMMITMENT

As part of the Merger,  the Company  assumed a 3-year  lease  agreement  for its
office  facilities.  The lease terminates in September 2000, however the Company
has the option to renew the lease for an additional three years.  Rental expense
for the year ended December 31, 1998 was $36,256.  Future minimum lease payments
required under this operating lease,  excluding renewal options,  are summarized
as follows:

                           1999          $      58,635
                           2000          $      43,976


                                      F-16

<PAGE>


                          AmREIT, INC. AND SUBSIDIARIES
   SCHEDULE III - CONSOLIDATED REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
                      FOR THE YEAR ENDED DECEMBER 31, 1998

 
<TABLE>
<CAPTION>

                                                                                                                            LIFE ON 
                                                                                                                            WHICH
                                                                                                                            DEPR. IN
                                                                                                                            LATEST 
                                                                             COST AT                                        INCOME
    PROPERTY                  ENCUM-                           IMPROVE-    CLOSE OF YEAR      ACCUM.   DATE OF    DATE      STMT. IS
  DESCRIPTION                 BRANCES    BUILDING      LAND     MENTS    BUILDING     LAND     DEPR.    CONSTR.  ACQUIRED   COMPUTED
  -----------                 -------    --------      ----     -----    --------     ----     -----    -------  --------   --------

PROPERTIES INVESTED IN
UNDER OPERATING LEASES

<S>                               <C>    <C>         <C>         <C>    <C>         <C>        <C>       <C>     <C>        <C>


Radio Shack Retail Store,
  Texas                            $0    $788,330    $337,856     $0    $788,330    $337,856   $91,752    N/A    06-15-94   39 Years
Church's Chicken Restaurant,
  Georgia                          $0          $0    $251,071     $0          $0    $251,071       N/A    N/A    07-22-94        N/A
Blockbuster Music Store,
  Missouri                         $0  $1,145,410    $490,747     $0  $1,145,410    $490,747  $121,128    N/A    11-14-94   39 Years
OneCare Health Industries,
  Inc., Texas                      $0  $1,246,199    $534,086     $0  $1,246,199    $534,086  $103,881    N/A    09-26-95   39 Years
Blockbuster Music Store,
  Kansas                           $0  $1,255,774    $538,189     $0  $1,255,774    $538,189  $105,991    N/A    09-12-95   39 Years
Just For Feet Store, Arizona       $0          $0  $1,101,425     $0          $0  $1,101,425       N/A    N/A    09-11-96        N/A
Bank United, Woodlands, Texas      $0          $0    $531,693     $0          $0    $531,693       N/A    N/A    09-23-96        N/A
Bank United, Houston, Texas        $0          $0    $851,973     $0          $0    $851,973       N/A    N/A    12-11-96        N/A
Just For Feet Store, Louisiana     $0  $2,036,150    $872,635     $0  $2,036,150    $872,635   $81,359    N/A    06-09-97   39 Years
Hollywood Video Store, Louisiana   $0    $729,286    $418,156     $0    $729,286    $418,156   $21,816    N/A    10-31-97   39 Years
Hollywood Video Store, Mississippi $0    $835,854    $450,000     $0    $835,854    $450,000   $21,432    N/A    12-30-97   39 Years
OfficeMax, Texas                   $0  $1,914,572    $491,094     $0  $1,914,572    $491,094   $42,224    N/A    02-20-98   39 Years
OfficeMax, Delaware                $0  $1,978,313    $870,480     $0  $1,978,313    $870,480   $29,590    N/A    04-14-98   39 Years
Just For Feet Store, Woodlands,
  Texas                            $0  $2,385,103  $1,366,452     $0  $2,385,103  $1,366,452   $35,675    N/A    06-03-98   39 Years
Just For Feet Store, Sugar Land,
  Texas                            $0  $2,648,954  $1,280,043     $0  $2,648,954  $1,280,043   $33,961    N/A    07-01-98   39 Years
Don Pablo's, Georgia               $0          $0    $773,800     $0          $0    $773,800       N/A    N/A    12-18-98        N/A
Krispy Kreme, Texas                $0    $868,151    $503,591     $0    $868,151    $503,591    $2,351    N/A    11-23-98   39 Years
                                   --    --------    --------     --    --------    --------    ------                 

      Total                        $0 $17,832,096 $11,663,291     $0 $17,832,096 $11,663,291  $691,160
                                   == =========== ===========     == =========== ===========  ========


PROPERTY INVESTED IN UNDER
DIRECT FINANCING LEASE

Church's Chicken Restaurant,
  Georgia                          $0    $585,345          $0     $0    $585,345          $0      (1)     N/A    07-22-94        N/A

Just For Feet Store, Arizona       $0  $2,586,325          $0     $0  $2,586,325          $0      (1)     N/A    09-11-96        N/A
                                   --  ----------          --     --  ----------          --                 

      Total                        $0  $3,171,670          $0     $0  $3,171,670          $0      (1)
                                   ==  ==========          ==     ==  ==========          ==       

(1)  The portion of the lease relating to the building of this property has been
     recorded as a direct financing lease for financial reporting purposes.  
     Consequently, depreciation is not applicable.

(2)  Transactions in real estate and accumulated depreciation during 1998, 1997
     and 1996 for operating lease properties are summarized as follows:
                                             Accumulated
                                     Cost    Depreciation
                                     ----    ------------
Balance at December 31, 1995      $6,588,177    $81,512
Acquisitions                      $2,482,477         $0
Depreciation expense                      $0   $113,744
                                 -----------   --------
Balance at December 31, 1996      $9,070,654   $195,256
Acquisitions                      $5,346,024         $0
Depreciation expense                      $0   $146,016
                                 -----------   --------
Balance at December 31, 1997     $14,416,678   $341,272
Acquisitions                     $15,078,709         $0
Depreciation expense                      $0   $349,888
                                 -----------   --------
Balance at December 31, 1998     $29,495,387   $691,160
                                 ===========   ========

(3)  The aggregate cost of all properties for Federal Income Tax purposes is
     $32,667,057 at December 31, 1998.

</TABLE>


                                      F-17


                                                                      EXHIBIT 11

                         AMREIT, INC. AND SUBSIDIARIES
                COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE




                                                 For the Year Ended December 31,
                                                     1998               1997
                                                     ----               ----
BASIC EARNINGS (LOSS) PER SHARE:

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING                      2,226,403          1,563,048
                                                ===========          =========

NET INCOME (LOSS)                               ($1,805,786)          $538,857
                                                ===========          =========


BASIC EARNINGS (LOSS) PER SHARE                      ($0.81)             $0.34
                                                ===========          =========


DILUTED EARNINGS (LOSS) PER SHARE:

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING                      2,226,403          1,563,048

SHARES ISSUABLE FROM ASSUMED
   CONVERSION OF STOCK WARRANTS                           -             61,169 
                                                -----------          --------- 

TOTAL WEIGHTED AVERAGE NUMBER OF COMMON
   SHARES OUTSTANDING, AS ADJUSTED                2,226,403          1,624,217
                                                ===========          =========


NET INCOME (LOSS)                               ($1,805,786)          $538,857
                                                ===========          =========

DILUTED EARNINGS (LOSS) PER SHARE                    ($0.81)             $0.33
                                                ===========          =========

<PAGE>


                                                                     Exhibit 21

                                  AMREIT, INC.
                           SUBSIDIARIES OF THE COMPANY


Set forth below is certain  information  with  respect to each of the  Company's
subsidiaries:


                                                                 STATE OF
SUBSIDIARY                                                       DOMICILE

AmREIT Realty Investment Corporation                               Texas
AmREIT Operating Corporation                                       Texas
AmREIT Opportunity Corporation                                     Texas



<PAGE>