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**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**___________________**FORM 10-QSB**_________________________

**ý                                QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

  

For the quarterly period endedMarch 31, 2006

  

OR

  

** ̈                                TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

  

For the transition period from               to              

  

Commission File No.:0-25223

**AMERICANINTERNATIONAL INDUSTRIES, INC.**(Exact Name Of RegistrantAs Specified In Its Charter)
| Nevada                                      | 88-0326480                              |
|---------------------------------------------|-----------------------------------------|
| (State of Incorporation)                    | (I.R.S. Employer    Identification No.) |
|                                        |                                    |
| 601    Cien Street, Suite 235, Kemah, TX    | 77565-3077                              |
| (Address of Principal    Executive Offices) | (ZIP Code)                              |

 Registrant'sTelephone Number, Including Area Code: (281) 334-9479

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  **x**  No ** ̈**

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes  ̈ No x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.
| Large accelerated    filer  ̈ | Accelerated filer  ̈  | Non-accelerated    filer x |
|----------------------------------|-------------------------------|--------------------------------|

At March 31, 2006,the Registrant had 4,347,510 shares of common stock issued.

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**TABLE OF CONTENTS**
| Item                               | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            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| **PART I - FINANCIAL INFORMATION** |
|                                    |
| ITEM 1.                            |    FINANCIAL    STATEMENTS.
        3  
ITEM 2.

   MANAGEMENT'S    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION.
        3   
ITEM 3.

      CONTROLS AND PROCEDURES.
        4   
**PART II - OTHER INFORMATION**

ITEM 1.

      LEGAL PROCEEDINGS.
        5  
ITEM 2.

      CHANGES IN SECURITIES.
        5   
ITEM 3.

      DEFAULT UPON SENIOR SECURITIES.
        5   
ITEM 4.

      SUBMISSION OF    MATERS TO A VOTE OF SECURITY HOLDERS.
        5   
ITEM 5.

      OTHER INFORMATION.
        5   ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.5
 
****
**PART I - FINANCIAL INFORMATION**

ITEM 1. FINANCIAL STATEMENTS****Back toTable of Contents

The Registrant's financialstatements for the three-month periods ended March 31, 2006 and 2005 are attached to thisquarterly report.

Financial Statements

ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION****Backto Table of Contents

Forward-Looking Statements; Market Data

As used in this Quarterly Report, the terms "we","us", "our" "AIII" and the "Company" meansAmerican International Industries, Inc., a Nevada corporation, and its subsidiaries. Tothe extent that we make any forward-looking statements in the "Management'sDiscussion and Analysis of Financial Condition and Results of Operations" in thisQuarterly Report, we emphasize that forward-looking statements involve risks anduncertainties and our actual results may differ materially from those expressed or impliedby our forward-looking statements. Our forward-looking statements in this Quarterly Reportreflect our current views about future events and are based on assumptions and are subjectto risks and uncertainties. Generally, forward-looking statements include phrases withwords such as "expect", "anticipate", "intend","plan", "believe", "seek", "estimate" and similarexpressions to identify forward-looking statements.
**Overview 

We are a holding company and have two reportable segments and corporateoverhead: (1) industrial/commercial and (2) oil and gas. The industrial/commercial segmentincludes: (1)  industrial/ commercial (a) Northeastern Plastics, Inc.("NPI") a wholly-owned subsidiary, which is a supplier of automotiveafter-market and consumer electrical products; and  b) through our 81.09% subsidiary,International American Technologies, Inc. ("IMTG), a publicly traded entity (f/k/aUnlimited Coatings Corporation), which entered into an agreement to acquire 51% ofHammonds Technical Services, Inc. ("Hammonds"), a manufacturer of watertreatment equipment, fuel injectors, fuel additives and Hammonds new omni directionalvehicle (ODV); and (2) the oil and gas related services segment owns an oil, gas andmineral royalty interest in Washington County, Texas, carried on the Company's books at$0, and Delta Seaboard Well Services, Inc. ("Delta"), which is engaged in theoil and gas drilling equipment and service business.

On February 28, 2005, IMTG, our 81.0% owned subsidiary, entered into anagreement to acquire 51% of Hammonds, which agreement closed in April, 2005. Hammonds isin the business of water treatment, fuel handling equipment for the military andindustrial customers, a provider of fuel injection services for the aviation industry andthe designer of a new omni directional vehicle for a wide variety of uses. The historicalfinancial statements of AIII include the acquisitions of acquired companies as of theeffective dates of the purchases and the results of those companies subsequent toacquisition, as these transactions were accounted for under the purchase method ofaccounting. The acquisitions of certain subsidiaries were accounted for using the purchasemethod of accounting, whereby the purchase price of the acquisition was allocated based onthe fair market value of the assets acquired and liabilities assumed. If the purchaseprice exceeded the net fair market value of the assets acquired, any remaining purchaseprice was allocated to goodwill. In addition, certain subsidiaries were accounted forusing the historical cost basis of the predecessor. 

The Company takes an active role in the subsidiary companies itacquires, in order to foster growth and profitability by providing its financial resourcesand management expertise. American International Industries has industrial/commercial andoil and gas assets and operations in and around the Houston, Texas area. Each of theseportfolio companies is expected to grow in its particular market or industry. By operatingas a holding company, we provide both financial assistance and professional businessexpertise and management services to our subsidiaries. Our role is to improve eachportfolio company's access to capital, help them benefit from the economies of scalethrough the consolidation of administrative functions, and provide management expertisefrom each company's corporate personnel.

We encounter substantial competition in each of our subsidiariesproduct and service areas. Such competition is expected to continue. Depending on theparticular market involved, our subsidiaries compete on a variety of factors, such asprice, quality, delivery, customer service, performance, product innovation and productrecognition. Other competitive factors for certain products include breadth of productline, research and development efforts and technical and managerial capability. 

Corporate overhead includes our investment activities includingfinancing current operations and expansion of our current holdings, as well as evaluatingthe feasibility of entering into additional businesses. Our discussion under "Resultsof Operations" and "Liquidity and Capital Resources" below is on aconsolidated basis. For reference to "Industry Segments". See Note 6 to theNotes to Consolidated Financial Statements under Item 1, Financial Statements above.Results of Operations - American International Industries, Inc. - Consolidated.
**Three Months Ended March 31, 2006 Compared to Three Months Ended March31, 2005.

Our revenues for the three months ended March 31, 2006 were $6,859,882,compared to revenues of $4,115,692 for the same three months of 2005, or an increase of66.7%. The increase is due to increased revenues of Delta, from $2,768,943 to $3,842,428or an increase of 38.8% and an increase in revenues of NPI, from $1,346,769 to $1,692,280or an increase of 25.7% and the addition of IMTG ("Hammonds") whose revenues forthe period ended March 31, 2006 were $1,325,169. The selling, general and administrativeexpenses during the three-month period ended March 31, 2006 were $3,132,519 compared to$1,166,566 for the three months ended March 31, 2005.

Our consolidated net loss for the three-month period ended March 31,2006 was $1,009,299, compared to consolidated net loss of $1,658,943 for the comparableperiod of the prior year.

NPI acquired the rights to market certain of its products under thename MOTOR TRENDTM and we believe that with the recent MOTOR TRENDTM marketingagreement, NPI's revenues should increase substantially during the remainder of fiscal2006. NPI recently was granted the license to use the Good Housekeeping Seal ofApprovalTM on certain of its electrical products and believes that this license shallalso improve its revenues during the 2006 fiscal year.
**Liquidity and Capital Resources

Total assets at March 31, 2006 were $29,808,836 compared to $30,163,349at December 31, 2005. Total liabilities at March 31, 2006 were $17,917,442, compared to$17,264,410 at December 31, 2005. At March 31, 2006, consolidated working capital was$4,027,338 as compared to working capital of $7,929,567 at December 31, 2005. Ourconsolidated cash position at March 31, 2006 was $2,135,807 compared to $2,709,105 atDecember 31, 2005.

For the three months ended March 31, 2006, we generated cash flow fromoperations of $47,890 compared to cash flow from operations of $400,014 during the sameperiod of the prior year. Our net loss of $1,009,299 was offset by non-cash compensationof $250,084, depreciation and amortization expenses of $143,665 and a minority interest inthe amount of $293,084. Our positive cash flow from operations was also attributable to adecrease in the value of our trading securities by $112,913 and a decrease in our accountsreceivable by $340,045 and an increase in accounts payable by $856,173.

Our investing activities used $302,021 during the three-month periodended March 31, 2006 compared to cash provided by investing activities during the sameperiod in the prior year in the amount of $223,318. We used cash in the amount of $307,659during the three months ended March 31, 2006 to purchase property and equipment.

Our financing activities during the three months ended March 31, 2006consisted mainly of repayment of borrowings from related parties in the amount of$873,761.

Our balance sheet reflects a real estate asset at its historical costof $225,000 due to GAAP accounting rules applicable to the fact that it was acquired froma related party. The Company believes that the current value of this real estate issignificantly higher than the historic cost basis of this property.
**ITEM 3. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As ofMarch 31, 2006, the Company's chief executive officer and chief financial officerconducted an evaluation regarding the effectiveness of the Company's disclosure controlsand procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the  Exchange Act.Based upon the evaluation of these controls and procedures, our chief executive officerand chief financial officer concluded that our disclosure controls and procedures wereeffective as of the end of the period covered by this report.
Changes in internal controls. During the quarterly period covered bythis report, the Company made changes in our internal control over financial reorting inorder to improve such internal controls over financial reporting. Specifically, theCompany has hired a qualified consultant with accounting and auditing experience toperform an internal audit function and the Company has hired a full time CFO to overseefinancial and accounting transactions financial reporting and disclosure.

**PART II - OTHER INFORMATION**

ITEM 1. LEGAL PROCEEDINGS****Back toTable of Contents

The Registrant'sofficers and directors are not aware of any threatened or pending litigation to which theRegistrant is a party or which any of its property is the subject and which would have anymaterial, adverse effect on the Registrant.

ITEM 2. CHANGES IN SECURITIES****Back to Tableof Contents

None.

ITEM 3. DEFAULTS UPON SENIORSECURITIES****Back to Table of Contents

None.

ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS****Back toTable of Contents

None.

ITEM 5. OTHER INFORMATION****Back toTable of Contents

None.

ITEM6. EXHIBITS AND REPORTS ON FORM 8-K****Back to Table of Contents

(a) The following documents are filed as exhibits tothis report on Form 10-QSB or incorporated by reference herein. Any document incorporatedby reference is identified by a parenthetical reference to the SEC filing that includedsuch document.
**Exhibit    No.**
**Description**31.1Certification of Chief    Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the    Sarbanes-Oxley Act of 200231.2
Certification    of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 200232.1Certification of Chief    Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the    Sarbanes-Oxley Act of 200232.2Certification of Chief    Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K During the Period Covered by this Report:

The Registrant has not filed a Form 8-K during the period ended March31, 2006.

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and on the dateindicated.

/s/ DANIEL DROR   CEO, PRESIDENT AND CHAIRMAN   *Dated: May 22, 2006*

/s/ GARY D. WOERZ   CHIEF FINANCIAL OFFICER   *Dated: May 22, 2006*

 

**FinancialStatements**Back to Table of Contents
Consolidated    Financial Statements   Balance Sheets - March  31, 2006 and December 31,    2005 (Audited)8   Statements of Operations - Three months    ended March 31, 2006 and 20059   Statement of Cash Flows - Three months ended    March 31, 2006 and 200510Notes to Consolidated Financial Statements11
 
**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance SheetsBack to Table of Contents
March 31, 2006    and December 31, 2005   
**2006**
**2005**
(audited)
AssetsCurrent assets:   Cash and cash    equivalents
$
2,135,807 
$
2,709,105    Certificate of deposit
2,000,000 
2,000,000    Trading securities
942,936 
1,061,259    Accounts receivable,    less allowance for doubtful accounts of      $299,732    in 2006 and $322,365 in 2005
4,803,854 
5,143,899    Current portion of    notes receivable
- 
249,096    Accounts receivable    from related parties
- 
95,001    Inventories net of a    reserve of $558,975
5,248,242 
4,689,399    Inventory of real    estate acquired for resale
225,000 
225,000    Drilling rigs held for    sale
325,753 
325,753    Prepaid expenses and    other current assets
444,177 
195,290      Total    current assets
16,125,769 
16,693,802   Notes receivable, less current    portion
3,958,049 
3,868,686Property and equipment, net of    accumulated    depreciation and    amortization
6,504,255 
6,293,674Goodwill
674,539 
674,539Patents and trademarks, net of    amortization   of $249,853 at March    31, 2006 and $188,224 at December 31, 2005
2,463,658 
2,536,263Other assets
82,566 
96,385      Total    assets
$
29,808,836 
$
30,163,349    
Liabilities and    Stockholders’ Equity   Current liabilities:   Accounts payable and    accrued expenses
$
4,249,635 
$
3,793,462    Short-term notes    payable
7,129,058 
4,257,469    Margin loans
406,949 
406,949    Loans due to related    parties
- 
-    Current installments    of long-term debt 
312,789 
306,355      Total    current liabilities 
12,098,431 
8,764,235   Long-term debt, less current    installments
3,417,958 
6,393,206 Deferred tax liability
503,200 
503,200 Minority interest
1,897,853 
1,603,769      Total    liabilities
17,917,442 
17,264,410   Stockholders' equity:   Preferred stock, $.001    par value. Authorized 1,000,000 shares:     none    issued.
-
-   Common stock, $.001    par value. Authorized 10,000,000 shares:     4,347,510    shares issued and 4,347,510 shares outstanding     at March    31,2006, 2,910,329 shares issued and     2,910,329    shares outstanding at December 31, 2005
6,073 
4,319    Additional paid-in    capital 
28,389,591 
28,389,591    Accumulated deficit
(16,456,739)
(15,447,440)  
11,938,925 
12,946,470    Less treasury stock,    at cost (5,400 shares)
(47,531)
(47,531)     Total    stockholders' equity
11,891,394 
12,898,939            Total    liabilities and stockholders' equity 
$
29,808,836 
$
30,163,349   See accompanying notes to    consolidated financial statements.**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of OperationsBack to Table of Contents
Three months    ended March 31, 2006 and 2005  
**2006**
**2005**Revenues 
$
6,859,882 
$
4,115,692    Costs and expenses:      Cost of    sales 
4,316,213 
2,427,835      Selling,    general and administrative 
3,132,519 
1,166,566           Total operating expenses 
7,448,732 
3,594,401              Operating loss 
(588,850)
521,291    Other income (expenses):    Interest income    (expense) 
(55,452)
72,007    Realized gains    (losses) on marketable trading securities 
11,700    Unrealized losses on    marketable trading securities 
5,410 
(2,006,432)   Interest expense 
98,382 
(62,821)   Other income 
79,025 
-           Total other income (expenses) 
127,365 
(1,985,546)             Net income (loss) from operations before            income taxes and minority interest 
(716,215)
(1,464,225)  Provision for income taxes 
-
-       Minority Interest 
(293,084)
(145,968)     Net Loss 
(1,009,299)
(1,610,193)   Preferred Dividends    Paid 
- 
(48,750)      Net income (loss)    applicable to common shareholders 
$
(1,009,299)
$
(1,658,943)   Net income (loss) applicable to    common shareholders:    Basic 
$
(0.23)
$
(0.57)   Diluted 
$
(0.29)
$
(0.50)    Weighted average common shares:    Basic 
4,347,510 
2,920,325    Diluted 
3,511,252 
3,319,325    See accompanying notes to    consolidated financial statements. **AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash FlowsBack to Table of Contents
Three months    ended March 31, 2006 and 2005
(Unaudited –    see accompanying accountants’ review report)   
**2006**
**2,005**Cash flows from operating    activities: 
$ 
(1,009,299)
$ 
(1,610,193)   Net loss    Adjustments to    reconcile net loss to net cash provided by      (used in)    operating activities:         Depreciation and amortization 
143,665 
20,328      Common    stock issued for services 
250,704 
113,450      Realized    gain on trading securities 
- 
(11,700)     Unrealized    losses on trading securities 
5,410 
2,018,132      Minority    interest 
293,084 
194,688    (Increase) decrease in    operating assets:      Trading    securities 
112,913 
788,461      Accounts    receivable 
340,045 
697,640         Inventories 
(558,843)
(2,044,641)     Prepaid    expenses and other current assets 
269
(221,896)     Other    assets 
13,829 
(20,213)   Increase (decrease) in    operating liabilities:      Accounts    payable and accrued expenses 
456,173 
475,958           Net cash provided by (used in) operating activities 
47,890 
400,014   Cash flows from investing    activities:    Purchase of property    and equipment 
(307,659)
(1,684)   Proceeds from sale of    assets 
- 
118,862    Redemption of    certificate of deposit 
- 
300,000    Accounts receivable    from related parties 
95,001 
11,575    Long-term notes    receivable 
(89,363)
(205,435)          Net cash provided by (used in) investing activities 
(302,021)
223,318 Cash flows from financing    activities:    Net borrowing    (repayments) under line of credit agreements 
- 
100,000    Proceeds from    long-term debt 
- 
40,422    Proceeds from    borrowing from related parties 
(873,761)
-    Principal payments on    long-term debt 
96,330 
(10,219)   Repayment of    short-term borrowings to related party 
- 
(584,276)   Payment of dividends    on preferred stock 
- 
(48,750)          Net cash provided by (used in) financing activities 
(777,431)
(502,823)            Net increase (decrease) in cash 
(1,031,562)
120,509   Cash at beginning of year 
4,709,105 
5,079,873 Cash at end of period 
$ 
3,677,543 
$ 
5,200,382   Supplemental schedule of cash flow    information:    Interest paid 
$ 
91,249 
$ 
62,821   See accompanying notes to    consolidated financial statements. 
**American International Industries, Inc.**Back toTable of Contents****Notes to ConsolidatedFinancial Statements

**(1) General**

American International Industries, Inc. (the "Company" or"AIII"), operates as a diversified holding company with a number of wholly-ownedsubsidiaries and two majority-owned subsidiary.

Principles of Consolidation

The consolidated financial statements include the accounts of theCompany and its wholly-owned subsidiaries: Northeastern Plastics, Inc., and Brenham Oil& Gas, Inc., and its majority owned subsidiaries, Delta Seaboard Well Services, Inc.and International American Technologies, Inc. All significant intercompany transactionsand balances have been eliminated in consolidation.

The accompanying unaudited financial statements have been prepared inaccordance with U. S. generally accepted accounting principles ("GAAP") forinterim financial information and with the instructions to Form 10-QSB. Accordingly, theydo not include all of the information and footnotes required by GAAP for completefinancial statements. In the opinion of management, all adjustments (consisting of normalrecurring adjustments) considered necessary for a fair presentation have been included.Operating results for the three months period ended March 31, 2006 are not indicative ofthe results that may be expected for the year ending December 31, 2006.

As contemplated by the Securities and Exchange Commission (SEC) underRules of Regulation S-B, the accompanying financial statements and related footnotes havebeen condensed and do not contain certain information that will be included in theCompany's annual financial statements and footnotes thereto. For further information,refer to the Company's audited consolidated financial statements and related footnotesthereto included in the Company's annual report on Form 10-KSB for the year ended December31, 2005.

**(2) Use of Estimates**

The preparation of financial statements in conformity with U. S. GAAPrequires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses during thereporting period. Actual results could vary from those estimates.

**(3) Recent Accounting Pronouncements**

In December 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 153. This statement addresses themeasurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, *"Accountingfor Nonmonetary Transactions,"* is based on the principle that exchanges ofnonmonetary assets should be measured based on the fair value of the assets exchanged.

The guidance in that opinion; however, included certain exceptions tothat principle. This statement amends Opinion 29 to eliminate the exception fornonmonetary exchanges of similar productive assets and replaces it with a generalexception for exchanges of nonmonetary assets that do not have commercial substance. Anonmonetary exchange has commercial substance if the future cash flows of the entity areexpected to change significantly as a result of the exchange. This statement is effectivefor financial statements for fiscal years beginning after June 15, 2005. Earlierapplication is permitted for nonmonetary asset exchanges incurred during fiscal yearsbeginning after the date of this statement is issued. Management believes the adoption ofthis statement will have no impact on the financial statements of the Company.

In December 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 152, which amends FASB statement No. 66, *"Accountingfor Sales of Real Estate,"* to reference the financial accounting and reportingguidance for real estate time-sharing transactions that is provided in AICPA Statement ofPosition (SOP) 04-2, *"Accounting for Real Estate Time-Sharing Transactions."*This statement also amends FASB Statement No. 67, *"Accounting for Costs andInitial Rental Operations of Real Estate Projects,"* to state that the guidancefor (a) incidental operations and (b) costs incurred to sell real estate projects does notapply to real estate time-sharing transactions. The accounting for those operations andcosts is subject to the guidance in SOP 04-2. This statement is effective for financialstatements for fiscal years beginning after June 15, 2005. Management believes theadoption of this statement will have no impact on the financial statements of the Company.

In November 2004, the Financial Accounting Standards Board (FASB)issued Statement of Financial Accounting Standards No. 151, *"Inventory Costs—an amendment of ARB No. 43, Chapter 4."* This statement amends the guidance in ARBNo. 43, Chapter 4, *"Inventory Pricing,"* to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs, and wasted material(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that *"under somecircumstances, items such as idle facility expense, excessive spoilage, double freight,and rehandling costs may be so abnormal as to require treatment as current periodcharges."* This statement requires that those items be recognized ascurrent-period charges regardless of whether they meet the criterion of *"soabnormal."* In addition, this statement requires that allocation of fixedproduction overheads to the costs of conversion be based on the normal capacity of theproduction facilities. This statement is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. Management does not believe the adoption ofthis statement will have any immediate material impact on the Company.

**(4) Income Taxes**

Income taxes for the interim periods were computed using the effectivetax rate estimated to be applicable for the full fiscal year, which is subject to ongoingreview and evaluation by management. The estimated federal income tax expense for thethree-month periods ended March 31, 2006 and 2005 is eliminated by net operating losscarry forwards.

**(5) Employee Stock-Based Compensation**

The Company accounts for its employee stock options under theAccounting Principles Board Opinion No. 25, "*Accounting for Stock Issued toEmployees*," and related interpretations. No stock-based employee compensationcost is reflected in net income (loss), as all employee options granted has an exerciseprice equal to the market value of the underlying common stock on the date of grant.

The Company also grants options to non-employees for goods and servicesand in conjunction with certain agreements. These grants are accounted for under FASBStatement No. 123, "*Accounting for Stock-Based Compensation*" based on thegrant date fair values.

The following table illustrates the effect on net earnings (loss) andearnings (loss) per share if the Company had applied the fair value recognition provisionsof FASB Statement No. 123 to stock-based employee compensation.

Three months ended

**March 31, 2006**
**March 31, 2005**
Net earnings (loss) as    reported
$
(1,009,299)
$
(1,658,943)
Deduct: Total stock-based    employee compensation    (expense determined under the    fair value method for all awards), net of tax effect
Pro forma net earnings    (loss)
(1,009,299)
(1,658,943)
Earnings (loss) per share:
   Basic net    earnings (loss) per share – as reported
(0.23)
(0.57)
   Basic net    earnings (loss) per share – pro forma
(0.29)
(0.50)
The above pro forma effects on net earnings (loss) and net earnings(loss) per share are not like to be representative of the effects on reported net earnings(loss) for future years because options vest over several years and additional awardscould be made each year. At March 31, 2006, there were no options available to employees.

**(6) Industry Segments**

The Company has three reportable segments and corporate overhead:industrial/commercial, oil and gas, and real estate. The industrial/commercial segmentincludes (1) a supplier of automotive after-market products and (2) a holding company forfuture commercial ventures. The real estate segment includes sales of commercial realestate (undeveloped land). The oil and gas segment owns an oil, gas and mineral royaltyinterest in Washington County, Texas and an onshore rig-based well servicing contractingcompany providing service to the oil and gas industry. The corporate overhead includes theCompany's investment holdings including financing current operations and expansion of itscurrent holdings as well as evaluating the feasibility of entering into additionalbusinesses.

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

Consolidated revenues, net operating losses for the three months endedMarch 31, 2006 and 2005, and identifiable assets as of March 31, 2006 and 2005, were asfollows:

**2006**
**2005**
Revenues:
      Industrial/Commercial
$
3,017,453
$
1,346,749
      Real estate
-
-
   Oil    and gas
3,842,429
2,768,943  
$
6,859,882
$
4,115,692
Operating income    (loss):
      Industrial/Commercial
(651,710)
(63,200)
      Real estate
-
-
   Oil    and gas
603,542
715,363
      Corporate
(540,682)
(330,872)  
$
(588,850)
$
321,291
Identifiable    assets:
      Industrial/Commercial
$
9,470,664
$
9,267,371
      Real estate
-
-
   Oil    and gas
7,623,640
6,667,284
      Corporate
14,849,141
14,228,694
$
29,808,826
$
30,163,349
The Company's areas of operations are in the United States.************** |