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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 thequarterly period ended March 31, 2005**

 

**OR**

 

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

 

**For thetransition period from               to              **

 

**Commission file number 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 90days. Yes  [X]  No [  ]At March 31, 2005, the Registrant had 2,925,325 shares of common stock outstanding.

 

**TABLE OF CONTENTS**
Item    Description    Page
**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.
        5   
**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.6****
**PART I - FINANCIAL INFORMATION**

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

The Registrant's financialstatements for the three-month periods ended March 31, 2005 and 2004 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 

American International Industries, Inc., a Nevada corporation, beganconducting its current operations in September 1996, when it made its first acquisition.The Company’s business model calls for it to periodically acquire businesses invarious industries, support the development and growth of those subsidiaries, and asopportunities present themselves from time to time to sell or merge those subsidiaries orassets in order to bring value to the holding company and its shareholders. The Company issometimes referred to as we, us, our, and other such phrases as provided in Regulation F-D(Fair Disclosure). We are a holding company and operate the following wholly-owned andpartially-owned subsidiaries: 
**Delta Seaboard Well    Service, Inc.** ("Delta"),****an onshore rig-based well    servicing contractor providing service to the oil and gas industry. We own 51% of the    common stock of Delta.**Northeastern Plastics, Inc**.    ("NPI") a supplier of automotive after-market products and consumer durables. We    own 100% of the common stock of NPI.**Brenham Oil & Gas, Inc.**("Brenham")    a company that owns oil and gas royalty interest. We own 100% of the common stock of    Brenham.**International American    Technologies, Inc.** ("IMTG"), a publicly traded entity (f/k/a Unlimited    Coatings Corporation). On February 28, 2005, IMTG entered into an agreement to acquire 51%    of Hammonds Technical Services, Inc. The agreement was closed in  April 2005.    Hammonds is in the business of water treatment, fuel handling equipment for military and    industrial customers, a provider of fuel injection services for the aviation industry, and    designer of a new omni directional vehicle for a wide variety of uses. We own 82.7% of the    common stock of IMTG. 
Our long-term strategy is to expand the operations of each of oursubsidiaries in their respective fields. AMIN provides managerial and financial support toour subsidiaries. As part of our business model, we also explore mergers, acquisitions anddisposition of businesses and assets from time to time, based upon the reasonablediscretion of management and the value added of each potential transaction. 

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. 

The historical financial statements of AIII include the acquisitions ofacquired companies as of the effective dates of the purchases and the results of thosecompanies subsequent to acquisition, as these transactions were accounted for under thepurchase method of accounting. The acquisitions of certain subsidiaries were accounted forusing the purchase method of accounting, whereby the purchase price of the acquisition wasallocated based on the fair market value of the assets acquired and liabilities assumed.If the purchase price exceeded the net fair market value of the assets acquired, anyremaining purchase price was allocated to goodwill. In addition, certain subsidiaries wereaccounted for using the historical cost basis of the predecessor. Reference is made to ourAnnual Reports on Form 10-KSB for our year ended December 31, 2004 for a full discussionof our business and subsidiaries under "Description of Business" and Note 2,"Acquisitions and Divestitures" of the Notes to Consolidated FinancialStatements.

During the period ended March 31, 2005, we had two reportable segmentsand corporate overhead: industrial/commercial and oil and gas. Due to the sale of the realestate division we no longer have the real estate as a reportable segment. Theindustrial/commercial segment includes: (1) a supplier of automotive after-market andconsumer electrical products, and (2) the oil and gas segment owns an oil, gas and mineralroyalty interest in Washington County, Texas and Delta Seaboard Well Services. 

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 4 to theNotes to Consolidated Financial Statements under Item 1, Financial Statements above.Results of Operations - American International Industries, Inc. - Consolidated.

The following defined terms are used in this Quarterly Report:Northeastern Plastics, Inc. (NPI), Brenham Oil & Gas, Inc. (Brenham), Delta SeaboardWell Service, Inc. (Delta) and International American Technologies, Inc., formerly knownas Unlimited Coatings Corporation.
**Three Months Ended March 31, 2005 Compared to Three Months Ended March31, 2004.**
Our revenues for the three months ended March 31, 2005 were $4,115,692,compared to revenues of $2,861,084 for the same three months of 2004, or an increase of43.9%. The increase is due to increased revenues of Delta, from $2,119,109 to $2,768,943or an increase of 30.8% and an increase in revenues of NPI, from $741,975 to $1,346,749 oran increase of 81.5%. The selling, general and administrative expenses during thethree-month period ended March 31, 2005 were $1,366,566 compared to $1,977,847 for thethree months ended March 31, 2004 or a decrease in SG&A of 30.9%.

Our consolidated net loss for the three-month period ended March 31,2005 was $1,760,943, compared to consolidated net loss of $281,793 for the comparableperiod of the prior year. Excluding an unrealizes loss oninvestments of $2,006,432, the Company would have reported consolidated net income of$245,489 during the three-month period ended March 31, 2005, compared to a consolidatednet loss of $281,793 for the same period of the prior year. The unrealized loss oninvestments in marketable securities was related to the decline in price of the shares ofcommon stock of Orion Healthcorp, Inc. (AMEX:ONH), which the Company received upon theconversion of a series of preferred stock. The market price of the ONH shares hasfluctuated significantly and the Company has not sold any of the ONH shares that it holds.If the market price of the ONH shares increases, the Company will adjust the unrealizedloss.  

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 fiscal2005. 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 2005 fiscal year.
**Liquidity and Capital Resources**
Total assets at March 31, 2005 were $21,522,848 compared to $22,745,845at December 31, 2004. Total liabilities at March 31, 2005 were $7,377,694 compared to$6,904,448 at December 31, 2004. At September 30, 2004 consolidated working capital was$10,652,216 as compared to working capital of $12,065,215 at December 31, 2004. Ourconsolidated cash position at March 31, 2005 was $5,200,382 compared to $5,079,873 atDecember 31, 2004.

For the three months ended March 31, 2005, we generated cash flow fromoperations of $420,077 compared to a negative cash flow from operations of $644,463 duringthe same period of the prior year. Our net loss of $1,760,943 was offset by an unrealizedloss on marketable securities, non-cash compensation of $123,450 and a minority interestin the amount of $96,688. Our investing activities provided $203,255 for the three-monthperiod ended March 31, 2005 compared to cash used for investing activities during the sameperiod in the prior year. The cash provided by investing activities during the threemonths ended March 31, 2005 was the result of the sale of certain assets and theredemption of a certificate of deposit offset by payments to related parties. We had anegative cash flow of $502,823 in our financing activities during the three months endedMarch 31, 2005 attributable to repayments of debt in the amount of $584,276. During thethree months ended March 31, 2004, our financing activities provided $338,734, principallyfrom a borrowing from related parties in the amount of $448,349. 

Our balance sheet reflects a real estate asset at itshistorical cost of $225,000 due to GAAP accounting rules applicable to the fact that itwas acquired from a related party. The Company believes that the current value of thisreal estate is significantly higher than the historic cost basis of this property.

**ITEM 3. CONTROLS AND PROCEDURES**Back toTable of Contents
*Evaluation of disclosure controls and procedures.As of March 31, 2005, the Company's chief executive officerand chief financial officer conducted an evaluation regarding the effectiveness of theCompany's disclosure controls and 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 officer and chief financial officer concluded that our disclosurecontrols and procedures were effective as of the end of the period covered by this report.*Changes in internal controls*. Duringthe quarterly period covered by this report, no changes occurred in our internal controlover financial reporting that materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

**PART II - OTHER INFORMATION**

**ITEM 1. LEGALPROCEEDINGS**Back to Table of Contents

The Registrant's officers and directorsare not aware of any threatened or pending litigation to which the Registrant is a party.

**ITEM 2.CHANGES IN SECURITIES**Back to Table of Contents

None.

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

None.

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**Back to Tableof Contents

None.

**ITEM5. OTHER INFORMATION**Back to Table of Contents

None.

**ITEM 6. EXHIBITS AND REPORTS ONFORM 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 Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 200232.1Certification of Chief    Financial 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 March 31, 2005.

**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 13, 2005*/s/ GARY D. WOERZ   CHIEF FINANCIAL OFFICER   *Dated: May 13, 2005*

**FinancialStatements**Back to Table of Contents
Consolidated    Financial Statements   Balance Sheets-March 31, 2005 and December 31, 2004    (Audited)7   Statement of Operations - Three months    ended March 31, 2005 and 20048   Statement of Cash Flows - Thre months ended    March 31, 2005 and 20049Notes    to Consolidated Financial Statements10
 
**AMERICAN    INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES**Consolidated Balance SheetsBack to    Table of ContentsMarch 31, 2005    (Unaudited) and December 31, 2004   March 31, 2005
2004
AssetsCurrent assets:
      Cash and cash equivalents
$5,200,382
$
5,079,873   Certificate of    deposit-300,000   Trading securities887,7223,874,500   Accounts    receivable, less allowance for doubtful accounts of          $81,162 at March 31, 2005 and December 31, 20042,314,7583,012,398   Accounts    receivable from related parties251,72811,575   Inventories3,280,3841,235,743   Real estate    held-for sale225,000225,000   Drilling rigs held    for sale1,230,6471,230,647   Prepaid expenses    and other current assets878,557358,853        **Total current assets**14,269,17815,328,589   Note receivable4,298,2174,324,447Property and equipment, net of    accumulated   depreciation and    amortization2,269,2742,406,780Excess of cost over net assets    of businesses acquired, less accumulated   amortization of    $205,295 in 2004 and 2003674,539674,539Other assets11,64011,490          **Total assets**$21,522,848$22,745,845
Liabilities    and Stockholders' Equity  Current liabilities:   Accounts payable    and accrued expenses$2,699,701$1,889,070   Short-term notes    payable709,300609,300   Short-term loans    to related parties100,378684,654   Current    installments of long-term debt100,58180,350        Total current liabilities3,609,9603,263,374Long-term debt, less current    installments1,708,4761,698,504Minority interest2,059,2581,942,570        **Total liabilities**7,377,6946,904,448  Stockholders' equity:   Preferred stock,    $.001par value.         Authorized 1,000,000 shares: Series A, 5% cumulative, redeemable and         convertible, 390,000 shares issued and outstanding at December 31, 2004 and        400,000 shares issued and outstanding at December 31, 2003.390390   Common stock,    $.001 par value. Authorized 10,000,000 shares:         2,927,845 shares issued and 2,925,325 shares outstanding at March 31, 2005,        2,907,845 shares issued and 2,905,325 shares outstanding at December 31, 20042,9252,905   Additional paid-in    capital26,321,45026,208,020   Accumulated    deficit(12,145,583)(10,335,890)  14,179,18215,875,425   Less treasury    stock, at cost (2,520 shares)(34,028)(34,028)     Total    stockholders' equity14,145,15415,841,397        **Total liabilities and stockholders' equity**
$21,522,848$22,745,845See accompanying    notes to consolidated financial statements**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES**Consolidated Statements of OperationsBack to    Table of ContentsThree    months ended March 31, 2005 and 2004 (Unaudited)   
2005
2004Revenues 
$
4,115,692
$
2,861,084Costs and expenses:    Cost of sales 
2,427,835
1,075,775   Selling, general    and administrative 
1,366,566
1,977,847     Total    operating expenses 
3,794,401
3,053,622   Operating income (loss) 
321,291
(192,538)   Other income (expenses):    Interest income 
72,007
22,432   Realized gain on    sale of investments11,700
37,500   Unrealized losses    on investments(2,006,432)
-   Interest expense
(62,821)
(80,859)     Total    other income (expenses)(1,985,546)
(20,927)        Net    loss before income tax(1,664,225)
(213,465)Provision for income taxes-
-     Net    loss from operations before minority interest(1,664,225)
$
(213,465)  Minority interest(96,688)(68,328)            Net loss$(1,760,943)$(281,793)   Net income (loss) applicable to    common shareholders:     Basic 
$
(0.60)
$
(0.11)         Diluted$(0.53)$(0.09)  Weighted average common shares:    Basic2,920,325
2,655,382        Diluted3,319,325
3,055,382See accompanying    notes to consolidated financial statements**AMERICAN INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES**Consolidated Statements of Cash FlowsBack to    Table of ContentsThree    months ended March 31, 2005 and 2004(Unaudited)   
2005
2004Cash flows    from operating activities:    Net loss
$(1,760,943)
$
(281,793)   Adjustments to    reconcile net loss     to net    cash provided by (used in) operating activities:           Depreciation and amortization 20,328
30,302          Common stock issued for services 123,450
267,390          Realized gain on trading securities(11,700)
-          Unrealized losses on trading securities2,018,132
-          Minority interest96,68868,328          (Increase) decrease of operating assets:              Trading securities980,346
-             Accounts receivable 697,640
(288,273)             Inventories (2,044,641)
(371,068)             Prepaid expenses and other current assets(519,704)
148,506             Other assets (150)
(150)          Increase (decrease) in operating liabilities:             Accounts payable and accrued expenses820,631(217,705)                Net cash provided by (used in) operating activities 420,077
(644,463)  Cash flows from investing    activities:    Purchase of    property and equipment(1,684)
(88,034)   Proceeds from sale    of assets118,862
-   Redemption of    certificate of deposit300,000
-   Accounts    receivable from related parties(240,153)
20,400   Long-term notes    receivable26,230
3,885               Net cash provided by (used in) investing activities 
203,255
(63,749)   Cash flows from financing    activities:    Net borrowing    (repayments) under line of credit agreements
100,000
(52,000)   Proceeds from    long-term debt40,42249,552   Proceeds from    borrowing from related parties
-
448,349   Principal payments    on long-term debt(10,219)(7,167)   Repayment of    short-term borrowings to related party(584,276)-   Payment of    dividends on preferred stock(48,750)
(100,000)               Net cash provided by (used in) financing activities (502,823)
338,734                 Net increase (decrease) in cash 120,509
(369,478)Cash at beginning of year5,079,873
944,233Cash at end    of period
$5,200,382
$
574,755   Supplemental schedule of cash    flow information:    Interest paid 
$
62,821
$
80,859
**AmericanInternational Industries, Inc.**Back to Table of Contents****Notes to Consolidated Financial Statements
**(1) General

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

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, 2005 are not indicative ofthe results that may be expected for the year ending December 31, 2005.

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, 2004.
**(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, 2005 and 2004 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) and earnings (loss)per share if the Company had applied the fair value recognition provisions of FASBStatement No. 123 to stock-based employee compensation.

**Three months ended, Nine months ended**

**Three months ended**
**March    31, 2005**
**March 31, 2004**
Net earnings    (loss) as reported
$
(1,760,943)
$
(281,793)Deduct: Total stock-based employee    compensation (expense determined
under the fair    value method for all awards), net of tax effect
(152,595)
(295,965)
Pro forma net    earnings (loss)
(1,913,538)
(577,758)
Earnings (loss)    per share:
Basic net    earnings (loss) per share - as reported
(0.60)
(0.11)
Basic net    earnings (loss) per share - pro forma
(0.66)
(0.22)
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.
**(7) 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. TheCompany's areas of operations are in the United States.

Consolidated revenues, net operating losses for the three months ended March 31, 2005and 2005, and identifiable assets as of March 31, 2005 and 2004, were as follows:
**2005****2004**Revenues:$$   Industrial/Commercial1,346,749741,975   Real estate--   Oil and gas2,768,9432,119,109$4,115,692$2,861,084Operating income (loss):   Industrial/Commercial$(63,200)$(21,774)   Real estate-(482)   Oil and gas715,363262,400   Corporate(330,291)(432,682)$321,291$(192,538)Identifiable assets:   Industrial/commercial$5,267,371$3,831,486   Real estate5,428,6005,517,970   Oil and gas6,026,7835,542,367   Corporate4,800,0945,705,347$21,522,848$20,597,170*********** |
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