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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                               Amendment No. 1 to
                                  FORM 10-KSB/A


                 Annual Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 2005

                        COMMISSION FILE NUMBER: 33-3362-D

                                  MIGAMI, INC.
                             ---------------------
                 (Name of small business issuer in its charter)

       State of Nevada                                            87-0431043
 (State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                                 Identification #)


              3701 Wilshire Blvd, Suite 506, Los Angeles, CA 90010
              ----------------------------------------------------
              (Address of principal executive offices and zip code)

                    Issuer's telephone number: (213) 739-1700

         Securities registered under Section 12 (g) of the Exchange Act:
                                      None


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

State issuer's revenues for its most recent fiscal year: $112,976

The aggregate market value of the voting stock held by non-affiliates of the
registrant on December 31, 2005, was $3,168, 469 based on the closing stock
price on that date.

The number of shares outstanding of the registrant's common stock on December
31, 2005, was 63,369,376 shares.


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PART I

ITEM 1. DESCRIPTION OF BUSINESS

The Company was incorporated under the laws of the State of Nevada on February
4, 1986, under the name of Covington Capital Corporation. In 1986, the Company
filed an S-18 and registered certain stock. From 1989 through 1993, the Company
underwent a series of name changes in order to explore various business
opportunities. However, none of the business opportunities was successfully
completed.

In April, 1995, under the name Investment and Consulting International, Inc.,
the Company acquired a patent for a proprietary device designed to neutralize
nitrogen oxide automobile emissions from a separate Company which was then known
as KleenAir Systems, Inc. Simultaneously with the acquisition of the patent, the
Company acquired the right to use the corporate name "KleenAir Systems, Inc.,"
and changed to its current name.

Since acquiring the patent in 1995, the Company has been a developmental stage
company and has worked towards the completion of the development and testing of
the NOxMaster(TM) technology. The Company owns U.S. Patent #5,224,346, Engine
NOx Reduction System, issued in 1993, U.S. Patent #5,609,026 Engine NOx
Reduction System issued in 1997. In 1999 the Company was issued a third patent
on Ammonia Injection in NOx Control, U.S. Patent #5,992,141. The Company has
applied for and maintained patent protection under the Patent Cooperation Treaty
(PCT) to protect its intellectual property in a variety of countries that are
significant producers of automotive products.

The Company has applied for additional patents related to its NOxMaster(TM)
technology. In September 2002, U.S. patent # 6,446,940 B1 was issued for the
Sonic Flow Carburetor, a new emission control device that atomizes fuel in
gasoline powered engines. This process enhances operating efficiency and reduces
emissions. Another patent, U.S. # 6,499,463 B1 was issued in December 2002 for a
Diesel Fuel Atomizer. This device facilitates improved diesel combustion, lower
fuel use, and lower emissions of particulates and CO2.

An additional patent was issued in February 2005, being U.S. Patent # 6,852,292.
This patent covers the use of aqueous ammonia, which is ammonia dissolved in
water, and which is typically used as household or industrial cleaner. When
injected into the exhaust, this liquid solution reduces NOx in the same manner
as anhydrous ammonia (a gas), the catalyst in the previous NOxMaster(TM)
versions.

Patent awards have now been confirmed for several European countries including
the U.K., Germany, France, Italy, Spain and Sweden, and are anticipated soon for
Japan, Brazil, and China.

All of these patents were sold in August 2005 to KleenAir Systems International
plc (KSIP), London, England in exchange for a cash payment of $180,000 and a
royalty of 8% of gross sales for the life of the patents. KSIP is a related
party of KleenAir Systems Inc, which owns 23% of the common stock of KSIP.

In April 2005, the Company leased a 2,000 square foot R & D and office facility
at 27121 Aliso Creek Rd., Suite 120, Aliso Viejo, CA 92656. In 2002 the Company
acquired a new chassis dynamometer in addition to its engine dynamometer to cope
with increasing levels of R & D engine and device testing programs as it
prepares for commercializing its technology. This equipment was relocated to
Dinex Exhausts Inc. in the City of Industry, CA.

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In 2003, the Company successfully completed the final phase of its London Taxi
Program funded by a U.K. government grant. This in-service test, involving
several London taxicabs, started in January 2002. The Company has been notified
that it's NOxMaster(TM) system has been approved for the Cleanup Register making
it eligible for U.K. governmental retrofit subsidies. There are approximately
40,000 such taxicabs in service that represent the potential market opportunity
should the system be endorsed as the preferred retrofit product.

The Public Carriage Office (PCO) has mandated the retrofit upgrade of some
17,500 out of the current fleet of approximately 22,000 taxicabs in London.
These taxicabs will be required to upgrade to a Euro 3 level (the emissions
level currently required of new cabs) during the period between July 1, 2006 and
June 2008. The same system being placed on the cabs can also be adapted as a
retrofit or OEM product for general diesel-powered passenger vehicles, which
represents approximately 45% of the registered and new vehicle market in Europe.

Installation of test systems consisting of a combination of KleenAir System's
SCR and Dinex's particulate reduction (DPF) products has resulted in the
creation of a new device category by the Energy Savings Trust (EST) called SCRF,
the combination of Selective Catalytic Reduction and a Filter. This category
receives the Trust's highest level of subsidy. KleenAir's NOxMaster(TM) System
has also been approved for light, medium and heavy duty applications including
taxicabs, delivery vans, shuttle buses, single and double-decker large buses,
refuse collection vehicles, and trucks. The Company's strategic partner, Dinex,
has been asked by the Energy Savings Trust to retrofit 20 test vehicles during
the summer of 2005 for a 6 month trial program of its latest combination SCRF
system for reduction of both NOx and Particulates. The NOxMaster(TM) is an
integral part of this combination system.

These approvals open a broad spectrum of potential applications covering a
retrofit market opportunity of several hundred thousand vehicles in the U.K.
alone. They also set precedents and demonstration opportunities leading to
similar applications in other European countries. For example, in Denmark
several buses in Copenhagen have had KleenAir Systems successfully installed and
tested.

During 2004 a number of additional tests were conducted of a combination of
KleenAir's NOxMaster(TM) System and Adastra's Optimax-DPF fuel borne catalyst
system for particulate reduction. Adastra, an Octel (NYSE) company in the U.K.,
has already had its DPF system approved by the EST for a number of vehicle
applications and, on conclusion of the current tests, it is anticipated that the
KleenAir/Adastra system will secure entry into the SCRF category.

Systems ordered by several other London Boroughs, and installed on both refuse
collection trucks and buses during 2002, have performed well. As a result, those
systems have been added to the EST Cleanup Register. As a result, KleenAir and
Dinex are now targeting the 100 Air Quality Management Areas (AQMA) established
by Local Authorities throughout Britain. These AQMAs have the authority to
establish emission rules for their districts in order to improve their local air
quality. It is believed that such AQMAs will take actions leading to the need
for vehicles in a variety of categories to retrofit emission control devices
such as the KleenAir/Dinex products. Approximately 30 systems have been
installed in a number of Local Authority AQMA's including Glasgow, Cardiff, and
Edinburgh. Orders for an additional several hundred systems have been received
and are awaiting funding authorization.

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U.S. testing continues of the NOxMaster(TM) Diesel Catalytic Converter together
with its NOxMaster(TM) Ammonia Injection System to present an integrated system
for the elimination of emissions from diesel powered mobile sources. In order to
sell the Company's products in California an Executive Order (EO) is required
from the State of California. The Company must demonstrate under prescribed
testing protocols that its products do not increase the level of exhaust
emissions. The Company has received an EO certification from the California Air
Resources Board (CARB) for off-road and stationary engine applications. This
allows for commencement of sales of the Company's products related to these
applications in California. EO certification for on-road applications is
expected shortly.

The Company is preparing to meet CARB and EPA Retrofit Verification requirements
for heavy-duty vehicles on both its NOxMaster(TM) NOx reduction system and its
Oxidizing Particulate Trap (OPT). It has applied for Retrofit Verification of
the combination package of the OPT with the NOxMaster(TM) for both high
particulate reduction as well as high NOx reduction. The EPA has now published
its Selective Catalytic Reduction Protocol (SCRP). The absence of this protocol
has previously prevented the Company from commencing certification procedures.

In 2003, the Company acquired Carbon Cloth Technologies, Inc. (CCT) of Malibu,
California. CCT is a manufacturer of automotive thermal management systems.
Carbon Cloth has years of experience developing thermal solutions for such motor
sports industry leaders as Ferrari, Mercedes-Benz, and Penske. This experience
has enabled development of the CarbonGuardTM, a significant addition to the
battle on pollution.

The CarbonGuard(TM) is currently installed on several hundred of New York City
Transit Authority buses as enhancements for the operating efficiency of an
installed base of particulate traps. Multiple prototype variations have been
purchased by a number of automotive OEM manufacturers with a view to their
incorporating the CarbonGuard(TM) for a variety of thermal management
applications.

Carbon Cloth Technologies has applied for patents in automotive thermal
management systems. At present, this system is used to enhance the effectiveness
of particulate filters that need to maintain 300 degrees centigrade for 30% of a
vehicle's operating time. At lower temperatures, the filters clog and create
back pressure. Wherever particulate filters are currently installed, at present
estimated to be at least 30,000 units, the CarbonGuard(TM) can improve
performance and save maintenance expense. Filter technology has come to
prominence recently as the Environmental Protection Agency (EPA) and the
California Air Resource Board (CARB) have determined that particulate emissions
from vehicles are a serious public health problem.

The Company signed a marketing agreement in 2002 with ServoTech. Under this
agreement, the Company earns a commission on any ServoTech's SOBRIS(TM) system
sales it may generate. This system is a competing method of NOx emission
reduction that utilizes urea and aqueous ammonia in a system that introduces
these reductants into an exhaust system. ServoTech is a licensee of Ford Motor
Company on SCR injection technology. The SOBRIS(TM) product is under test and
evaluation by a number of automotive manufacturers in the U.S. and Europe.

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Once production and sales of the NOxMaster(TM) and OPTs get to a consistent
phase, the Company anticipates employing initially 15 to 20 employees, primarily
in management, technical and administrative capacities. The Company is actively
seeking sources of funding for its operating capital requirements, both to
complete its test and evaluation programs and to support initial sales and
production.

The Company has not been involved in any bankruptcy, receivership or similar
proceeding.

In May 1997, the Company undertook a one for fifteen reverse split of its common
outstanding shares leaving the par value at $.001 per share. The number of
issued and outstanding shares was reduced to 362,157 while its authorized shares
remained unchanged at 50,000,000. The Series 1 Preferred Shares were similarly
effected by the same 1 for 15 reverse split and were reduced to 500,000 shares.
In January 2000, the last of the outstanding preferred shares were converted
into common shares at a ratio of 1 common share for each share of Series 1
Preferred. In February 2000, the Board of Directors approved a 2 for 1 stock
split effective March 20, 2000.

The NOxMaster(TM) is an electro-mechanical device that substantially reduces the
oxides of nitrogen (NOx) from the exhaust gases of cars and trucks (mobile
sources) fueled by gasoline, diesel or natural gas.

The purpose of the NOxMaster(TM) is to reduce NOx emissions to a level
substantially lower than the minimum requirements of even the most restrictive
state - California. The NOxMaster(TM) is a one-of-a-kind device, that can
effectively accomplish this task and consists of: 1) an ammonia injector located
on the engine exhaust system upstream of the catalytic converter; 2) a tank of
minimally pressurized ammonia with solenoid operated valves; 3) tubing, wiring,
and an electronic controller that senses engine parameters.

A timing pulse from the engine is used to determine certain parameters that
indicate NOx production and to trigger a solenoid causing the injection of
gaseous ammonia into the exhaust system upstream of the catalytic converter. The
chemical reaction that occurs causes the NOx to be reduced to harmless
constituents primarily at the initial mixing and secondarily at the catalytic
converter. The ammonia injection is programmed to occur only when the engine is
operating at specific load and performance conditions.

In addition to a cost effective reduction of NOx emissions from the
exhaust, the NOxMaster(TM) has the potential of aiding the enhancement of engine
performance. Controlled reduction of NOx emissions could allow for the re-
tuning of the engine for increased efficiency. This would result in increased
fuel mileage while continuing to meet the government-set NOx emission standard.

The Company has complemented its NOxMaster(TM) Ammonia Injection System with a
NOxMaster(TM) Diesel Catalytic Converter for the purpose of applying its NOx
reduction technology to diesel fueled engines while also reducing carbon
monoxide, hydrocarbon, and particulate emissions from such engines. It has done
so through the development of specially formulated ceramic wash-coats that allow
for ammonia in the atmosphere and that provide a significant particulate
reduction for the retrofit market. It is planning the acquisition of plasma
technology capable of much greater reductions of particulate emissions,
particularly ultra-fine particulates, the health hazards of which are getting
increasing attention by the EPA. Such an integration of an ammonia-based NOx
reduction system and a plasma particulate reduction system will be well suited
to both the OEM and retrofit markets.

                                       5


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In order to conserve operating capital, the Company currently has two paid
full-time employees and. It has retained the services of its management,
officers and certain consultants through the issuance of restricted Section 144
common stock.

In June 1996, five employment and consulting contracts with 30 months remaining
(and valued at over $1,000,000) were voluntarily terminated by the parties
concerned, with no future recourse or liability for the Company, including the
employment contracts of Lionel Simons, President and Lester Berriman, Chairman.
Mr. Simons and Mr. Berriman agreed to continue managing and directing the
Company without cash compensation until such time as adequate operating capital
had been secured for the Company. Peter Cahill resigned from the Board at this
time and William H. Ward, Jr. was appointed to the Board to serve along with Mr.
Simons and Mr. Berriman.

In December 1996, the Company, having no resources available for the
international commercial exploitation of its technology rights, and having no
business plan for such exploitation of rights outside of the U.S., entered into
a licensee agreement with an officer of the Company. This license was for the
exploitation of European rights to the technology for application to gasoline
engines and for exploitation of worldwide rights for diesel engines. The
agreement called for the Company to receive an 8% royalty plus 30% ownership of
a Company to be established overseas. This Company was subsequently formed and
called KleenAir Systems International, Inc. It established a wholly owned
subsidiary in the U.K. called KleenAir Systems Ltd. During 1998, the U.S.
exploitation rights for that portion of the technology relating to diesel
engines was transferred back to the Company in exchange for an issuance of
restricted shares.

The Company began distribution of its CarbonGuard(TM) thermal management system
during 2002 and has shipped its NOxMaster(TM) products since 2003.

Management believes that the NOxMaster(TM) system is unique, well protected by
patents, and that it will prove to be effective and marketable after completion
of testing. Competition is anticipated from so-called urea systems, such as the
SOBRIS(TM) system, that are more complex and significantly more costly, but
whose end result is the creation of ammonia to catalyze a chemical reaction with
NOx in the exhaust system.

Development expenses were $26,913 during 2005. During 2004 they were $172,682.

The Company does not intend to deliver an annual report to security holders. The
public may read and copy any materials filed with the SEC such as this 10-KSB
and 10-QSB reports. The Company is an electronic filer under the SEC's EDGAR
filing program. The SEC maintains an Internet site at www.sec.gov that contains
such reports and other information filed electronically which is available to
all security holders.

ITEM 2. DESCRIPTION OF PROPERTY

In April 2004, the Company leased a 2000 square foot office facility at 27121
Aliso Creek Rd., Suite 120, Aliso Viejo, CA 92656. The Company has also acquired
a new chassis dynamometer in addition to its engine dynamometer, computers and
other test equipment to cope with increasing levels of R & D engine and device
testing programs as it prepares for commercializing its technology.

The Company does not engage in mining operations, oil and gas producing
activities or real estate activities.

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ITEM 3. LEGAL PROCEEDINGS.

The Company is not currently the subject of any litigation.

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

There were no submissions to a vote of security holders during 2005.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information: The principal trading market for the common equity
securities of the Company is the National Association of Securities Dealers OTC
Bulletin Board quotation system. The following are the highs and lows for each
quarter for fiscal year ended December 31, 2005 and 2004, respectively. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not represent actual transactions.

                                   2005                       2004
                             ----------------          -----------------
                              High     Low               High      Low
                             ------- --------          -------- --------
1st Quarter                  $0.14    $0.08             $0.43     $0.20
2nd Quarter                   0.22     0.10              0.39      0.18
3rd Quarter                   0.12     0.06              0.22      0.10
4th Quarter                   0.08     0.03              0.16      0.09

Shareholders: At December 31, 2005, there were 538 shareholders of record with
an additional approximately 73 shareholders registered with firms reporting to
the Depository Trust Company.

Dividends: No dividends have been paid in the last two fiscal years.

ITEM 6. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION.

During 2005 the Company sold all of its Intellectual Property (IP) to KleenAir
Systems International plc, located in London, England. This included existing
issued patents and all patents currently applied for and in various stages of
approval. Consideration received was a royalty of 8% of gross sales related to
such IP plus cash of $180,000. The royalties will continue for the life of the
patents and KSIP will have the responsibility to maintain and extend such
patents. New patents derived from the existing IP will also be subject to such
royalties. In addition, the Company received an Exclusive Manufacturing.
Marketing and Distribution License for North America relating to exploitation of
all or any of the Company's IP or other products.

In addition to the original U.S. Patent # 5,224,346 acquired in April of 1995,
U.S. Patent # 5,609,026 "Engine NOx Reduction" was issued in 1997 after
successfully overturning a challenge in Patent Court. International patent
rights have been granted for these patents and have been issued for Europe
(patent # 5 638 139 covering Germany, France and the U.K.) International
coverage extends to certain Asian countries and Canada as well as Brazil and
certain other countries. On November 30, 1999 the Company was issued a third
patent on "Ammonia Injection in NOx Control", U.S. Patent # 5,992,141. This
patent deals with the NOxMaster(TM) ammonia injection control system and
chemical reaction enhancement techniques to ensure optimum effectiveness of the
system to achieve maximum NOx reduction. In the opinion of management, this
patent significantly strengthens the position of the Company in the exploitation
of its technology and increases the value of its future commercial utilization


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and licensing potential. Management believes that its patent coverage in all the
major automobile and truck producing countries provides it with the patent
protection necessary to successfully exploit the technology world-wide. Because
of the way the accounting rules work, the true value of the patents the Company
owns has not been reported in the financial statements.

An additional patent was issued in February 2005, U.S. Patent # 6,852,292. This
patent covers the use of aqueous ammonia, which is ammonia dissolved in water,
and which is typically used as household or industrial cleaner. When injected
into the exhaust, this liquid solution reduces NOx in a manner similar to that
of anhydrous ammonia (a gas). With these two forms of Selective Catalytic
Reductant (SCR), the Company believes it is well-positioned to compete with Urea
systems. Urea, the other reductant, systems are the main alternative means of
delivering ammonia into the exhaust stream.

Other patents have been applied for that would improve the NOxMaster(TM) device
in specific relation to its reduction of particulate emissions. The Company
believes that a system that reduces particulate emissions as well as oxides of
nitrogen meets the two major mobile source pollutants of greatest concern to the
mandating authorities, such as the EPA and CARB.

The Company continued testing on its Sonic Flow Carburetor with a patent granted
in September 2002 (U.S. #6,446,940). This device significantly improves
fuel-burning efficiency and reduces emissions on gasoline engines by more
effectively atomizing the fuel into very fine particles that results in an even
and homogenous distribution throughout the engine cylinders.

The Company is positioning the Sonic Flow Carburetor as a low cost alternative
to a fuel injection system for the two-wheel vehicle markets in China and India.
It offers more power, greater fuel economy, and lower emissions at a
significantly lower cost. In China, some 12 million two- wheel vehicles are
manufactured annually. The Company has a test and evaluation agreement with a
major manufacturer of some 2 million vehicles. This agreement has the a view of
replacing their existing carburetor systems with the Sonic Flow Carburetor.

A similar Sonic Flow concept is employed in the Company's new duel fuel injector
for which a patent was issued in December 2002. This device is designed to
improve operating efficiency and reduce emissions on diesel engines by using
regular diesel fuel to commence fuel combustion and then switching to atomized
fuel. These new products are the result of following through on the Company's
mission to develop technologies that significantly reduce polluting emissions
and improve operating efficiencies.

The original product, the NOxMaster(TM) device is currently being commercialized
in the U.K. and Denmark. Retrofit Verification by the EPA and the California Air
Resource Board (CARB) has been applied for in the U.S.

Nitrogen Oxides (NOx) are the most difficult auto exhaust pollutants to control.
They are not sourced from the engine fuel, but are produced by the oxidation of
nitrogen in the combustion of air. Their formation requires high temperature
(2500 degrees F and above). The higher the temperature, the more NOx is
produced. Thus, NOx is produced in proportion to engine power output and
efficiency. Meeting even the current minimum standards requires sacrifices in
performance and economy.

The NOxMaster(TM) utilizes both the non-catalytic reaction that occurs at high
temperatures and the catalytic reaction occurring at lower temperatures. Tests
have confirmed this approach. Further test data has shown that the desired
reaction does occur in the presence of excess air (oxygen) and might even be
enhanced by the oxygen. Thus the NOxMaster(TM) device gives the manufacturer a
method of control that is essentially independent of engine operating parameters
and provides new options for economy and performance.

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The NOxMaster(TM) Diesel Catalytic Converter has completed road trials and
production. Delivery to overseas customers commenced during the year 2003.

The product can also be distributed in states other than California. An
Executive Order (EO) is required in California before distribution can commence.
The Company has received an EO from the CARB enabling it to sell its product in
the State of California. The EO states that the product does not increase NOx
emissions and will allow the Company to sell the product(s) in the state of
California. However, the marketplace currently requires qualification for
Emission Trading Credits to commence commercialization at this stage.

The Company needs to secure the recently introduced requirement for Retrofit
Verification approval from the CARB or EPA for SCR technology in order to
qualify for SIP and Emission Trading Credits. These credits enable the user to
sell credits to cover the cost of equipment and operations.

The Company initially applied for EPA and CARB Retrofit Verification in the
fourth quarter of 2003. This application is in line with the new protocols for
Selective Catalytic Reduction (SCR) that have been finalized by those agencies.
However, modifications and clarifications of these protocols and certification
requirements have delayed the Retrofit Verification Program which is now
expected to be completed during the course of 2005. These verifications are
necessary to permit sale of the Company's NOxMaster(TM) system nationwide and to
qualify its customers for emission credits.

The emphasis for emission trading credits is on NOx reduction products, thereby
satisfying the mobile source emission reduction criteria for "emission credits".
The Guidelines for the Generation and Use of Mobile Source Emission Reduction
Credits, published by the California Environmental Protection Agency, Air
Resources Boards and Mobile Source Emission Reduction Credits were approved by
the ARB on February 19, 1993.

The document states that NOx is the only pollutant considered in the guidelines
as a reasonable candidate for credit generation. These emission credits are
currently traded on a commodity-like exchange and are valued in the range over
$20,000 per ton. The Company believes the value of these emission credits will
be a very substantial tool in the marketing of the NOxMaster(TM) products to
fleet vehicle owners, especially the diesel transportation industry.

The Company's licensee, ExtEngine Transport Systems LLC, has received Retrofit
Verification from the California Air Resource Board (CARB) for an off-road
system based on the Company's technology. This system has been under test on
some 35 vehicles in Houston for the past two years. With qualification for SIP
credits, it is expected that significant additional installations will take
place in Houston.

The Company has signed a distribution agreement with DINEX A/S of Denmark and
its U.K. subsidiary Dinex U.K. Ltd. Under this agreement DINEX has a
non-exclusive right to sell the Company's products in its market area which
consists of Scandinavia, U.K., Germany, France, Italy, and Spain.

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The Company has signed a Technical Services Agreement with ServoTech
Engineering, Inc. of Belleville, Michigan. Under this Agreement, ServoTech will
perform hardware and software design and testing services for certain components
used in the Company's NOxMaster(TM) NOx Reduction System. The system is being
readied for multiple installations in the U.K. and for Retrofit Verification in
the U.S.

ServoTech is a long-time supplier of engineering, prototyping and testing
services to Ford Motor Company and other major Detroit based and international
automotive manufacturers.

Once production and sales begin, the Company anticipates employing initially 15
to 20 employees, primarily in management, technical and administrative
capacities. The Company is actively seeking sources of funding for its operating
capital requirements both to complete its test and evaluation programs and to
support initial production and sales.

On December 29, 1999 the Company signed a Letter of Intent with ExtEngine
Transport Systems, LLC regarding the awarding of licenses for commercial
exploitation of the Company's technology in China, India, California and the
U.S. Urban and School Bus markets. This was subsequently followed by completion
of Licensing Agreements, the exclusive terms of which, if fulfilled, would
represent significant income to the Company over the succeeding 10 years. As
part of the Agreement, Extengine Transport Systems LLC invested funds in the
Company to cover the costs of research and development to fulfill contracts
requiring the demonstration of NOx reduction capability with regard to a number
of engines supplied by major Chinese automotive companies. Discussions have also
been held with various California Transportation Authorities with regard to the
testing of the Company's products on its buses as part of the Extengine drive to
exploit the Company's technologies in the Urban Bus market.

This license has now, by mutual agreement, been set aside. Extengine no longer
has exclusive rights for India and China, but instead has been given exclusive
rights for Hong Kong, Korea, and Japan and retains an exclusive in the U.S.
Urban Bus market. It also has non-exclusive rights to sale of products utilizing
the Company's systems technology in the U.S. and certain other limited
territories overseas.

The Company has moved its R & D dynomometer testing capabilities into a shared
facility with Dinex in the City of Industry, CA and broadened the range of
engine types and sizes for which it can customize its products. As a result it
moved its administrative offices into a business park in Aliso Viejo,
California.

Several NOxMaster(TM) units have been installed and are in service on a number
of London Taxicabs. Systems have also been installed on a London Borough 16
passenger Mercedes Sprinter bus and on a number of waste collection trucks in
the several other London Boroughs.


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In December 2004, the Mayor of London issued a mandate requiring the upgrade to
Euro 3 emission standards of all on-road London taxis, a total number of
approximately 17,500 vehicles. The Company's system is one of only two that have
been approved by the Public Carriage office and the Energy Savings Trust, the
other system being the conversion of the diesel taxis to LPG fuel.
Implementation of this mandate was extended in May 2005 to become effective in
July 2006.

The Low Emission Zone strategy announced by the Mayor requires that Heavy Goods
Vehicles and buses, as well as taxis, effectively meet Euro 3 standards by 2007.
This covers the entire area of the London Boroughs. It is estimated that this
might affect some 250,000 vehicles of which at least 100,000 will actually be
equipped with systems to meet the requirement. The Company expects its position
on the EST Clean-up Register for products suitable for this upgrade program will
enable it to generate a significant market share.

In March 2004, the Jubilee Investment Trust of London, U.K. acquired $2.1
million of the Company's common stock in exchange for its stock. The Jubilee
stock was subsequently sold for $910,569 to meet working capital requirements of
the Company.

In September 2004, another investment valued at $1.6 million was made in the
Company by the London-based Langley Park Investment Trust in exchange for
Langley stock. Subsequent to this transaction, the Company sold a portion of the
Langley shares for $104,860.

In December 2005 the Company entered into an agreement to acquire the assets of
Innovay, Inc., a California corporation. Innovay specializes in the
pharmaceuticals and cosmetics industry with major contracts in the Far East.
Under the agreement, the Company changed its name to Migami, Inc., and initiated
a 5 for 1 reverse stock split. With the contracts and prospects of the Innovay
business, it was felt that this acquisition could represent a potential
improvement .in shareholder value.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Where this Form 10-KSB includes "forward-looking" statements within the meaning
of Section 27A and Section 21E of the Securities Act, the Company desires to
take advantage of the "safe harbor" provisions thereof. Therefore, the Company
is including this statement for the express purpose of availing itself of the
protections of such safe harbor provisions with respect to all of such
forward-looking statements. The forward-looking statements in this Form 10-KSB
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ from those anticipated.
These risks include, but are not limited to, economic conditions, changes in
environmental regulations, the market for venture capital, etc. In this Form
10-KSB, the words "anticipates," "believes," "expects," "intends," "future" and
similar expressions identify forward-looking statements. The Company undertakes
no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that may arise after the date hereof. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by this
section.

                                       11


<PAGE>

ITEM 7. FINANCIAL STATEMENTS

See the Index to Financial Statements on page F-1 following the signature page
of this Form 10-KSB.

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

None

ITEM 8A. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our President and Chief
Financial Officer, we conducted an evaluation of the effectiveness of the design
and operations of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of
December 31, 2003. Based on this evaluation, our President and Chief Financial
Officer concluded that our disclosure controls and procedures were effective
such that the material information required to be included in our Securities and
Exchange Commission ("SEC") reports is recorded, processed, summarized and
reported within the time periods specified in applicable SEC rules and forms
relating to our reporting obligations, and was made known to them by others
within the Company, particularly during the period when this report was being
prepared.

(b) Changes in internal controls over financial reporting.

There was no change in our internal control over financial reporting during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect our internal control over financial reporting. ITEM

8B. OTHER INFORMATION

None

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

      Name           Age      Position/Office        Term     Served Since
------------------   ---  ------------------------  -------   ------------
 Lester Berriman      80   Director/ VP-Research    2 years    April 1995

 Lionel Simons        70   Director/President/      2 years     Dec. 1995
                           Secretary/Treasurer


Lester Berriman, P.E., Chairman and VP-Research. A Professional Engineer with a
degree in Chemical Engineering, Mr. Berriman leads the Company in its research
and development. Mr. Berriman served 20 years as manager of Chemical and
Mechanical Engineering for the Southern California laboratories of the Stanford
research Institute and 17 years with Dresser Corporate Advanced technology which
included 2 years as their Director of the Advanced Technology Center. Mr.
Berriman has 21 United States patents and over 80 foreign patents to his credit
and is one of the co-developers of the NOxMaster(TM)technology. Mr. Berriman is
also very closely aligned with the California Air Resources Board (CARB) and the
South Coast Air Quality Management District (AQMD).

                                       12


<PAGE>

Lionel Simons, President and Secretary. Mr. Simons attended the London School of
Economics where he earned his Bachelor of Science in Economics and was awarded
one of 7 Leverhume Scholarships. He earned his Masters in Business
Administration, majoring in International Business and Marketing, at the
Columbia University Graduate School of Business. While Managing Director of
Denbyware Ltd. of England, a manufacturing Company with over 1,000 employees, he
increased sales from $10 million to $25 million and took the Company public via
the London Stock Exchange. As President of Dunn Systems, a medical imaging
manufacturing Company with over 150 employees, he increased OEM sales from $3
million to $15 million before merging with a major NASDAQ Company. He spent 2
years with Thunder Engine Company, developers of a 600 hp heavy duty multi- fuel
light-weight aluminum engine, and successfully concluded technology transfer
agreements with companies in China, Korea and Canada.

ITEM 10. EXECUTIVE COMPENSATION

Mr. Berriman, Mr. Simons and Mr. Zabsky voluntarily terminated employment and
consulting contracts with the Company in mid-1996 and the Company, with their
consent, also terminated a stock option and compensation plan for Directors. In
2001, the Company awarded the following non-cash stock compensation for services
rendered:

(a) SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION
--------------------------------------------------------------------------------
   Names and                   Salary/            Other Annual     Market
Principle Position      Year     Fee     Bonus    Compensation     Value
---------------------   ----   -------   -----  ----------------  --------
Lionel Simons           2005       -0-   $ -0-      None          $    -0-
                        2004   $34,347   $ -0-    500,000 shares  $ 33,000
President/Secretary     2003       -0-     -0-  5,000,000 shares   346,500
                        2002       -0-     -0-       None              -0-

Lester Berriman         2005       -0-   $ -0-       None         $    -0-
                        2004   $   -0-   $ -0-    275,000 shares  $ 18,150
Chairman/ VP-Research   2003       -0-     -0-  1,000,000 shares    76,600


John Zabsky             2005       -0-   $ -0-       None         $    -0-
 (1)                    2004   $24,000   $ -0-    150,000 shares  $  9,900
   dba. John Z Co.      2003    24,000     -0-    500,000 shares    34,650



(1) Compensation was provided to Mr. Zabsky an outside consultant.

                                       13


<PAGE>

(b) OPTION/STOCK APPRECIATION RIGHTS

No stock options or free standing SARs to executive officers of the Company were
granted during 2004.

(c) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUE TABLE

There was no exercise of stock options or free standing SARs by executive
officers of the Company during 2004.

(d) LONG TERM INCENTIVE PLAN ("LITP") AWARDS TABLE

The Company did not make any long-term incentive plan awards to any executive
officer in 2004.

(e) COMPENSATION OF DIRECTORS

No Directors of the Company received cash compensation for their services as
Director during 2004.

(f) EMPLOYMENT CONTRACTS

The Company has no employment contracts with executive officers.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth a list of persons known to the Company to be the
beneficial owner of more than five percent of the Company's voting stock.

Title of         Name and Address of         Shares of            Percent
 Class            Beneficial Owner           Record (1)          of Class
--------       ----------------------      ------------          --------
Common         Pollution Control, Inc.        9,674,077           15.27%
               328 Bay street
               Nassau, Bahamas

Common         Lionel Simons,                 1,214,808 (2)(3)     1.92%
               36 Corniche Drive
               Dana Point, CA 92629

Common         Lester Berriman                2,617,048            4.13%
               18871 Portofino Drive
               Irvine, CA 92715


Common         Jubilee Investment Trust Plc  10,026,666           15.82%
               1 Great Cumberland Place
               London
               W1H 7AL

                                       14


<PAGE>


Title of         Name and Address of         Shares of            Percent
 Class            Beneficial Owner           Record (1)          of Class
--------       ----------------------      ------------          --------
(continued from previous page)

Common         Langley Park Investment
                  Trust Plc                  10,000,000           15.78%
               30 Farrington Street
               London
               EC4A 4HJ

Common         David Kahn                     4,250,000            6.71%
               3150 Fir Ave, Ste 127
               Fresno, CA 93711

Common         John Zabsky                    1,830,432 (4)        2.89%
               3640 S Main St
               Santa Ana, CA 92707


(1) All shares presented are common shares. No preferred shares were outstanding
at December 31, 2004.

(2) Lionel Simons maintains an indirect controlling beneficial interest in
Pollution Control, Inc. through a family trust. See item 12.

(3) The total shares reported as held by Lionel Simons includes 20,000 shares
held by Kimberly Simons who is his daughter and 9,800 shares held by Barbara J.
Simons who is his wife.

(4) This total represents shares held by Mr. Zabsky in his own name, as well as
shares held by John Z Company, a corporation wholly owned by Mr. Zabsky.

The following table sets forth a list of the beneficial ownership in the Company
by officers and directors.

                                            Amount of
Title of        Name and Address of        Beneficial            Percent
 Class            Beneficial Owner          Ownership           of Class
--------       ---------------------       ----------           --------
Common          Lionel Simons              10,924,265 (2)(3)      17.24%
                36 Corniche Drive
                Dana Point, CA 92629

Common          Lester Berriman             2,617,048              4.13%
                18871 Portofino Drive
                Irvine, CA 92715

Common          All officers and directors
                            as a group:    13,541,333             21.37%

(1) All shares presented are common shares. No preferred shares were outstanding
at December 31, 2005.

(2) Lionel Simons maintains an indirect controlling beneficial interest in
Pollution Control, Inc. through a family trust. See item 12.

                                       15


<PAGE>

(3) Total shares reported as held by Lionel Simons includes 20,000 shares held
by Kimberly Simons who is his daughter and 15,400 shares held by Barbara J.
Simons who is his wife and the shares held by Pollution Control have been
attributed to him due to the controlling interest.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Lionel Simons, President of KleenAir Systems, Inc. is also President and a
beneficial owner of Pollution Control Inc. through family trusts. Mr. Simons has
a Power of Attorney from Pollution Control which permits him to vote on its
behalf. In addition, Mr. Simons is on the Board of Directors for and serving as
President of KleenAir Systems PLC in the U.K. The Company owns a 23% interest in
and sells all of its European products to this entity for resell.

See also the discussion of related party transactions presented at Note 14 to
the financial statements.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report or are
incorporated by reference.

Financial Statements -- The following information has been included in response
to Item 8.

                                                           Page

- Report of Independent Certified Public Accountants       F-2
- Consolidated Balance Sheets                              F-3
- Consolidated Statements of Operations                    F-4
- Consolidated Statements of Shareholders' Equity          F-5
- Consolidated Statements of Cash Flows                    F-8
- Notes to Consolidated Financial Statements               F-9


Exhibits - The following Exhibits are furnished as a part of this report:

  Exhibit No.                   Description
  -----------    ----------------------------------------------

     31          * Certification of Chief Financial Officer pursuant
                   to Section 302 of the Sarbanes-Oxley Act of 2002.
     32.1        * Certification of Chief Operating Officer pursuant
                   to Section 906 of Sarbanes Oxley Act
     32.2        * Certification of Chief Financial Officer pursuant
                   to Section 906 of Sarbanes-Oxley Act
--------------

* Filed herewith.


                                       16


<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

As of the date of this Report, the Company has not appointed members to an audit
committee and, therefore, the respective role of an audit committee has been
conducted by the board of directors of the Company. When established, the audit
committee's primary function will be to provide advice with respect to the
Company's financial matters and to assist the board of Directors in fulfilling
its oversight responsibilities regarding finance, accounting, tax and legal
compliance. The audit committee's primary duties and responsibilities will be
to: (i) serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system; (ii) review and
appraise the audit efforts of the Company's independent accountant's; (iii)
evaluate the Company's quarterly financial performance as well as its compliance
with laws and regulations; (iv) oversee management's establishment and
enforcement of financial policies and business practices; and (v) provide an
open avenue of communication among the independent accountants, management and
the board of directors.

The firm of Robert Early & Company, P.C., served as the Company's independent
auditors for the year ended December 31, 2003 and for the first 9 months of
2003. Thereafter the Board of Directors appointed Chisholm Bierwolf & Nilson,
LLC as auditors for the balance of 2005.The Board of Directors of the Company,
in its discretion, may direct the appointment of different public accountants at
any time during the year, if the Board believes that a change would be in the
best interests of the stockholders. The Board of Directors has considered the
audit fees, audit-related fees, tax fees and other fees paid to the Company's
accountants, as disclosed below, and had determined that the payment of such
fees is compatible with maintaining the independence of the accountants.

Audit and Audit-Related Fees: The aggregate fees, including expenses, billed by
the Company's principal accountant in connection with the audit of our
consolidated financial statements for the most recent fiscal year included in
our Annual Report on Form 10-KSB; and for the review of our financial
information and our quarterly reports on Form 10-QSB during the years ending
December 31, 2005 and 2004 were $32,250 and $20,624, respectively. In addition,
we incurred accounting review related fees (primarily related to procedures our
auditors were required to perform in reviewing potential registration statements
and our Form S-8 Registration Statements) of $2,100 in 2005 and $1,230 in 2004,
respectively.

Tax Fees: The Company did not incur any fees for tax compliance, tax advice and
tax planning by the Company's principal accountant for 2005 and 2004.

All Other Fees: The Company paid its principal accountant $1,200 and $1,700 in
2005 and 2004, respectively, for the services of converting its SEC filings to
and filing them in EDGAR format.


                                       17


<PAGE>

--------------------------------------------------------------------------------

SIGNATURES

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

                                   KLEENAIR SYSTEMS, INC.


DATE: December 12, 2006            /s/ LIONEL SIMONS
                                   ------------------------------------
                                   BY: LIONEL SIMONS
                                   PRESIDENT, SECRETARY, PRINCIPAL
                                   ACCOUNTING OFFICER, & PRINCIPAL
                                   FINANCIAL OFFICER

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

           SIGNATURE                     TITLE             DATE
--------------------------             --------       --------------

 /S/ LIONEL SIMONS                     DIRECTOR       DECEMBER 12, 2006
----------------------
 LIONEL SIMONS


 /S/ LESTER BERRIMAN                   DIRECTOR       DECEMBER 12, 2006
-----------------------
 LESTER BERRIMAN


                                       18


<PAGE>


                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2005




<PAGE>





                                 C O N T E N T S


Independent Auditors' Report...............................................  F-2

Consolidated Balance Sheet.................................................  F-4

Consolidated Statements of Operations......................................  F-6

Consolidated Statements of Stockholders' Equity............................  F-7

Consolidated Statements of Cash Flows......................................  F-9

Notes to the Consolidated Financial Statements............................. F-11



                                      F-1
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


The Board of Directors
Migami, Inc.
Aliso Viejo, California
(A Development Stage Company)

We have audited the accompanying consolidated balance sheet of Migami, Inc.
(formerly KleenAir Systems, Inc.) (a development stage company) as of December
31, 2005, and the related consolidated statements of operations, stockholders'
equity and other comprehensive income, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with the standards of the PCAOB (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. The Company is not required to have, nor were we
engaged to perform, audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Migami,
Inc. (formerly KleenAir Systems, Inc.) (a development stage company) as of
December 31, 2005, and the consolidated results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a working capital deficit and
has suffered recurring losses to date, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.


/s/ Chisholm Bierwolf & Nilson, LLC

Chisholm Bierwolf & Nilson, LLC
Bountiful, Utah
February 10, 2006

                                      F-2


<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
KleenAir Systems, Inc.
Irvine, California


We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of KleenAir Systems, Inc. (a development
stage Company) for the year December 31, 2004. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of KleenAir
Systems, Inc. for the year ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements were prepared assuming that the Company
would continue as a going concern. As discussed in Note 2 to the financial
statements, the Company is still in the development stage and has not
established sustained operating revenues. This situation raises substantial
doubt as to the Company's ability to continue as a going concern. Management's
plans in regard to this situation are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




/s/ Robert Early & Company, P.C.
Robert Early & Company, P.C.
Abilene, Texas

March 31, 2005



                                      F-3
<PAGE>

<TABLE>

                                  MIGAMI, INC.
                       (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                           Consolidated Balance Sheet

                                     ASSETS
                                     ------
                                                                    December 31,
                                                                       2005
                                                                   ------------

<S>                                                                <C>
CURRENT ASSETS

     Cash and cash equivalents                                     $      6,371
     Accounts receivable, net                                            32,800
     Accounts receivable - related parties, net                         180,210
     Parts inventory, at cost                                            36,553
     Prepaid expenses                                                     6,600
     Marketable securities, net                                         102,655
                                                                   ------------

         Total Current Assets                                           365,189
                                                                   ------------

PROPERTY AND EQUIPMENT, net                                              57,794
                                                                   ------------
OTHER ASSETS

     Patent license, net                                              1,113,689
     Deposits and other assets                                           12,854
                                                                   ------------

         Total Other Assets                                           1,126,543
                                                                   ------------

         TOTAL ASSETS                                              $  1,549,526
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES

     Accounts payable                                              $    281,597
     Accounts payable - related parties                                  15,000
     Accrued expenses                                                    57,480
     Advances from directors                                             46,904
     Notes payable - related entities                                   296,265
                                                                   ------------

         Total Current Liabilities                                      697,246
                                                                   ------------

CONTINGENT LIABILITIES                                                       --
                                                                   ------------

STOCKHOLDERS' EQUITY

     Preferred stock, series A, $.001 par value (10,000,000
      shares authorized, none outstanding)                                   --
     Common stock, $.001 par value (50,000,000 shares
      authorized, 63,369,376 outstanding)                                63,360
     Additional paid-in capital                                      10,242,148
     Deficit accumulated during the development stage                (9,453,228)
                                                                   ------------

         Total Stockholders' Equity                                     852,280
                                                                   ------------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $  1,549,526
                                                                   ============


        The accompanying notes are an integral part of these consolidated
                              financial statements.


                                      F-4


<PAGE>
                                       MIGAMI, INC.
                            (FORMERLY KLEENAIR SYSTEMS, INC.)
                              (A Development Stage Company)
                          Consolidated Statements of Operations


                                                For the Years Ended
                                                    December 31,             Cumulative
                                            ----------------------------    During Devel-
                                                2005            2004        opment State
                                            ------------    ------------    ------------
                                                             (Restated)
REVENUES

    Sales                                   $     49,976    $     35,937    $    995,929
    Royalties                                         --           5,525          25,417
                                            ------------    ------------    ------------

       Total Revenues                             49,976          41,462       1,021,346

COST OF REVENUES                                  44,049          38,152         780,538
                                            ------------    ------------    ------------

GROSS PROFIT                                       5,927           3,310         240,808
                                            ------------    ------------    ------------

PRODUCTION DEVELOPMENT COSTS                      26,913         172,682       1,438,600

OPERATING EXPENSES

    Personnel costs                               49,830         192,465       1,480,039
    Consultants                                  180,080         503,120       3,409,926
    Professional fees                            127,052          58,032         684,311
    Office expenses                                8,179           7,752          69,209
    Depreciation                                  41,795          51,591         204,906
    Amortization of intangible assets            106,424         129,434         417,517
    Advertising and promotion                      5,812          33,781         270,534
    Rent                                          57,821         147,647         415,685
    Travel                                        21,285          50,312         368,170
    Other expenses                                75,906          48,999         292,062
    Bad debts                                         --           1,000         221,000
    Other                                             --              --         171,378
                                            ------------    ------------    ------------

       Total Operating Expenses                  674,184       1,224,133       8,004,737
                                            ------------    ------------    ------------

LOSS FROM OPERATIONS                            (695,170)     (1,393,505)     (9,202,529)
                                            ------------    ------------    ------------

OTHER INCOME (EXPENSE)

    Interest income                                   --              --           2,526
    Management fees                               63,000         110,478         173,478
    Loss on sale of securities                   (12,392)       (101,887)       (114,279)
    Unrealized loss on securities                (65,732)       (154,656)       (220,388)
    Interest expense                            (105,334)        (20,156)       (144,927)
    Loss on foreign exchange transactions             --          (7,670)         (7,670)
    Loss from sale of assets                     (91,032)             --         (91,032)
    Loss on abandoned equipment                  (10,968)             --         (10,968)
    Amortize discount on receivables                  --              --          20,259
                                            ------------    ------------    ------------

       Total Other Income (Expense)         $   (222,458)   $   (173,891)   $   (393,001)
                                            ------------    ------------    ------------

            The accompanying notes are an integral part of these consolidated
                                  financial statements.


                                           F-5
<PAGE>
                                       MIGAMI, INC.
                            (FORMERLY KLEENAIR SYSTEMS, INC.)
                              (A Development Stage Company)
                          Consolidated Statements of Operations


                                                For the Years Ended
                                                    December 31,             Cumulative
                                            ----------------------------    During Devel-
                                                2005            2004        opment State
                                            ------------    ------------    ------------
                                                             (Restated)


LOSS BEFORE INCOME TAXES                        (917,628)     (1,567,396)     (9,595,530)

    Benefit from deferred taxes                       --              --    $    397,852
                                            ------------    ------------    ------------

LOSS BEFORE EXTRAORDINARY ITEMS                 (917,628)     (1,567,396)     (9,197,678)

    Costs of terminated acquisitions                  --              --        (255,550)
                                            ------------    ------------    ------------

NET COMPREHENSIVE LOSS                      $   (917,628)   $ (1,567,396)   $ (9,453,228)
                                            ============    ============    ============

BASIC LOSS PER SHARE
  Loss per share before extraordinary items $      (0.02)   $      (0.03)   $      (0.54)
  Loss per share from extraordinary items             --              --           (0.02)
                                            ------------    ------------    ------------
  Basic net loss per share                  $      (0.02)   $      (0.03)   $      (0.56)
                                            ============    ============    ============

WEIGHTED AVERAGE NUMBER OF
 COMMON SHARES OUTSTANDING                    60,335,130      47,375,811      16,878,230
                                            ============    ============    ============


            The accompanying notes are an integral part of these consolidated
                                  financial statements.

                                               F-6


<PAGE>
                                                            MIGAMI, INC.
                                                  (FORMERLY KLEENAIR SYSTEMS, INC.)
                                                    (A Development Stage Company)
                                           Consolidated Statement of Stockholders' Equity

                                                                                                                           Deficit
                                                                                                                         Accumulated
                                        Preferred Stock                Common Stock         Additional     Unearned      During the
                                    ------------------------    -------------------------    Paid-in       Compen-      Development
                                     Shares        Amount         Shares        Amount       Capital        sation         Stage
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, January 1, 1995                   --    $        --         74,132   $        74   $   151,444   $       --    $  (151,518)

Stock issued:  For cash                    --             --         27,334            27        66,982           --             --
  For adjustment                           --             --            534             1            --           --             --
  For consulting services                  --             --         86,148            86       279,439           --             --
  For professional services                --             --          4,666             5        12,745           --             --
  For purchase of patent rights       933,334            934         60,000            60        13,905           --             --
  For directors' compensation              --             --          4,000             4        22,496           --             --
  For officers' compensation           33,334             33          9,334             9       194,958           --             --
Other contributed capital                  --             --             --            --         2,367           --             --
Options compensation                       --             --             --            --        70,313     (152,016)            --

Net loss for the period ended
  December 31, 1995                        --             --             --            --            --           --       (329,289)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 1995            966,668            967        266,148           266       814,649     (152,016)      (480,807)

Stock issued:  For services            13,332             13         24,666            25       201,837      (78,750)            --
  For officers' compensation           33,332             33             --            --        15,592      (15,625)            --
  For aborted acquisition                  --             --         40,000            40       140,510           --             --
Exercise of options                        --             --         75,000            75       112,424           --             --
Conversion to common                 (318,666)          (319)       318,666           319            --           --             --

Net loss for the year ended
  December 31, 1996                        --             --             --            --            --      187,346       (716,511)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 1996            694,666            694        724,480           725     1,285,012      (59,045)    (1,197,318)

Stock issued:  For cash                    --             --        120,000           120        14,880           --             --
  For officers compensation            33,334             33             --            --         3,842       (3,875)            --
Conversion to common                 (100,000)          (100)       100,000           100            --           --             --

Net loss for the year ended
  December 31, 1997                        --             --             --            --            --       37,979        (55,438)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------
Balance, December 31, 1997            628,000            627        944,480   $       945   $ 1,303,734   $  (24,941)   $(1,252,756)

Stock issued:  For cash                    --             --        800,000           800       199,200           --             --
  For services                             --             --      2,120,000         2,120        92,255           --             --
  To officers' and directors'              --             --        320,000           320        59,680           --             --
  For diesel license                       --             --      2,000,000         2,000        60,500           --             --
Conversion to common                 (403,334)          (403)       403,334           403            --           --             --

Net loss for the year ended
  December 31, 1998                        --             --             --            --            --       24,941       (305,561)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 1998            224,666    $       224      6,587,814   $     6,588   $ 1,715,369   $       --    $(1,558,317)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

                         The accompanying notes are an integral part of these consolidated financial statements.

                                                              F-7


<PAGE>
                                                            MIGAMI, INC.
                                                  (FORMERLY KLEENAIR SYSTEMS, INC.)
                                                    (A Development Stage Company)
                                           Consolidated Statement of Stockholders' Equity
                                                              Continued

                                                                                                                           Deficit
                                                                                                                         Accumulated
                                        Preferred Stock                Common Stock         Additional     Unearned      During the
                                    ------------------------    -------------------------    Paid-in       Compen-      Development
                                     Shares        Amount         Shares        Amount       Capital        sation         Stage
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------
Balance, December 31, 1998            224,666    $       224      6,587,814   $     6,588   $ 1,715,369   $       --    $(1,558,317)

Stock issued:  For cash                    --             --        146,800           147        35,653           --             --
  For equipment                            --             --         33,200            33         8,267           --             --
  For services                             --             --      1,103,334         1,103       247,179           --             --
  For services - officers'
    and directors'                         --             --      1,425,000         1,425       408,808           --             --
Conversion to common                  (61,334)           (61)        61,334            61            --           --             --

Net loss for the period ended
  December 31, 1999                        --             --             --            --            --           --       (802,722)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 1999            163,332            163      9,357,482         9,357     2,415,276           --     (2,361,039)

Stock issued:  For cash                    --             --      1,414,000         1,414       357,336           --             --
  For services                             --             --      1,642,666         1,643       600,024           --             --
  As promotion                             --             --          1,600             2         3,199           --             --
Conversion to common                 (163,332)          (163)       163,334           163            --           --             --

Net loss for the period ended
  December 31, 2000                        --             --             --            --            --           --       (717,012)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 2000                 --             --     12,579,082        12,579     3,375,835           --     (3,078,051)

Stock issued:  For cash                    --             --        195,000           195       104,805           --             --
  For services                             --             --      1,749,487         1,749       293,087           --             --
  For services - officers'
    and directors'                         --             --        850,000           850        77,690           --             --
  For rent                                 --             --         17,500            18         6,232           --             --

Net loss for the period ended
  December 31, 2001                        --             --             --            --            --           --       (623,811)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 2001                 --             --     15,391,069        15,391     3,857,649           --     (3,701,862)

Stock issued:  For cash                    --             --      2,804,545         2,805     1,717,195           --             --
  For services                             --             --      1,201,692         1,202       404,232           --             --
  For acquisition of Carbon Cloth          --             --        873,250           873       968,434           --             --
Contributed inventory                      --             --             --            --        12,207           --             --

Net loss for the period ended
  December 31, 2002                        --             --             --            --            --           --     (1,119,045)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 2002                 --             --     20,270,556        20,271     6,959,717           --     (4,820,907)

Stock issued:  For cash                    --             --        750,000           750        74,250           --             --
  For services - officers'
    and directors'                         --             --      7,600,000         7,600       511,490           --             --
  For services                             --             --      2,801,605         2,801       460,839           --             --

Net loss for the period ended
  December 31, 2003                        --             --             --            --            --           --     (2,147,297)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 2003                 --    $        --     31,422,161   $    31,422   $ 8,006,296   $       --    $(6,968,204)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

                         The accompanying notes are an integral part of these consolidated financial statements.

                                                              F-8


<PAGE>
                                                            MIGAMI, INC.
                                                  (FORMERLY KLEENAIR SYSTEMS, INC.)
                                                    (A Development Stage Company)
                                           Consolidated Statement of Stockholders' Equity
                                                              Continued

                                                                                                                           Deficit
                                                                                                                         Accumulated
                                        Preferred Stock                Common Stock         Additional     Unearned      During the
                                    ------------------------    -------------------------    Paid-in       Compen-      Development
                                     Shares        Amount         Shares        Amount       Capital        sation         Stage
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------
Balance, December 31, 2003                 --    $        --     31,422,161   $    31,422   $ 8,006,296   $       --    $(6,968,204)

Stock issued:  For cash                    --             --        750,000           750        74,250           --             --
  For investments                          --             --     20,527,999        20,528     1,387,706           --             --
  For services                             --             --      4,200,046         4,200       408,945           --             --
  For services - officers'
    and directors'                         --             --      1,200,000         1,200        78,519           --             --

Net loss for the period ended
  December 31, 2004                        --             --             --            --            --           --     (1,567,396)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 2004                 --             --     58,100,206        58,100     9,955,716           --     (8,535,600)

Stock issued:  For cash                    --             --      4,000,000         4,000       176,000           --             --
  For services                             --             --      1,269,170         1,269       110,432           --             --

Net loss for the period ended
  December 31, 2005                        --             --             --            --            --           --       (917,628)
                                    ---------    -----------    -----------   -----------   -----------   ----------    -----------

Balance, December 31, 2005                 --    $        --     63,369,376   $    63,369   $10,242,148   $       --    $(9,453,228)
                                    =========    ===========    ===========   ===========   ===========   ==========    ===========


                         The accompanying notes are an integral part of these consolidated financial statements.

                                                              F-9


<PAGE>
                                         MIGAMI, INC.
                               (FORMERLY KLEENAIR SYSTEMS, INC.)
                                 (A Development Stage Company)
                             Consolidated Statements of Cash Flows

                                                        For the Years Ended
                                                           December 31,           Cumulative
                                                    --------------------------   During Devel-
                                                       2005            2004       opment State
                                                    -----------    -----------    -----------
                                                                    (Restated)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                            $  (917,628)   $(1,567,396)   $(9,453,228)
Adjustments to reconcile net loss to net cash
 (used) in operating activities:
     Losses prior to current ownership                       --             --        151,518
     Loss and unrealized loss on securities              78,124        256,543        334,667
     Loss on abandoned equipment                         10,968             --         10,968
     Loss on sale of patent license                      91,032             --         91,032
     Depreciation                                        41,795         51,591        204,906
     Bad debts                                               --          1,000        221,000
     Amortization of:
       Prepaid expenses                                   8,906         28,906      1,262,549
       Intangibles                                      106,424        129,434        417,517
     Stock issued for services                          111,692        492,864      3,366,428
     Stock issued for extraordinary loss                     --             --        140,550
     Deferred income taxes                                   --             --       (397,852)
Changes in assets and liabilities:
     Decrease (increase) in accounts receivable
       and accounts receivable - related parties         75,034         11,729         60,173
     Decrease (increase) in inventory                   (12,201)        32,774        (14,015)
     Decrease in advances to consultants                     --             --         20,000
     Decrease (increase) in prepaids and other assets     9,734        (20,000)      (257,266)
     Increase (decrease) in accounts payable
       and accounts payable - related parties             9,832       (289,770)       128,667
     Increase (decrease) in accrued expenses             57,480             --         57,480
                                                    -----------    -----------    -----------

        Net Cash (Used in) Operating Activities        (328,808)      (872,325)    (3,654,906)
                                                    -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid for property and equipment                (4,474)        (8,276)      (270,188)
     Cash paid for patent licensing                     (22,069)       (67,754)      (250,835)
     Proceeds from sale of fixed assets                   6,213             --          6,213
     Proceeds from sale of securities                    51,644        919,268        970,912
     Business acquisition                                    --             --        (44,820)
     Notes receivable                                        --             --       (220,000)
                                                    -----------    -----------    -----------

        Net Cash Provided by Investing Activities        31,314        843,238        191,282
                                                    -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuing stock                        180,000         75,000      3,124,459
     Capital lease obligation                                --             --          7,765
     Cash paid on capital lease                              --           (372)        (7,765)
     Additional capital contributions                        --             --          2,367
     Advances and loans from related parties             65,265        138,015        496,864
     Repayments to related parties                      (29,096)      (124,599)      (153,695)
                                                    -----------    -----------    -----------

        Net Cash Provided by Financing Activities   $   216,169    $    88,044    $ 3,469,995
                                                    -----------    -----------    -----------

               The accompanying notes are an integral part of these consolidated
                                     financial statements.

                                             F-10
<PAGE>
                                         MIGAMI, INC.
                               (FORMERLY KLEENAIR SYSTEMS, INC.)
                                 (A Development Stage Company)
                             Consolidated Statements of Cash Flows

                                                        For the Years Ended
                                                           December 31,           Cumulative
                                                    --------------------------   During Devel-
                                                       2005            2004       opment State
                                                    -----------    -----------    -----------
                                                                    (Restated)

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                      (81,325)        58,957          6,371

CASH AND CASH EQUIVALENTS AT BEG OF YEAR                 87,696         28,739             --
                                                    -----------    -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR            $     6,371    $    87,696    $     6,371
                                                    ===========    ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION

     Cash Payments For:
        Interest                                    $    3,472     $    5,613     $   17,367
        Income taxes                                $       --     $       --     $       --

     Non-Cash Investing and Financing Activities

      Stock Issued for:
        Compensation and directors' fees            $    2,457     $   79,200     $1,420,307
        Consultants and prepaid services            $  109,235     $  413,664     $3,265,635
        Equipment                                   $       --     $       --     $    8,300
        Patent licensing                            $       --     $       --     $   14,900
        Repurchase of U.S. diesel license           $       --     $       --     $   62,500
        Acquisition of National Diversified
            Telecom, Inc.                           $       --     $       --     $  140,550
        Acquisition of Carbon Cloth
            Technologies, Inc.                      $       --     $       --     $  981,514
        Uncompleted business acquistion             $       --     $       --     $   87,500
        Purchase of marketable securities           $       --     $1,408,234     $1,408,234
      Sale of marketing license for
           notes receivable                         $       --     $       --     $1,736,558
      Sale of patent license for related
           party receivable                         $  180,000     $       --     $  180,000

               The accompanying notes are an integral part of these consolidated
                                     financial statements.

                                             F-11
</TABLE>

<PAGE>

                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization
         ------------

         Migami, Inc. (formerly KleenAir Systems, Inc.) (the Company) was
         originally incorporated in 1986 in Nevada as Covington Capital
         Corporation. Prior to its current name, the Company had various names
         as endeavors were attempted. None of these proved fruitful. In April
         1995, the Company purchased a patent for a proprietary device that had
         been shown to be capable of neutralizing the environmental impact of
         nitrous oxide from the exhaust emissions from internal combustion
         engines without significant modifications to the engine or the vehicle
         it was powering. This device is known as the "NOxMASTER(TM)." Soon
         after the acquisition of this patent along with the right to use of the
         seller's name, the Company changed to its current name. With the patent
         acquisition in April 1995, the Company moved into the development stage
         and has since worked toward the completion of tests, fine tuning, and
         clearance of California Air Resources Board standards. The product is
         currently being sold and installed on commercial vehicles in England
         and has been tested for applications in other parts of Europe and Asia.
         Authorities who set emission standards in the U.S. have continued to
         waver in the establishment of a final set of criteria for certifying
         that a device will reduce offending emissions. This continued delay in
         criteria has prevented the Company from initiating sales within the
         U.S.

         During April 2002, the Company acquired Carbon Cloth Technologies, Inc.
         (Carbon Cloth). Carbon Cloth owns the exclusive rights to manufacture
         and market automotive thermal management systems. Certain applications
         of the Company's NOxMASTER(TM) are enhanced by the addition of the main
         product offered by Carbon Cloth. The sharing of Carbon Cloth's customer
         base and contacts in connection with the compatibility and joint
         benefits of the mutual products were expected to enhance sales of both
         products.

         Accounting Methods
         ------------------

         The Company's consolidated financial statements are prepared using the
         accrual method of accounting. The Company has elected a December 31
         year end.

         Development stage reporting
         ---------------------------

         Generally accepted accounting principles call for certain presentations
         of cumulative financial statement information from inception to the
         date of the financial statements. Since the Company restarted its
         operations (from a position of inactivity) in April 1995, these
         statements present information from the inception of its development
         stage.

         Principles of Consolidation
         ---------------------------

         The consolidated financial statements include the accounts of Carbon
         Cloth, its wholly-owned subsidiary. All material intercompany accounts
         and transactions have been eliminated in the consolidation.


                                      F-12
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         Cash and Cash Equivalents
         -------------------------

         Cash equivalents include short-term, highly liquid investments with
         maturities of three months or less at the time of acquisition.

         Inventory
         ---------

         Inventories are stated at the lower of cost or market (net realizable
         value), and consist mostly of parts.

         Investments
         -----------

         The Company's securities investments are held principally for the
         purpose of selling them in the near term and are all classified as
         trading securities. Trading securities are carried at fair value on the
         balance sheet in current assets, with any change in fair value during
         the period, i.e., net unrealizable gains and losses, included in
         current operations. Costs associated with realized gains are recognized
         on the first-in, first-out basis.

         Marketable securities that are restricted for more than a year have
         been classified as long term investments and are carried at cost.
         Impairments that are other than temporary are expensed in the statement
         of operations, with a corresponding decrease in the investment value.

         Investments in Closely Held Entities
         ------------------------------------

         The equity method of accounting is used when the Company has a 20% to
         50% interest in other entities. Under the equity method, original
         investments are recorded at cost and adjusted by the Company's share of
         undistributed earnings or losses of these entities, but not below zero.
         As discussed at Note 5, the Company owns a 23% interest in KleenAir
         Systems International Plc in the U.K.

         Property and Equipment
         ----------------------

         Property and equipment is recorded at cost. Major additions and
         improvement are capitalized. The cost and related accumulated
         depreciation of equipment retired or sold are removed from the accounts
         and any differences between the undepreciated amount and the proceeds
         from the sale are recorded as gain or loss on sale. Depreciation is
         computed using the straight-line method over the estimated useful life
         of the assets as follows:

               Description                                 Estimated Useful Life
               -----------                                 ---------------------
               Buildings and improvements                         30 years
               Machinery and equipment                            10 years
               Computer equipment                                 3 years
               Automobiles                                        5 years
               Office and other equipment                         5 years

                                      F-13
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         Depreciation expense for the years ended December 31, 2005 and 2004 was
         $41,795 and $51,591, respectively.

         In accordance with Financial Accounting Standards Board Statement No.
         144, the Company records impairment of long-lived assets to be held and
         used or to be disposed of when indicators of impairment are present and
         the undiscounted cash flows estimated to be generated by those assets
         are less than the carrying amount. At December 31, 2005, no impairments
         were recognized.

         Research and Development Costs
         ------------------------------

         Research, development, and engineering costs are treated as expenses
         during the year incurred. Costs incurred are as disclosed in the income
         statement.

         Patent and Licensing Costs
         --------------------------

         Only the direct cost of obtaining license or patents and costs of
         extending or perfecting the patents are eligible for capitalization.
         These capitalized costs are amortized over the estimated useful life of
         the patent, generally five to fifteen years, using the straight-line
         method. The cost of the patent applications in process for new products
         is not amortized until the patents are issued. Costs of patent
         applications for products that extend the use of existing products are
         amortized with the cost of the existing product. In the event that a
         patent is superseded, the unamortized costs are written off
         immediately.

         The Company purchased the rights to the patent for its NOxMASTER(TM)
         and has developed other patents as discussed at Note 8 below. However,
         during 2005, the Company sold its interest in all patents except the
         carbon cloth patents. See Note 8 regarding the sale of patents. The
         costs of the patent and licenses, along with legal costs incurred to
         register and protect them, have been capitalized and are being
         amortized now that sales of the product have commenced. Amortization is
         being charged on a straight-line basis over the ten years beginning
         April 2003. Amortization expense of $8,156 and $31,166 related to these
         rights has been charged to operations during the years ended December
         31, 2005 and 2004.

         The acquisition costs allocated to the CarbonGuard(TM) (Carbon Cloth's
         intangible asset) is being amortized over the fifteen years beginning
         May 2002. Amortization expense for this asset of $98,268 and $98,268
         has been charged to operations during the years ended December 31, 2005
         and 2004.

         Revenue Recognition
         -------------------

         Sales are recorded when products are shipped to customers. Provisions
         for discounts and rebates to customers, estimated returns and
         allowances, and other adjustments are provided for in the same period
         the related sales are recorded. In instances where products are
         configured to customer requirements, revenue is recorded upon the
         successful completion of the Company's final test procedures.

                                      F-14
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         Stock-Based Compensation
         ------------------------

         The Company accounts for services acquired (and other expenses paid)
         using stock as compensation (or payment) based on the fair value of the
         shares issued. Fair value is determined based on the closing price of
         the stock on the date the Company becomes obligated to issue the
         shares. Due to thin trading volume of the Company's stock, most stock
         issuances are recorded at a discount to the market price because of the
         effective limitations on disposal by the recipient of the shares.
         Restricted shares issued for services are discounted at a greater
         discount because of the added limitation on the tradability of the
         restricted shares.

         Income Taxes
         ------------

         The Company accounts for income taxes in accordance with FASB Statement
         No. 109, "Accounting for Income Taxes." Under FAS 109, deferred income
         tax assets and liabilities are recorded for the income tax effects of
         differences between the bases of assets and liabilities for financial
         reporting purposes and their bases for income tax reporting. The
         Company's differences arise principally fro the use of accelerated and
         modified accelerated cost recovery system for income tax purposes
         versus straight line depreciation and from utilization of net operating
         loss carry-forwards.

         Deferred tax assets and liabilities are the amounts by which the
         Company's future income taxes are expected to be impacted by these
         differences as they reverse. Deferred tax assets are based on
         differences that are expected to increase future income taxes as they
         reverse. Corresponding, deferred tax liabilities are based on
         differences that are expected to increase future income taxes as they
         reverse. Note 7 below discusses the amounts of deferred tax benefits
         and deferred tax liabilities. The Note also presents the impact of
         significant differences between financial reporting income and taxable
         income.

         Estimates
         ---------

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect reported amounts of assets and liabilities,
         disclosure of contingent assets and liabilities at the date of the
         financial statements and expenses during the reporting period. In these
         financial statements, assets, liabilities and expenses involve
         extensive reliance on management's estimates. Actual results could
         differ from those estimates.

         Earnings Per Share
         ------------------

         In February 1997, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
         Per Share," which requires the Company to present basic and diluted
         earnings per share, instead of the primary and fully diluted earnings
         per share. The computation of basic earning per share is based on the
         weighted average number of common shares outstanding during the periods
         presented. The computation of diluted earnings per shares is based in
         the weighted

                                      F-15
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         average number of outstanding common shares during the year plus, when
         their effect is dilutive, additional issuable shares, assuming the
         exercise of certain vested and non-vested stock options and warrants
         and conversion rights, reduced by the number of shares that could be
         purchased from any proceed generated.

         Basic (Loss) Per Share
         ----------------------

         The computations of basic (loss) per share of common stock are based on
         the weighted average number of common shares outstanding during the
         period of the consolidated financial statements.

                                                           December 31,
                                                  -----------------------------
                                                      2005             2004
                                                  -------------   -------------

          Numerator - (loss)                      $    (917,628) $   (1,567,396)
          Denominator - weighted average
            number of shares outstanding             60,335,130      47,375,811
                                                  -------------   -------------
              Loss per share                      $       (0.02)  $       (0.03)
                                                  =============   =============

         Financial Instruments
         ---------------------

         Unless otherwise specified, Management believes the carrying value of
         its financial instruments approximates their fair value due to the
         short term to maturity. Investments in marketable securities are
         carried at market value.

         Accounts Receivable
         -------------------

         Accounts receivable are shown net of an allowance for doubtful accounts
         of $-0- at December 31, 2005. An allowance is established whenever
         receivables are over 90 days old and the customer has not responded to
         efforts to reconcile differences. Such receivables are deemed to be
         uncollectible after 180 days. There were no such receivables for the
         current year.

         Newly Adopted Pronouncements
         ----------------------------

         On December 16, 2004, the FASB issued SFAS No. 123(R), Share-Based
         Payment, which is an amendment to SFAS No. 123, Accounting for
         Stock-Based Compensation. This new standard eliminates the ability to
         account for share-based compensation transactions using Accounting
         Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
         Employees, and generally requires such transactions to be accounted for
         using a fair-value-based method and the resulting cost recognized in
         our financial statements. This new standard is effective for awards
         that are granted, modified or settled in cash in interim and annual
         periods beginning after June 15, 2005. In addition, this new standard
         will apply to unvested options granted prior to the effective date. The
         Company has adopted this new standard effective for the fourth fiscal
         quarter of 2005, the impact this standard has had on its financial
         position and results of operations has been minimal.


                                      F-16
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         In November 2004, the FASB issued SFAS No. 151, Inventory Costs -- an
         amendment of ARB No. 43, Chapter 4. This Statement amends the guidance
         in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
         accounting for abnormal amounts of idle facility expense, freight,
         handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43,
         Chapter 4, previously stated that ". . . under some circumstances,
         items such as idle facility expense, excessive spoilage, double
         freight, and rehandling costs may be so abnormal as to require
         treatment as current period charges. . . ." This Statement requires
         that those items be recognized as current-period charges regardless of
         whether they meet the criterion of "so abnormal." In addition, this
         Statement requires that allocation of fixed production overheads to the
         costs of conversion be based on the normal capacity of the production
         facilities. This statement is effective for inventory costs incurred
         during fiscal years beginning after June 15, 2005 and has not had a
         material impact on the Company.

         SFAS No. 153 -- In December 2004, the FASB issued SFAS No. 153 (SFAS
         153) "Exchange of Non-monetary assets". This statement was a result of
         a joint effort by the FASB and the IASB to improve financial reporting
         by eliminating certain narrow differences between their existing
         accounting standards. One such difference was the exception from fair
         value measurement in APB Opinion No. 29, Accounting for Non-Monetary
         Transactions, for non-monetary exchanges of similar productive assets.
         SFAS 153 replaces this exception with a general exception from fair
         value measurement for exchanges of non-monetary assets that do not have
         commercial substance. A non-monetary exchange has commercial substance
         if the future cash flows of the entity are expected to change
         significantly as a result of the exchange. This statement is effective
         for non-monetary assets exchanges occurring in fiscal periods beginning
         after June 15, 2005. The adoption of SFAS 153 will not have a material
         effect on the Company's financial position or results of operations.

         SFAS No. 154--In May 2005, the Financial Accounting Standards Board,
         issued Statement of Financial Accounting Standards ("SFAS, No. 154"),
         "Accounting Changes and Error Corrections," which replaces Accounting
         Principles Board Opinion No. 20, "Accounting Changes," and SFAS No. 3,
         "Reporting Accounting Changes in Interim Financial Statements -- An
         Amendment of APB Opinion No. 28". SFAS No. 154 provides guidance on
         accounting for and reporting changes in accounting principle and error
         corrections. SFAS No. 154 requires that changes in accounting principle
         be applied retrospectively to prior period financial statements and is
         effective for fiscal years beginning after December 15, 2005. The
         Company does not expect SFAS No. 154 to have a material impact on our
         consolidated financial position, results of operations, or cash flows.


                                      F-17
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 2 - GOING CONCERN

         The Company's consolidated financial statements are prepared using
         generally accepted accounting principles applicable to a going concern
         which contemplates the realization of assets and liquidation of
         liabilities in the normal course of business. The Company has neither
         sufficient operating revenues nor disposable assets to fund completion
         of its development program, current level of expenses, or initial
         production stages. In this situation, the Company is reliant solely
         upon its ability to raise capital through sales of its stock, debt
         financing, or acquisition of services through issuances of the
         Company's stock. There is no assurance that a market exists for the
         sale of the Company's stock or that lenders could be found to lend
         money to the Company. Should financing not be available, the Company
         would, in all likelihood, be forced to stop development efforts and/or
         to shut down its activities completely.

         Management has been in contact with various parties who are interested
         in providing funding for the completion of testing and trials to obtain
         certifications from the State of California and the EPA regarding the
         product's ability to function as an emission control device. Because of
         these contacts, Management anticipates that efforts to obtain
         certification will be continued and that there should be no substantial
         difficulties in obtaining sufficient financing to obtain such
         certifications and subsequent distribution. Additionally, testing in
         England resulted in product sales and installations during the second
         and third quarters of 2003 through the Company's U.K. affiliate.
         Sales/installations were halted for the fourth quarter of 2003 and all
         of 2004 and 2005, due to budgetary limitations under the U.K. trust
         that is administering the governmental cost sharing program. These
         sales are expected to resume in 2006 with the advent of a new budget
         period and final resolution of methods and practices by the trust.

         These financial statements do not include any adjustments relating to
         the recoverability and classification of recorded assets of the amount
         of liabilities that might be incurred should the Company be unable to
         continue in existence.

NOTE 3 - MARKETABLE SECURITIES AND LONG TERM INVESTMENTS

         Available for Sale
         ------------------

         During 2004, the Company acquired approximately 900,000 shares in
         Langley Park Investments Trust in England for $0.569 per share.
         Pursuant to a stock purchase agreement and escrow agreement, 50% of the
         shares are restricted from sale until July 2006. The agreement provides
         for downside price protection shares to be held in escrow until July
         2006 when Langley is provided with an option to buy back its shares at
         a discounted rate based on the decrease in the share price of Kleenair,
         or release the shares to the Company. As of December 31, 2005, it is
         likely that the shares will be released to the Company and therefore
         the shares have been recorded at fair market value.

                                      F-18
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 3 - MARKETABLE SECURITIES AND LONG TERM INVESTMENTS

         The following table presents information regarding the Company's non
         restricted investments in marketable securities at December 31, 2005
         and 2004.

                                                      2005            2004
                                                  -------------   -------------

         Aggregate cost basis                     $     256,803   $     130,256
         Unrealized gain/(loss)                        (154,148)        (64,656)
                                                  -------------   -------------

         Aggregate fair value (carrying value)    $     102,655   $      65,600
                                                  =============   =============

         Long Term Investments
         ---------------------

         The restricted shares have been recorded as long term investments not
         held for resale, at December 31, 2004 and recorded at cost. During
         2004, the shares were deemed impaired in the amount of $90,000. The
         restricted shares were re-categorized to available for sale investments
         during 2005, since the restriction lifts in less than one year. The
         shares were then recorded at fair market value with the unrealized loss
         being expensed in the statement of operations.

         Restricted securities in Long Term Investments are as follows at
         December 31, 2005 and 2004;

                                                      2005            2004
                                                  -------------   -------------

         Investment Cost                          $          --   $     256,803
         Permanent Impairment                                --         (90,000)
                                                  -------------   -------------
         Balance                                  $          --   $     166,803
                                                  =============   =============

NOTE 4 - EQUITY METHOD INVESTEE

         At December 31, 2003, the Company held a 30% interest in KleenAir
         Systems International, Inc. (KASI), a Bahamas-based entity. KASI owned
         100% of KleenAir Systems, Ltd. (KSL), a British entity. The Company
         received its interest in KASI pursuant to a licensing agreement with
         its President for European marketing rights for its products. As such,
         the Company has no cost in this investment. To date, KASI has not
         generated any net profit. Accounting rules do not provide for recording
         negative investments under the equity method accounting.

         During 2004, a new entity was formed in the U.K., KleenAir Systems
         International Plc (KSIP). His entity exchanged its stock for all of the
         outstanding shares of KASI, which became its wholly owned subsidiary.
         Subsequently, KSIP offered shares publicly to raise funds for
         operations.

         As a result of that offering, the Company's interest has been diluted
         to 23%. No amounts have been recorded on the Company's books because
         the investment would still be negative.

         The Company's President currently serves as a principal officer for
         KSIP.

                                      F-19
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 5 - RECEIVABLES

         Over the years, the Company has advanced funds to KSL for expenses
         incurred in the testing of the product on London taxicabs and buses and
         for operating expenses. In addition, there have been royalties accrued
         and invoicing for products delivered. During 2005, there were
         additional advances and, subsequent to the KSIP offering, repayments.
         In 2005 and 2004, the Company billed KSL for management fees of $63,000
         and $110,478, respectively, to offset the costs incurred by the
         Company's president during time devoted to assisting KSIP with its
         offering and working on the resumption of sales of the products. Net
         receivables from these related entities were $180,210 and $105,074 at
         December 31, 2005 and 2004, respectively.

         At December 31, 2005, receivables from unrelated parties were $32,800.
         In 2005, there was an allowance of $1,000 for doubtful collection. The
         carrying value of receivables is believed to approximate their fair
         values.

NOTE 6 - PREPAID EXPENSES

         The Company follows a practice of employing consultants for advisory
         services. Typically, these agreements often are for a one-year period
         and generally call for the bulk of the compensation to be paid with
         stock at the initiation of the services. The Stock compensation under
         these contracts is valued at its estimated fair value, in accordance
         with the Company's accounting policies, and recorded as prepaid
         services. This prepaid cost is then amortized to consulting fees over
         the period of the contract.

         The balance for items making up prepaid expenses at December 31, 2005
         was as follows:

                                                                       2005
                                                                  -------------
         Legal                                                    $       5,000
         Taxes                                                              800
         Research                                                           800
                                                                  -------------

         Aggregate fair value (carrying value)                    $       6,600
                                                                  =============

NOTE 7 - INCOME TAXES

         Because of timing, relative insignificance, and changes in control and
         management, the Company believes that it cannot benefit from operating
         losses before 1995 in calculating its income taxes. Operating losses
         reported for tax purposes vary from accumulated deficits in retained
         earnings due to differences in tax treatment, deductibility, or timing
         of various items. The tax loss carry-forwards are as follows:

                                      F-20
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 7 - INCOME TAXES (continued)

                                                              Amount of Net
                                                              Operating Loss
         Year of Expiration                                    Carry Forward
         ------------------                                -------------------
               2010                                          $    148,187
               2011                                               901,206
               2012                                                79,438
               2018                                               305,825
               2019                                               804,046
               2020                                               720,022
               2021                                               626,785
               2022                                             1,460,856
               2023                                             2,282,759
               2024                                             1,682,588
               2025                                               737,628
                                                             ------------
               Total                                         $  9,749,340
                                                             ============

         The Company has a deferred tax asset and liability at December 31,
         2005. This has risen from the difference in the depreciation deduction
         for book and tax purposes, from operating loss carry-forwards, from the
         difference between the tax and book bases for patent acquisition, and
         from the acquisition of Carbon Cloth. These result in a net deferred
         tax asset totaling $4,795,793 at December 31, 2005. However, because
         management is unable to determine when these deferred assets might be
         utilized, or that it is more likely than not that the Company will be
         able to utilize these deductions against future revenues, a valuation
         allowance has been recorded to completely offset the assets. There is
         no current income tax benefit or expense to be recorded for the period
         ended December 31, 2005. The following sets forth the components of
         income tax expense:

                                                      2005             2004
                                                  -------------   -------------
         Current Federal Income Tax               $          --   $          --
         Current State Income Tax                            --              --
         Deferred Tax Asset Change                      320,569        (636,244)
         Valuation Allowance Change                    (320,569)        636,244
                                                  -------------   -------------
            Income Tax Expense                    $          --   $          --
                                                  =============   =============

         Deferred tax liabilities arise primarily from the use of accelerated
         methods of depreciation of property and equipment for tax purposes and
         from differences in the tax and book bases for the patents (including
         the Carbon Cloth acquisition). The Company's deferred tax liabilities
         and assets are as set out below:

                                                      2005             2004
                                                  -------------   -------------
         Deferred tax assets:
           Patent costs                           $     574,861   $   1,135,040
           Marketable securities                         60,118          76,368
           Net operating losses                       3,875,840       3,588,165
                                                  -------------   -------------

                  Total                           $   4,510,819   $   4,799,591
                                                  =============   =============


                                      F-21
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 7 - INCOME TAXES (continued)

                                                       2005            2004
                                                  -------------   -------------
         Deferred tax liabilities
           Property and equipment                 $          --   $         272
           Investment in carbon cloth                   284,974         324,095
                                                  -------------   -------------

                Total                             $     284,974   $     324,367
                                                  =============   =============

         Net deferred tax asset                   $   4,795,793  $    4,475,224

         Valuation allowance                         (4,795,793)     (4,475,224)
                                                  -------------   -------------

         Amount reported on Balance Sheet         $          --   $          --
                                                  =============   =============

NOTE 8 - PATENTS, LICENSE, RESEARCH AND DEVELOPMENT

         In August 2005, the Company sold its interests in all patents except
         the carbon cloth patents to KleenAir Systems International, Inc. (KASI)
         for a $180,000 accounts receivable to be paid before December 31, 2006,
         an 8% royalty on the revenues from these patents and a license to
         manufacture and sell the patented systems in North America. The Company
         recorded a loss from the sale of patents in the amount of $(91,032).
         The patents held in 2004 and transferred to KASI in 2005 are as
         follows:

         Patents Sold
         ------------

         During April 1995, the Company acquired a patent for a proprietary
         device (the "NOxMASTER(TM)") that had been shown to reduce the
         pollutant content of emissions from internal combustion engines,
         primarily automobile engines. The cost of acquiring this patent was
         capitalized under the caption "Patent license" on the balance sheet.
         Since the acquisition of this patent, the Company has continued to
         refine the device and expand its applicability to a wider range of
         engines and has determined that diesel engines are a more optimal
         target. Also, the Company has been performing tests aimed at obtaining
         California and EPA certifications to be able to advertise and sell the
         device as a pollution reduction system. The Company obtained a ruling
         from the California Air Resource Board in 2001 that the diesel device
         does not increase pollutants. Obtaining the ruling and certification
         greatly expands the markets for the device. The Company's rights to the
         patent are subject to royalties totaling 7% of wholesale sales. The
         royalties do not require the Company to make minimum payments.
         Management has estimated that additional costs required to obtain U.S.
         and California governmental certifications should be in the $250,000 t0
         $400,000 range.

         The Company has continued to obtain additional patents and extend and
         protect its primary patent. A device for emission control on small
         engines has also been patented. Legal costs to file these patents are
         being capitalized.

                                      F-22
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 8 - PATENTS, LICENSE, RESEARCH AND DEVELOPMENT (continued)

         During 1996, the Company entered into an agreement to grant the
         Company's president an exclusive license for the worldwide rights to
         manufacture, market, distribute and sell the NOxMASTER(TM) to gasoline
         engines. In addition, the agreement granted the same rights for the
         application of the NOxMASTER(TM) to gasoline engines in Europe, the
         former Soviet Union, the Middle East, and Africa. In exchange for this
         transfer, the Company's president has established, KleenAir Systems
         International, Inc. (KASI), in the United Kingdom and transferred this
         license to it. KleenAir Systems, Ltd. Of the U.K. is a wholly owned
         subsidiary of KASI. The Company received a 30% ownership interest in
         KASI and is to receive a royalty of 8% of its gross revenue from sales
         of the product.

         During 1998, the Company repurchased the rights to the diesel system in
         the U.S. market by issuing 1,000,000 shares of common stock to
         Pollution Control, Inc., an entity controlled by the Company's
         president. This action was taken based on the advice of financial
         consultants to the Company.

         The Company and KASI also entered into a license agreement with
         Extengine Transport Systems, LLC (ETS) which is in the business of
         commercialization of environmental technologies and products. This is a
         ten-year, nonexclusive, worldwide manufacturing, marketing, and selling
         license for NOxMASTER(TM) devices. The Company has also entered into an
         exclusive ten-year California manufacturing, marketing rights, and
         distribution rights agreement for application of the NOxMASTER(TM) to
         gasoline engines and a ten-year, exclusive manufacturing, marketing,
         and distribution rights agreement for application of the NOxMASTER(TM)
         devices in China and India and to school and urban buses. These
         licenses set out per-unit prices and specify minimum annual units for
         each application once the Company has produced a commercially viable
         device and demonstrates manufacturing capability. During 2002, the
         Company moved to eliminate ETS's exclusivity in certain markets. This
         action was undertaken because of certain actions and certain inactions
         on the part of ETS. During 2004, management negotiated a settlement
         with ETS for its release of the exclusivity portions of its agreements.
         This allows the Company to pursue sales of the products in these
         markets.

         Besides the tests toward certification in California, the products have
         been tested in England for their application to pollution control on
         diesel taxicabs and buses. This testing is being carried on by KSl,
         (See the discussion about related parties at Note 15.) an entity in
         which the Company owns an indirect equity interest.

         Patents Retained
         ----------------

         During 2002, the Company acquired Carbon Cloth Technologies, Inc. in
         order to obtain tights to its CarbonGuard(TM) technology. This product
         is currently being marketed and the Company expects to be able to
         increase the product's market penetration. The CarbonGuard(TM) is a
         product that provides innovative insulation capabilities for stationary
         and high-performance engines.

                                      F-23
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 9 - PROPERTY AND EQUIPMENT

         Property and equipment consists of the following at December 31, 2005:

         Office furniture and equipment                           $      62,359
         Test vehicles                                                   28,928
         Analysis equipment                                             164,432
         Accumulated depreciation                                      (197,925)
                                                                  -------------

         Total property and equipment                             $      57,794
                                                                  =============

         Depreciation expense totaled $41,795 for the year ending December 31,
         2005. The office furniture and equipment, the analysis equipment, and
         the test vehicles are being depreciated on a straight-line basis over
         five years.

NOTE 10 - COMPENSATORY STOCK BENEFIT PLANS AND VALUATION BASIS

         During 1995, the Company adopted a Compensatory Stock Benefit Plan (the
         1995 Plan) for the furtherance of the Company by allowing the Company
         the option of compensating officers, directors, consultants, and
         certain other service providers who render bona fide services to the
         Company through the award of the Company's free trading common shares,
         Under the Plan, 33,333 shares were approved by the Board of Directors,
         of the shares approved for the Plan, 13,000 shares were issued, 4,667
         were committed in agreements with officers, and 2667, were committed to
         a consultant during 1995. During 1996, 9,667 shares were issued under
         this plan for directors' fees and officer compensation. These shares
         have been issued primarily for marketing and promotion services,
         directors' fees, and services to facilitate of the purchase of the
         patent.

         The 1995 Plan was terminated with the adoption of a "1996 Consultant
         and Employee Stock Compensation Plan" (the 1996 Plan). The 1996 Plan
         authorized the issuance of up to 500,000 freely tradable shares. These
         shares were to be used to further the growth through compensation of
         officers, directors, consultants, and other service providers. The
         board was given the authority to increase the number of shares as it
         deemed advisable and to file any necessary registration statements
         required for such increases. Under the 1996 Plan, the Company issued
         5,333 during 1996, but did not issue any shares under this plan in 1997
         or 1998. During 1999, the Company issued 300,000 shares under this plan
         for consulting services.

         In July 2000, the Company filed an S-8 registration (the S-8) to
         register 1,200,000 shares for compensation under five consulting
         agreements and reserved 750,000 shares for the future exercise of
         options under an Employee Stock Option Plan, discussed at Note 12. The
         shares for the consultants were issued in July 2002 in order to obtain
         those services. Subsequent to this filing, the board has issued 550,000
         of the shares reserved for the ESOP. Directors/officers and a key
         engineering consultant were issued 300,000 of these shares for his
         services requested that he be allowed to exchange those shares for S-8
         shares and was allowed to do so under the advice of legal counsel.
         During 2002, the Company issued an additional 76,800 shares under this
         plan.

                                      F-24
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 10 - COMPENSATORY STOCK BENEFIT PLANS AND VALUATION BASIS (continued)

         In September 2001, the Company filed an amendment to the S-8 to
         register an additional 2,200,000 shares. Of these shares, 1,270,000
         were issued in October to consultants for services to be provided over
         the next year. Another 21,687 of these shares were issued to product
         development consultants. During 2002, the Company issued (or contracted
         to issue), 576,192 shares to consultants and employees.

         In September 2004, the Company filed a second amendment to its S-8 to
         register another 1,250,000 shares. All of these shares were issued to
         consultants for services provided during the last quarter of the year.

         During 2005, the Company issued 25,470 S-8 shares and 1,243,700
         restricted shares to consultants for services, performed.

         As anticipated by these plans, the Company has acquired services with
         free trading shares. The Company has also issued unregistered
         restricted (Rule 144) stock in exchange for services. These
         transactions have been valued in accordance with the Company's
         accounting policy regarding stock compensation.

NOTE 11 - EMPLOYEE STOCK OPTION PLAN

         The Employee Stock Option Plan (ESOP) was established in July 2000 in
         coincidence with the S-8 registration and is to provide incentives for
         the attraction and retention of personnel. Its terms call for an
         exercise price of 100% of the closing price of the Company's stock on
         the date of the grant of the options. No such grants have been made
         under this plan.

NOTE 12 - STOCKHOLDERS' EQUITY

         During 1986, the Company completed an initial offering of 10,000,000
         shares of common stock with net proceeds (after commissions) of
         $112,233. Between that time and December 31, 1993, it is apparent that
         there were many stock transactions, reverse splits, and other actions.
         However, records regarding this period of time are not available.
         Additionally, no records are available which would allow an analysis of
         the retained earnings balance prior to 1995. Due to this lack of
         records, management believes that losses indicated by the negative
         retained earnings would not yield tax benefits to current operations.
         Inception-to-date information required for development stage companies
         is also unavailable for this period.

         In March 1995, the Company's Board approved a measure (ratified at a
         subsequent shareholders' meeting) whereby the Company's outstanding
         common shares were reverse split on the basis of one new share for ten
         shares held. In May 1997, the Board approved another reverse split.
         This time the reverse split was on the basis of one new share for 15
         shares held. In the following discussion, the share amounts have been
         restated to reflect the 1 for 15 reverse split. In February 2000, the
         Board approved a 2 for 1 split of shares effective March 20, 2000 in
         accordance with advice from marketing and investment consultants. All
         share amounts in the financial statements as well as share amounts
         presented below have been adjusted as though all of these changes in
         stock had occurred prior to the earliest presented information.


                                      F-25
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004

NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)

         In April 1995, the Company issued 933,334 shares of convertible,
         non-voting preferred stock and 60,000 common shares as consideration
         for the patent and a facilitation fee to a consultant. This transaction
         was recorded at the par value of the stock issued, $7,400.

         During 1995, other consulting services not directly related to the
         patent purchase were obtained through the issuance of 24,000 common
         shares valued at total of $111,875. Directors were issued a total of
         4,000 shares valued at $22,500. This stock-based compensation and the
         transactions described below have been valued as described in Note 1.
         The Company also issued 27,334 common shares pursuant to a Regulation S
         offering. Net proceeds to the Company after commissions were $66,804.
         in addition, $180,400 was received for 66,814 shares under the
         Regulation S offering prior to December 31, 1995, with the shares being
         issued during 1996.

         During 1996, the Company issued 24,666 common shares and 13,334
         preferred shares primarily to officers and directors pursuant to
         agreements and directors' resolutions for services rendered. These
         shares were valued at $201,875. Holders of options also exercised
         75,000 options to acquire a like number of common shares during March
         1996 by trading amounts owed them by the Company for the exercise
         price. This action effectively brought $112,500 to the Company through
         the reduction in payables.

         During 1997, the Company issued 66,666 preferred shares to its
         president in accordance with his employment contract. During December
         1998, the Board approved the issuance of 320,000 shares of stock to
         themselves and key consultants as compensation for services rendered
         during 1998. Both of these sets of shares have been included as
         outstanding shares and the costs have been recognized as expenses in
         the relevant periods. The shares were issued during 1999.

         During 1998, preferred stockholders exchanged 403,330 preferred shares
         for a like number of common shares. The Company issued 2,000,000 common
         shares to a financial and public relations consultant for services;
         2,000,000 and 800,000 shares to Pollution Control, Inc. for license and
         cash as discussed at Note 15; and 100,000 shares to a development
         consultant. A director was issued 20,000 shares for his services.

         During March 1999, the Company issued 600,000 shares under its S-8 plan
         discussed at Note 11 for investment guidance. These shares were valued
         at $75,000. Public relations/financial services were obtained during
         1999 through the issuance of 508,334 shares valued at $175,079.
         Analysis and test equipment was acquired in exchange for 33,200 shares
         valued at $8,300. The Company also issued 146,800 shares for $35,800
         cash and exchanged 61,334 common shares for the retirement for a like
         number of preferred shares.


                                      F-26
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 12 - STOCK HOLDERS' EQUITY (CONTINUED)

         During 2000, the Company issued 1,400,000 shares to Ecologic, LLC (an
         affiliate of ETS) for $350,000 under an agreement to provide funds for
         product testing. The Company issued 300,000 shares valued at $51,000 to
         officers/directors and a key engineering consultant in lieu of cash
         payments for their services to the Company. Outside consulting services
         were obtained in exchange for 1,344,266 shares valued at $553,868. (See
         discussion at Note 11 regarding 1,200,000 of these shares.) The Company
         also retired the last of its outstanding preferred shares through their
         conversion to 163,334 common shares. One of the issuances of shares for
         services included warrants (discussed below). The holders exercised
         14,000 of these warrants for proceeds of $8,750.

         As discussed in Note 13, the Company also issued both common and
         preferred stock for consulting services and employment agreements.

         The Company issued options to purchase common shares during 1996. These
         options arose from various transactions. Among these were 210,000
         options granted as incentives for enhanced product development efforts.
         Other options were granted as incentives to sign contracts. All options
         issued were to purchase one share for each option held. There was no
         market for these options. During 1996, options were exercised to
         purchase 75,000 shares. Options were reduced by the 1 for 15 reverse
         split authorized by the board of directors. No options were exercised
         during 1997 or 1998. At December 31, 1998, all options had expired.

         As mentioned above, during 2000, the Company issued warrants in
         conjunction with a stock issuance. These consisted of 138,000 warrants
         to buy one restricted share at $0.625 per warrant and expired on
         November 30, 2001. Of these, 14,000 were exercised during 2000 and the
         rest expired. The Company also issued two warrants to Ecologic. The
         first warrant which expired January 31, 2001, was for the purchase of
         1,000,000 shares at $.25 per share. Ecologic purchased 900,000 shares
         under this warrant during 2000, leaving a balance of 100,000 that were
         allowed to expire. The second warrant, which expired January 31, 2002,
         was to purchase 1,000,000 shares at the greater of $1 or one-half the
         average thirty-day bid price per share. This warrant expired without
         exercise.

         During 2001, the Company issued 218,500 restricted shares valued at
         $120,436 to consultants. Another 850,000 restricted shares valued at
         $78,540 were issued to directors and a key research person for services
         over the last year. Cash of $105,000 was received for the issuance of
         375,000 restricted shares. Consultants were issued 1,368,487
         unrestricted S-8 shares valued at $180,650.

         During 2002, the Company issued the following restricted shares: 15,500
         valued at $3,500 for product development, 50,000 valued at $16,250 for
         legal services, 100,000 valued at $32,500 for contract settlement,
         500,000 valued at $87,500 for uncompleted acquisition, and 833,250
         valued at $924,908 for Carbon Cloth acquisition. Another 2,804,545
         restricted shares were issued for cash totaling $1,720,000. In addition
         to restricted shares, the Company issued free-trading shares as
         follows: 524,192 valued at $257,342 for consulting services, 40,000
         valued at $44,400 for Carbon Cloth acquisition, and 12,000 valued at
         $8,340 for product development.


                                      F-27
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 12 - STOCK HOLDERS' EQUITY (CONTINUED)

         During 2003, the Company issued the following restricted shares as
         follows: 750,000 for a total of $75,000; 215,000 valued at $46,850 for
         consulting services; 50,000 valued at $8,250 for legal services;
         7,600,000 valued at $519,090 to directors and a key research person for
         services; and 82,500 valued at $12,788 for settlement of claims
         relating to marketing licenses. The Company also issued unrestricted
         shares as follows: 2,100,673 valued at $317,003 for consulting
         services; 22,500 valued at $4,534 for product development efforts;
         50,000 valued at $11,625 for settlement of claims related to marketing
         licenses; 228,932 valued at $55,053 for legal and other professional
         services; and 52,000 valued at $7,537 for office and clerical services.

         In 2004, restricted shares issued by the Company were as follows:
         750,000 for $75,000; 2,509,483 valued at $183,842 for consulting
         services; 1,200,000 valued at $79,719 for directors and management
         services; and 20,026,666 valued at $1,315,487 for marketable
         securities. Unrestricted shares issued were as follows: 1,690,563
         valued at $229,303 for advisory services and 501,333 valued at $75,200
         directly related to acquiring marketable securities. A total of 501,333
         warrants (discussed below) valued at $17,547 were also issued related
         to acquiring the marketable securities.

         The 501,333 warrants issued during 2004 (and outstanding at December
         31, 2004) are exercisable at any time before June 4, 2007. As an
         exercise option, the holder may elect to take only the number of shares
         equal to the increase in the price of the Company's stock after the
         date of the grant without having to pay the exercise price.

         The Company issued an option to a consultant to purchase $250,000 worth
         of stock at a 33% discount off the average bid price for the 10-day
         period before exercise. This option may be settled by an existing
         stockholder selling shares rather than by the Company issuing shares,
         these shares expired in 2004.

         During August 2005, the Company issued 4,000,000 shares of common stock
         for cash of $180,000. An additional 1,269,170 shares were issued for
         services valued at $111,701 which equaled the market price of the
         shares issued.

         Warrants
         --------

         The following table summarizes the changes in warrants outstanding and
         the related prices for the shares of the Company's common stock issued
         to non-employees of the Company. These warrants were granted in lieu of
         cash compensation for services performed.

                       Warrants Outstanding             Warrants Exercisable
               ------------------------------------- ---------------------------
                                         Weighted                   Weighted
                             Number       Average                    Average
                Exercise     shares     Contractual     Number      Exercise
         Year    Price     outstanding  Life (Years)  Exercisable     Price
         -------------------------------------------  --------------------------
         2004    $0.08       501,333        2.5         501,333       $0.08
         2005    $0.08       501,333        1.5         501,333       $0.08


                                      F-28
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 12 - STOCK HOLDERS' EQUITY (CONTINUED)

         Transactions involving the Company's warrant issuance are summarized as
         follows:

                                                                     Weighted
                                                                     Average
                                                    Number of        Exercise
                                                     Shares           Price
                                                  -----------------------------
         Outstanding as of January 1, 2004              250,000   $        1.00

         Granted                                        501,333            0.08
         Exercised
         Cancelled                                      250,000            1.00
                                                  -----------------------------
         Outstanding at December 31, 2004               501,333            0.08

         Granted                                             --              --
         Exercised                                           --              --
         Cancelled                                           --              --
                                                  -----------------------------
         Outstanding at December 31, 2005               501,333    $       0.08
                                                  =============================

NOTE 13 - EARNINGS PER SHARE

         Basic earnings per share has been calculated based on the weighted
         average common shares outstanding. As discussed above, a warrant to
         purchase 501,333 shares was outstanding, as well as the option to
         purchase $250,000 worth of stock. The shares underlying these options
         have not been added to outstanding common shares in a presentation of
         diluted earnings per share because the presentation would prove to be
         anti-dilutive.

NOTE 14 - RELATED PARTY TRANSACTION

         Many of the Company's consultants have, historically, also been
         stockholders of the Company. This includes engineering services,
         marketing and financial promotion, and management and stockholder
         services. As mentioned above, when the Company purchased the patent, it
         did so with preferred stock (later converted to common). Those
         stockholders continued many of the development and other services that
         they were providing before the Company made its acquisition.

         See the discussion of the granting of a license for Europe to the
         Company's President at Note 9 and the discussion at Note 16 regarding
         the aborted acquisition of National Diversified Telecom, Inc.

         During 1998, the Company sold 800,000 shares of common stock to
         Pollution Control, Inc. for $200,000. These funds were used to prepay
         financial and public relations services. The service provider also
         received 2,000,000 shares of restricted common stock that it assigned
         to Pollution Control in exchange for an equity interest in that entity.
         As discussed at Note 9, the Company issued 2,000,000 shares of
         restricted common stock to Pollution Control to repurchase the U.S.
         marketing rights for its diesel product. Pollution Control is
         controlled indirectly by the Company's President. Pollution Control's
         voting rights are held by the Company's President. These transactions
         effectively

                                      F-29
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 14 - RELATED PARTY TRANSACTIONS (CONTINUED)

         transferred control of the Company to Pollution Control and to the
         Company's President through his control of that block of voting stock.

         During July 1999, the Board approved the issuance of 420,000 shares of
         restricted stock to themselves and an engineering consultant for loans
         provided to the Company during 1998. In October 1998, the Board
         approved the issuance of 1,000,000 shares to themselves and the
         consultant in lieu of cash compensation in recognition of services
         provided to the Company during 1999.

         In December 2000, the Board approved the issuance of 300,000
         free-trading S-8 shares to themselves and an engineering consultant in
         lieu of cash payment for services rendered to the Company during 2000.

         In July 2001, the Board approved the issuance of 850,000 restricted
         shares to themselves and an engineering consultant in lieu of cash
         payment for services rendered to the Company during 2001. Additionally,
         the Board approved allowing the Board to purchase restricted shares to
         obtain cash. One member of the Board and an entity related to a member
         of the Board paid $85,000 for 325,000 shares.

         During December 2002, members of the Board purchased 350,000 shares of
         restricted stock for $70,000. Additionally, Pollution Control loaned
         the Company $50,000 documented in a demand note bearing interest at the
         rate of 7% compounded monthly until repaid.

         During 2003, the Board approved the issuance of 7,600,000 restricted
         shares to themselves and an engineering consultant as compensation for
         their services in lieu of cash payments. Loans from related parties
         totaled $147,000 during 2003. These loans were documented in demand
         notes and bear interest at the rate of 7% compounded monthly until
         repaid.

         In 2003, the Company generated a significant portion ($202,544)of its
         revenues from sales of its NOxMASTER(TM) product to KASI which, in
         turn, sold them to KSL. KSL resold the products to a third party for
         installation on taxicabs and busses in the U.K. The Company recognized
         its revenues at the first level, i.e., sales to KASI. At this point,
         there has been no inclusion of KASI's results of operations in the
         Company's financials due to cumulative losses incurred by that entity.
         No eliminations have taken place. This sales structure exists because
         of licensing arrangements discussed at Note 9.

         During 2004, the Company borrowed an additional $138,015 on the same 7%
         compounded terms set out above. It also repaid $104,015 of these loans.
         The Board approved the issuance of 1,200,000 to themselves and an
         engineering consultant as compensation for their services in lieu of
         cash payments.

         The Company's president is also serving as a principle officer for
         KleenAir Systems International Plc. in England and spends significant
         portions of his time pursuing the activities of those related entities.


                                      F-30
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 14 - RELATED PARTY TRANSACTIONS (CONTINUED)

         During 2005, the Company transferred all patents except Carbon Cloth
         Technology to KleenAir Systems International, Inc. for $180,000 and an
         8% royalty.

         During 2005, officers of the Company advanced $9,694 to the Company to
         support cash flow requirements. Several officers and employees were
         repaid a total of $21,790 on their loans to the Company.

NOTE 15 - EXTRAORDINARY LOSS ITEMS

         During February 1996, the Company entered into an agreement to acquire
         100% of the stock of National Diversified Telecom, Inc. (NDT). The
         Company's president was also a significant owner of NDT. The
         acquisition required the issuance of 40,000 shares of the Company's
         restricted common stock. In addition, the Company advanced $15,000 to
         NDT for operations. It was subsequently determined that the Company
         would not benefit from the attributes of NDT that the Company had
         anticipated. As a result of this determination, the Company defaulted
         on its agreement to provide an additional $5,000 to NDT and moved to
         "undo" the agreement. In "undoing" the agreement, the Company did not
         receive back the %15,000 or the stock. The value of the shares, the
         $15,000, NDT audit fees paid by the Company and certain other costs
         have been reported as an extraordinary item in the Statement of
         Operations.

         In 2002, the Company initiated an acquisition agreement. By the terms
         of the agreement, the Company issued 500,000 restricted shares to the
         owner of the target as a discussion incentive. Additional shares and
         cash were due on consummation. This deal has been placed on hold for at
         least the time being. The shares, valued at $87,500, have been recorded
         as an extraordinary expense.

NOTE 16 - ACQUISITION OF CARBON CLOTH TECHNOLOGIES, INC.

         Effective April 30, 2002, the Company acquired Carbon Cloth
         Technologies, Inc. (Carbon Cloth), a California corporation. Carbon
         Cloth is a manufacturer of automotive thermal management systems. Its
         CarbonGuard(TM) product is currently installed on a number of New York
         City Transit Authority buses as enhancements for the operating
         efficiency of particulate traps. This product generated revenues during
         2003 and 2004. Its primary market at this time is environmentally
         mandated retrofit applications which are largely funded by governmental
         agencies. These agencies operate under strict annual budgets which
         limit the size of any given project and cause deferral of work from
         year to year. As the product continues to prove its viability, sales
         are expected to grow. It is also anticipated that there will be a
         synergy of sale form the combination of the Company's emission control
         device and Carbon Cloth's products.


                                      F-31
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 16 - ACQUISITION OF CARBON CLOTH TECHNOLOGIES, INC (Continued)

         This acquisition was accomplished through the issuance of common stock
         in exchange for all of the stock of Carbon Cloth. The results of Carbon
         Cloth's operations have been included in the Company's consolidated
         financial statements since the date of acquisition. The Company issued
         833,250 restricted shares for this acquisition along with 40,000
         unrestricted S-8 shares issued for services provided in the acquisition
         process. A portion of the acquisition agreement created an employment
         agreement that called for the issuance of an additional 146,750 shares
         as incentive commissions based on achievement of product sales. These
         additional shares were paid as compensation.

         The purchase price was allocated to the individual assets acquired
         (primarily the CarbonGuard(TM) product) and liabilities assumed based
         upon their respective fair values at the date of acquisition as set
         forth below. Accounting rules require the recognition of deferred taxes
         for difference between the tax bases of the assets acquired and the
         amount recorded in the consolidated books. The acquisition resulted in
         the addition of the following balance sheet elements as of April 30,
         2002:

                 Accounts receivable                   $      22,397
                 Inventory                                    10,331
                 Fixed Assets (net)                            1,392
                 Patent license                            1,474,003
                 Payables                                    (96,144)
                 Deferred tax liability                     (397,853)
                 Equity                                   (1,014,126)


NOTE 17 - LEASE

         On March 8, 2005, the Company signed a new lease for office space. The
         lease requires monthly payments of $2,468 and expires in 2 years.
         Future minimum lease payments are as follows:

                 2006                                  $      29,616
                 2007                                          7,404
                                                       -------------
                                                       $      37,020
                                                       =============

NOTE 18 - CONCENTRATIONS

         A majority of the Company's NOxMASTER(TM) sales have been for
         installation in England. Essentially all of the sales revenue reported
         in 2004 and 2005 were to one customer. These concentrations are
         expected to continue for at least the near future until such time as
         the Company can obtain certifications from the CARB and EPA.


                                      F-32
<PAGE>
                                  MIGAMI, INC.
                        (FORMERLY KLEENAIR SYSTEMS, INC.)
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                           December 31, 2005 and 2004


NOTE 19 - SUBSEQUENT EVENTS

         Effective January 1, 2006, the Company granted an option to Pollution
         Control to acquire all the outstanding shares of KleenAir Systems North
         America, a wholly owned subsidiary of the Company to which the Company
         has transferred the title to all assets and liabilities of the Company,
         including the patents and technology of Carbon Cloth.

         The option is exercisable for three years for the purchase price of
         $1,800,000 payable for five years from 50% of the 8% royalty owned by
         the Company for revenues generated from Kleen Air Systems
         International.

NOTE 20 - PRIOR PERIOD ADJUSTMENT

         The 2004 Statements of Operations, Cash Flows and Statements of
         Stockholders' Equity have been adjusted for a correction of an error
         discovered in 2005. The Langley Park marketable securities that were
         restricted at December 31, 2004 were erroneously reported as available
         for sale and recorded at fair market value, when they should have been
         recorded at cost less any permanent impairment. The effect of the
         correction of the error on the 2004 statement of operations was a
         decreased in the unrecognized loss on marketable securities of $37,221.
         The net loss was improved by the same amount. The effects are as
         follows for 2004:

<TABLE>

                                              As Originally       As
                                                 Report         Adjusted       Difference
                                              ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
         Income before extraordinary items    $ (1,604,617)   $ (1,567,596)   $     37,221
                                              ============    ============    ============
         Net Loss                             $ (1,604,617)   $ (1,567,596)   $     37,221
                                              ============    ============    ============
         Earnings Per share                   $      (0.03)   $      (0.03)   $         --
                                              ============    ============    ============
</TABLE>


                                      F-33