SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-KSB
 
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES ACT OF 1934
 
 For the
Fiscal Year Ended December 31, 2005
 
 COMMISSION
FILE NO. 0-32905
 
 AMANASU
ENVIRONMENT CORPORATION
 
 (Name of
small business issuer as specified in its charter)
 
 NEVADA
    
    98-0347883(State
      or other jurisdiction of incorporation)
    
    (IRS
      EmployerIdentification
      No.)
 
 701 FIFTH
AVENUE, 42nd FLOOR, SEATTLE, WA 98104
 (Address
of principal executive offices)
 
 206-262-8188
 (Issuer's
telephone number)
 Securities
registered pursuant to Section 12(b) of the Exchange Act: NONE
 
 Securities
registered pursuant to Section 12(g) of the Exchange Act:
 
 Title of
each class:
 Common
Stock, no par value
 
 Check
whether the issuer (1) 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.
 x Yes  o No
 x Yes  o No
 Check if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this form 10-KSB or any amendment to
this Form 10-KSB. x
 
 State the
issuer's revenues for its most recent fiscal year: $ -0-.
 
 The
aggregate market value of the voting stock held by non-affiliates of the
registrant on March 15, 2006,
com puted by
reference to the price at which the stock was sold on that date:
$2,442,694.80.
 
 The
number of shares outstanding of the registrant's Common Stock, no par value, as
of March 15, 2006 was
44,000,816 common
shares.
  1
  **PART
I**
 
 **Item
1. Description Of Business**
 
 **General**
 
 Amanasu Environment Corporation ("Company") was incorporated in the State of
Nevada on February 22, 1999 under the name of Forte International Inc. On March
27, 2001, the Company's name was changed to Amanasu Energy Corporation, and
on November 13, 2002, its name was changed to Amanasu Environment Corporation.
 
 The Company is a development stage company and significant risks exist with
respect to its business (see "Cautionary Statements" below). It has acquired
the exclusive, worldwide license rights to a high temperature furnace, a hot
water boiler, and ring-tube desalination methodology. At this time, the Company
is not engaged in the commercial sale of any of its licensed technologies. Its
operations to date have been limited to acquiring the technologies, conducting
limited product marketing, and testing the technologies for commercial sale.
For each such technology, proto-type or demonstrational units have been
constructed by each licensor or inventor of the technology. The Company has
conducted various internal tests on these units to determine the commercial
viability of the underlying technologies. As a result of such testing, the Company
believes that the products are not commercially ready for sale, and that product
refinements are necessary with respect to each of the technologies.
In addition, the Company may seek joint venture or other affiliations with
companies competitive in each respective product market whereby the Company
can capitalize on the existing infrastructure of such other companies, such
as product design and engineering, marketing and sales, and warranty and
post-warranty service and repair. The Company believes that its marketing
efforts to sell any of its products will be limited until such time as it can complete
the refinements of its technologies. The Company can not predict whether
it will be successful in developing commercial products, or establishing affiliations
with any operating company.
 
 On  June  8,  2000, the Company obtained the exclusive, worldwide license to a
technology that  disposes  of  toxic  and  hazardous  wastes  through  a
proprietary, high temperature  combustion  system,  known  as the Amanasu
Furnace. The rights were obtained pursuant to a license agreement with
Masaichi Kikuchi, the inventor of the technology, for a period of 30 years.
The Company issued 1,000,000 share of common stock to the inventor and
200,000 shares of common stock to a director of the inventor. Under the
licensing agreement; the Company is required to pay the licensor a royalty of
two percent of the gross receipts from the sale of products using the technology.
If the Company fails to comply with any provision of the agreement after a 90-day
notice period, the licensor may terminate the agreement.
 
 Effective September 30, 2002, the Company obtained the exclusive, worldwide
license to a hot water boiler technology that incinerates waste tires in a safe
and non-polluting manner and extracts heat energy from the incineration process.
The rights were obtained pursuant to a license agreement with Sanyo Kogyo
Kabushiki Gaisha and Ever Green Planet Corporation, both Japanese companies,
for a period of 30 years. As consideration for this acquisition, the Company paid
the licensors $250,000, of which the Company's President paid $95,000, issued
to them 600,000 shares of common stock, and issued to an affiliate of the
licensors 50,000 shares of common stock. The licensors are entitled to receive
a two percent royalty on the gross receipts from the sale of the products related
to the technology. If the Company fails to comply with any provision of the
agreement after a 90-day notice period, the licensor may terminate the agreement.
 
 On June 30, 2003, the Company acquired the exclusive worldwide rights to produce
and market a patented technology that purifies seawater, and removes hazardous
pollutants from wastewater.  The rights were obtained pursuant to a license
agreement with Etsuro Sakagami, the inventor, for a period of 30 years.
As consideration for obtaining the license, the Company issued 1,000,000 shares
to the inventor, and 50,000 shares to a finder. The licensor is entitled to receive
a two percent royalty on the gross receipts from the sale of the products related
to the technology. If the Company fails to comply with any provision of the
agreement after a 90-day notice period, the licensor may terminate the agreement.
  2
  The Company's principal offices are located at 701 Fifth Avenue, 42nd Floor,
Seattle, Washington 98104, and its telephone number is (206) 262-8188.
The Company also maintains an office at 1-3-38 Roppongi, Minatoku, Tokyo,
106-0032, Japan.
 
 
 **Technologies
Of The Company**
 
 **Amanasu
Furnace** .
 
 Overview
and History .
 
 The
technology, known as the Amanasu Furnace, is a process that disposes of toxic
and hazardous waste, through a proprietary, high temperature combustion system.
The combustion system is a low cost methodology of generating extremely high
temperatures is excess of 2,000 Celsius. Waste matter exposed to the extreme
temperature system is instantly decomposed to a gaseous matter and a magna-like
liquid. The process leaves a 1-2% residue of an inert, carbon substance and
oxygen which vented out of the system. The process produces no toxins, smoke,
ash, or soot.
 
 Mr.
Masaichi Kikuchi, the inventor of the technology, constructed the first and only
Amanasu furnace in 1996. The unit is located on the island of Hokkaido, Japan.
The unit operated from 1996 to October 2002 when it was shut down for noise
pollution to a nearby neighborhood. Although the Hokkaido unit was shut down due
to noise pollution, the Company believes that the operating noise of the furnace
is normal for this type of equipment.
 
 Description
of the Amanasu Furnace .
 
 The
Amanasu furnace is a waste disposal system that safely and efficiently disposes
of toxic and hazardous wastes. The system has three general features; the
proprietary combustion burner, the furnace compartment, and the gas processing
compartment.
 
 The
proprietary aspect of the Amanasu furnace is the unique combustion system that
generates abnormally high temperatures in excess of 2,000 degrees Celsius within
the furnace compartment. A proprietary formula of low cost metals, such as
powered aluminum and iron, is combined with an air pressurized, hydrocarbon
flame creating a superheated hydrogen combustion flame. A spray nozzle or burner
injects the flame into the furnace compartment where the flame is irradiated
with microwaves to create an ionized flame reaching a heat conversion
temperature of 18,000 C but an actual measured temperature of 1,800-2,300 C
inside the furnace compartment. By contrast, an ordinary burner, neutral flame
reaches temperatures between 800 to 1,600 C. In order to raise the temperature
to the 1,800 to 2,300 degrees C range, large amounts of additional energy is
required, typically, electricity. The cost of this energy source is expensive
and generally would be cost prohibitive to the operation of a furnace. The
Company's proprietary system reaches these temperatures using approximately 20
gallons of kerosene or light oil per hour for each one ton of daily capacity.
For example, a five ton daily capacity unit requires five times as much
hydrocarbon use or 100 gallons, per hour. The furnace reaches maximum
temperatures within four to five hours after flame ignition. The resultant
effect is a low cost methodology of generating extremely high temperatures
within a confined furnace compartment.
  3
  The inner
walls of furnace and the combustion burner itself are protected from the extreme
heat by magnetrons and tokomak. Magnetrons are circular magnets that deflect the
gaseous ions from the furnace walls to the center of the furnace. Tokomak is an
insulating material that further protects the furnaces walls from the extreme
heat. Waste matter enters a feed dump where a conveyor or overhead grapple
continuously feeds the waste to the furnace compartment. Once inside the high
temperature furnace compartment, the chemical compounds of waste matter are
instantly ionize or disintegrated into gaseous matter and a magna-like liquid.
The magna-like liquid is water cooled to form a dense, inert carbon matter. The
combustion gases resulting from the ionization first receive a light irradiation
process to prevent recombination. A primary high speed water dousing process
follows whereby the gas is cooled to 1,300 C. A series of two to four reaction
tanks, similar to water shower units, further cool the gases, and sulfuric acid
and nitric acid are removed through processing. Finally, the cooled gas, in the
form of oxygen, is filtered and vented from the system as warm air at below 60
degrees C. The process is unlike conventional waste incinerators, as it produces
no toxins, smoke, ash, or soot. The vented oxygen has dioxin levels below 0.01
nanogram and dibenzoflan levels below 0.001 nanogram. The inert carbon matter
produced in the form of pellets is no more than 2% of the original mass, and can
be used for roadway surfaces or disposed of in landfills.
 
 The outer
housing of the Amanasu furnace is constructed of fabricated steel. Ancillary
equipment, other than as described above, includes feed hoppers, pipe conveyors,
fuel polarization equipment, air polarization equipment, turbo fans, and an air
compression system for the burner. The Company believes the furnace will have an
estimated useful life of approximately 15 years. This estimate is based upon the
results of the unit that operated in Hokkaido, Japan.
 
 
 Markets .
 
 Hazardous
and toxic waste generally consists of a large number of chemicals, metals,
pesticides, biological agents, toxic pollutants, and other substances. The
treatment of toxic and hazardous waste worldwide is a growing and diverse
industry. Significant legislation and regulation worldwide has contributed to
the growth of this industry. These regulations are directed at protecting the
environment by requiring originating parties to be responsible for managing the
hazardous wastes that they generate. Although the proprietary furnace technology
licensed by the Company disposes of various forms of waste, the Company will
seek to promote its product as a toxic and hazardous waste disposal system. This
position is premised upon the higher disposal fees for hazardous and toxic
compared with the disposal fees of non-toxic or hazardous waste.
 
 Manufacturing
And Suppliers .
 
 The Company believed that the prior pricing structure for its furnaces was not competitive,
and it was seeking ways to lower its manufacturing costs. In an effort to lower manufacturing costs,
the Company was attempting to locate alternate suppliers that were less costly
than currently identified suppliers. It also would attempt to re-design certain
components of the furnace so as to reduce the manufacturing cost per component.
 However, even though the Company made a great effort to meet its goal, the
Company was confronted with several difficulties and started reconsidering to
alter the function of original furnace which manages daily wastes to a furnace
which particularly manages specific waste such as industrial and medical waste,
and simultaneously, the Company was aware of an option of business cooperation
with a company in the same industry and had more advanced technologies of
furnace with less-cost production. The Company noticed a furnace producing
company, Kogure Works Co, Ltd., with 34 years of successful business history in
Japan, and its furnace was produced comparatively in less-cost.
The pricing of the product was set at $100,000/t and eventually reducing the
price to 20% less was an ideal prospect.  The Company had a consideration of
cooperation with them investing the capital.  The Company could not predict
whether it will be successful in the alternation of structure and achieve its desired pricing.
 The proprietary combustion system of the Amanasu furnace would be manufactured
by Kogure Works Co.,Ltd. in Takashaki-city, Gunma, Japan with a term of business cooperation.
  4
  Current
Status .
 
 As discussed above, the Company expected to alter the function of the Amanasu
Furnace in order to specify its market place. However there has not been
a strong demand for their product and technologies due to a cost matter
of manufacturing a unit.  The Company did not reach the successful and
complete refinement with reduced cost as they had planned; therefore,
no further production and investment on this technology has been determined,
or there is no further business relation with Kogure Works Co., Ltd. ("Kogure")
on this project as explained above.  The Company does not know whether
the project is continued in the future though the Company will keep holding
the exclusive right of manufacture and sales to the technology.
 
 **Fire
Bird Boiler** .
 
 Overview
and History .
 
 The
technology knows as the Fire Bird Boiler is a dual purpose process which
incinerates waste tires and creates a source of heat generation. During 1998,
the inventor of the technology constructed two proto-types of the boiler. The
licensor currently operates one of the units in Ishinomaki, Japan. The operating
boiler has a 5 ton/day capacity, although its capacity is not fully utilized,
and the heat by-product is used by a greenhouse t o
maintain a steady temperature 25 degrees C. The Company will be focusing on
promoting the technology and opening the market to green house sector for the
particular use.
 
 
 Description
of the Fire Bird Boiler **.**
 
 The Fire
Bird Boiler technology is a patented process which incinerates whole waste tires
in a non polluting manner emitting heat or steam in the incineration process.
The technology provides for combustion efficiency and seeks to minimize dioxin
generation which is generally a by-product of imperfect combustion.
 
 The
boiler is comprised of a "combustion room" for combusting, a "water jacket" for
protecting and cooling metals in the combustion room, and an "air layer" for
insulating the heat radiation. The combustion chamber is circular, with a power
forced ventilation device which accelerates a more efficient combustion, and hot
steam in introduced at the burn point which increases the oxygen capacity
creating the high burning temperatures in the combustion chamber. During the
incineration process, temperature can reach as high as 1,000 degrees C. In other
boiler or incineration technologies, reaching temperatures of 1,000 degrees C or
more generally takes 4 hours to prevent any internal damage caused by a rapid
rise in temperature. However, due to the heat protection attributes of the water
jacket, the boiler can reach 1,000 degrees C in approximately two minutes
without causing damage to any of the internal components of the boiler. The high
temperatures enable the waste tire to be incinerated with minimal waste, odor,
and gas dioxins. Prior technologies have required that waste tire be pulverized
prior to incineration. This process is designed to accept whole waste tires
though a conveyor and sensor which manages the condition of the combustion
operation calculating the number of tires delivered, the timing of the dumping
along with the condition of water supply temperature, quantities of hot water,
and heater temperature. The unit has a combustion capacity of 100 kilograms per
hour, and can generate 932,000 kcal per hour. The Company believes that the
operating costs of the boiler are minimal due to the fact that the fuel source
is the waste tires. ****
 
 The
weight of the 5 ton/day capacity boiler, which is similar to the inventor's
operating unit, is 1,939 kg, and measures 3,850 mm in length and 1,650 mm in
width. The Company will attempt to re-design the boiler to accept waste products
such as non-toxic bulk waste, in addition to waste tires. The Company believes
that this redesign, if successful, will increase demand of the product due to
its increased use versatility. At this time, the Company does not have projected
prices for a re-designed unit, although the Company will seek to achieve,
through its re-design efforts, a retail price of $100,000 for each ton of
capacity. The Company can not predict whether it will be successful in it
redesign efforts and achieve its desired pricing. The projected sale price
$500,000 for a five ton/day capacity unit.
  5
  Manufacturing
And Suppliers .
 
 The
Company has had discussions with Kogure Works Co., Ltd., a manufacturing company
located in Takasaki, Japan, and believes this company can manufacture the Fire
Bird Boiler, however, a formal agreement has no t been
entered into by the parties. For the case of entering a contract with Kogure for
cooperation, the Company will seek to utilize Kogure's manufacturing facility
and equipment for the production, and the Company will have no relationship with
its former manufacturing company, Ishimaki Seiki in Ishimaki-city, Japan.
Alternatively, the Company may sub-contract the assembly and component
manufacturing to firms located in proximity to its customer so as to eliminate
excessive shipping charges. However, no such arrangements have been established
by the Company at this time.
 
 Current
Status .
 
 The Company believed that the Fire Bird Boiler was an effective technology
for the dual purpose of incinerating waste tires and generating heat.
However, the Company has recognized that the supply of waste tires in
certain markets, including the United States, has been greatly reduced due
to the effect of recent efforts to recycle waste tires. Thus, the reduction in
the available supply of waste tires in these markets has limited the market
potential of the boiler. As a result, the Company was confronted with severe
marketing difficulties for Fire Bird.  Even though the Company once decided
to seek to refine the boiler to accept other forms of waste including hazardous
waste to be flexible in the market, the Company has determined no further
production and investment on this technology or no further business relation
with Kogure on this project as explained above.  The Company does not know
whether the project is continued in the future though the Company will keep
holding the exclusive right of manufacture and sales to the technology.
 
 **Ring-Tube
Desalination**
 
 Overview
and History .
 
 A
prototype of the desalination plant was built by the inventor in 2001. The plant
is located in Oita, Japan. The operating rate of the plant is 1.4 tons of water
per day or 1 liter of water per minute **.** The
prototype plant has been operated at the same rate as a sample at the same
location. It has not been commercially produced yet. The Company believes
that this existing capacity is insufficient and high-cost for its targeted
markets, and the Company is planning to rely on a subcontractor of the water
purification system manufacturer for the production, selecting out particular
and efficient parts of its technology and create more advanced and improved
system.
 
 Description
of the Ring-Tube Desalination .
 
 Large
scale desalination is conducted mainly by distillation or reverse osmosis
methodologies. In the past, distillation has been used for large scale
desalination, while reverse osmosis had been used for medium size and small
desalination. However, recent developments in reverse osmosis have increased
output and are now used for large scale desalination. In both methods, the
technologies condense the seawater to make fresh water. However, in their
processes, calcium carbonate and magnesium hydroxide is created in the form of
scales which adheres to the equipment and pipes. The amount of scales increase
with temperature. The condition is more common with distillation process than a
reverse osmosis (RO) process. Scale inhibitors or other cleaning methods are
introduced to the process to control or lessen the amount of scales on the
equipment and pipes, however oftentimes, they are not completely effective, and
are generally costly to use. RO is performed in a single step or two step
methods. The single step method requires more pressure to separate the fresh
water from the impurities, while the two step method use less pressure but more
energy to separate the fresh water. As a result of these pressures, special
sealing technologies and materials for piping and pumps are required to
withstand these pressures, which are generally expensive.
 
 The
Ring-Tube technology is used as a filter to purify seawater into drinking water
and also treats sewage and wastewater, by removing pollutants and bacteria. The
technology is different than both methodologies (distillation and RO) described
above. The equipment filters bacteria and other impurities through its fine
rings and comb type filter and reduces the presence of inhibiting scales on the
equipment. The impurities are then destroyed by the high pressure and
temperature in the ring-tube. The Company believes that its technology is more
cost efficient to construct and operate than conventional RO equipment. Its
fresh water recovery rate is 95% compared with less than 40% for a RO method.
Moreover, water produced from the Company's technology retains a certain amount
of salt and minerals and does not required a pH adjustment. RO filtration
removes all minerals and salt, requiring minerals to be added to improve flavor,
and an adjustment to reduce pH levels. The reject brine resulting from RO
filtration is discharged in the ocean creating higher salt concentrations in
such areas, however, the by-product from the Company's technology is
sufficiently condensed allowing it to be sold as a salt product.
  6
  Manufacturing
And Suppliers .
 
 The Company believed that the Ring-Tube Desalination equipment could be
manufactured by Shinwa Yosetsu, a subcontract manufacture, in Akagi-city,
Gunma, Japan. Later on, the Company estimated that it would be less costly
to buy out Shinwa Yosetsu, who had a complete manufacture line of the water
purification system and experienced technicians, as a subsidiary company with
100% control than to invest on the formation and structure from the scratch.
As a result, the Company bought out Shinwa Yosetsu as projected investing
$100,000, as of March 14th, 2005, and renamed it to Amanas Shinwa Corporation.
 
 Current
Status .
 
 The Company believes that the existing capacity of the Ring-Tube Desalination
equipment is commercially insufficient for its targeted markets because the
equipment is a hand-made manufacturing and it leads high cost production.
Also there are many similar production companies which promote water purification
systems in Japan therefore reducing the cost of manufacturing is the key to
succeed in the competitive market.  Consequently, the Company has bought
out Shiwa Yosetsu, a former subcontract manufacturing company, now as
Amanasu Shinwa Corporation ("Amanasu Shinwa")., located at 70 Nishishikata
Kasakake-cho, Nitta-gun, Gunma, and has a positive projection of less-cost
production and distribution of water purification systems.  The Company had
made a sale of approximately $260,000 (30,000,000 YEN) by the month of
September 2005. The Company has decided to discontinue the project on
Sakagami's technology, the Ring-Tube Desalination equipment, and in 2006,
the Company will focus only on producing and marketing water purification
system and seawater desalination systems utilizing and employing new technologies
under the management of Amanasu Shinwa.  For the next 12 months, 5 units
of new water purification systems ($85,000 (10,000,000 Yen) per unit) for
pools at sports clubs will be produced and distributed in Japan.
 
 MARKETING
OF TECHNOLOGIES.
 
 The Company does not expect to continue the marketing and sale of its technologies
regarding Amanasu Furnace, FireBird Boiler, and Ring-Tube Desalination
equipment until such time as it has completed entering a contract with a third-party
who sub-licenses the technologies or there is a potential opportunity and solid
business plan to restart or commence a new production line in regard to the three technologies
 
 COMPETITION.
 
 Generally, the industries in which the Company expects to compete in, namely
waste disposal and desalination, are highly competitive. These industries are
populated by many national or international companies, with significantly greater
resources than that of the Company. In the waste industry, many of these
competitors dispose of toxic waste in tradition methods such as landfills, and
incinerator use. Despite the  fact  that  these  methods  may  not  be
environmentally friendly, they are nonetheless  in  compliance with governing
regulations, and therefore, represent significant  competition  to  the Company.
In addition, competition will include other waste disposal systems that handle toxic
and environmental waste in a non-pollutant manner. Desalination equipment,
which has been used extensively in the Middle East and elsewhere, represents
significant competition to the Company's technology.
 
 PROPRIETARY
RIGHTS.
 
 The
Company obtained the exclusive world-wide rights to the Amanasu Furnace for a
period of 30 years commencing June 8, 2000 pursuant to the licensing agreement
with Mr. Kikuchi, the inventor. In 1996, Mr. Kikuchi, the inventor and, received
a patent in Japan for the combustion technology, which expires in 2016. The
Company anticipates that it will file for patent protection in other countries
prior to any marketing efforts in such country.
  7
  The
Company obtained the exclusive world-wide rights to the Fire-Bird Boiler for a
period of 30 years commencing September 30, 2002 pursuant to the licensing
agreement with the owner of such rights. In November 2001, the inventor of the
Fire-Bird Boiler received a patent in the United States (#6,321,665 filed
October 3, 2000). The patent expires 20 years from the date of original filing.
 
 The
Company obtained the exclusive world-wide rights to the Ring-Tube Desalination
technology for a period of 30 years commencing June 30, 2003 pursuant to the
licensing agreement with the owner of such rights. The inventor of the
technology has filed patents in Japan for various aspects of the technology. The
patents were filed in July 2002, and the patents expire 20 years from the filing
date.
 
 The
Company considers the rights to the three technologies proprietary, and intends
to use a combination of trade secrets, non disclosure agreements, license
agreements, and patent laws to protect its proprietary rights.
 
 GOVERNMENT
REGULATIONS **.**
 
 Generally,
the Company will be required to receive regulatory approval from various
governmental agencies to conduct its operations. These regulatory approvals will
require the Company to obtain and retain numerous governmental permits to
conduct various aspects of its operations, any of which may be subject to
revocation, modification or denial. Extensive and evolving environmental
protection laws and regulations have been adopted worldwide during recent
decades in response to public concern over the environment. The Company's
operations and those of its future customers are subject to these evolving laws
and regulations. The requirements of these laws and regulations could impose
substantial potential liabilities to the Company and its customers. If the
operations of the Company's furnace result in a toxic spill or other mishap, the
Company and its customers could be subject to substantial fines, suspension of
operation, or other significant penalties. The Company will make a continuing
effort to anticipate regulatory, political, and legal developments in its
principal markets in the Pacific Rim that might affect its operations, but it
may not always be able to do so. The Company cannot predict the extent to which
any legislation or regulation that may be enacted, amended, repealed,
reinterpreted, or enforced in the future may affect its operations. Such actions
could adversely affect the Company's operations or impact its future financial
condition or earnings. The Company however does expect that its proprietary
technologies will comply with all governing regulations in those countries that
it intends to sell its products. This premise is based upon the results of
operations of the proto-type units for each of the technologies.
 
 EMPLOYEES.
 
 As of December 31, 2005, the Company has two employees, Shuichi Yamada,
Izuo kato, located at its Seattle and Tokyo offices, respectively, and a regulatory
assistant in its Tokyo office. The Company has no collective bargaining
agreements with its employees and believes its relations with its employees are good.
The Company didn't have a consultant thus no payment was made to a consultant during 2005.
 
 **Item
2. Description Of Property** **.**
 
 The Company's executive offices are located at 701 Fifth Avenue, 42nd Floor,
Seattle, Washington 98104. The premises consist of 1,500 square feet, and are
leased at a monthly rental amount of $3,500 under a lease agreement which
expires September 30, 2006. The Company shares the space with Amanasu
Technologies Corporation, a reporting company under the Securities Exchange
Act of 1934, and a company controlled by the Company's Chairman, President
and majority shareholder, and both companies share equally in the rent payment.
The Company leases a Seattle apartment for a monthly rental of $1,000 under
a lease agreement which expires February 28th, 2006.  The Company also shares
the rental expense of the apartment equally with Amanasu Technologies Corporation.
In addition, the Company maintains an office at 1-3-38 Roppongi, Minatoku, Tokyo,
106-0032, Japan. The premises are 1,000 square feet and are leased on an agreement
which expires December 31, 2006 at $1,700 (200,000 Yen) per month, and also an
apartment at 1-3-40 Roppongi, Minatoku, Tokyo at $1,000 (1,926,500 Yen) per month
under a lease agreement which expires August, 2006.  Amanasu Technologies
Corporation occupies the same premises and co-pays the rental amount.
The Company believes additional lease space at these locations will be available to
support its future growth.
  8
  **Item
3. Legal Proceedings**
 
 None.
 
 **Item
4. Submission Of Matters To A Vote Of Security Holders**
 
 None
 **PART
II**
 
 **Item
5. Market For Common Equity And Related Stockholder
Matters**
 
 The
Company's common stock has traded on the NASDAQ OTC Bulletin Board since October
2002 under the symbol "AMSU".
 
 The table
below sets forth the high and low bid prices of the Common stock of the Company
as reported by NASDAQ. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commissions and may not necessarily represent
actual transactions. There is an absence of an established trading market for
the Company's common stock, as the market is limited, sporadic and highly
volatile. The absence of an active market may have an effect upon the high and
low priced as reported.
  2004
    
    Low
      Bid
    
    High
      Bid4thQuarter
    
    
    0.70
    
    
    2.752005
    
    
    Low
      Bid
    
    
    High
      Bid1st
      Quarter
    
    $
    2.75
    
    $
    2.752nd
      Quarter
    
    
    1.20
    
    
    2.753rd
      Quarter
    
    
    1.00
    
    
    1.204thQuarter
    
    
    0.55
    
    
    1.50
  As of March 15, 2006, there are 51 shareholders of record of the Company's
common stock.  Although there are no restrictions on  the  Company's  ability
to  declare  or pay dividends, the Company has not  declared  or  paid  any
dividends  since its inception' and  does not  anticipate  paying  dividends  in the future.
  9
  Equity
Compensation Plan Information .
  **Equity
      Compensation Plan Information****Plan
      category**
    **Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights**
      
      **(a)**
    **Weighted-average
      exercise price of outstanding options, warrants and
      rights**
      
      **(b)**
    **Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))**
      
      **(c)**Equity
      compensation plans approved by security holders (1)
    -0-
    -0-
    -0-Equity
      compensation plans not approved by security holders (2)
    -0-
    -0-
    -0-**Total**
    -0-
    -0-
    -0-
 
 Recent
Sales Of Unregistered Securities - Deposits
for Common Stock
 
 During the quarter ended June 30, 2003, 20,000 shares were allotted to Reraise
Corporation, a private Japanese company, at a price of $4.99 per share for total
consideration of $99,900.  As of the date hereof, the shares have not been issued
due to pending documentation needed to affect a new share issuance.  As a result,
the $99,900 consideration received should be considered a liability, as opposed
to a capital contribution, until the shares have been issued.  In July 2005,  the
Company  made the repayment of  the amount of $ 100,000 to Reraise and
completed the liability.
 
 Private  Placement
 During  the  year,  the  Company  issued  1,000,000  shares  of  common  stock,
realizing  cash  proceeds  of  $3,500,000.  These  sales  were  exempt  under
Regulation  S  under  the Securities Act of 1933, as amended, due to the foreign
nationality  of  the  relevant  purchasers.
 
 **Item
6. Management's Discussion And Analysis Of Financial Condition And Results Of
Operations** .
 
 The
following discussion should be read in conjunction with the Company's Financial
Statements, including the Notes thereto, appearing elsewhere in this Annual
Report.
 
 Plan
Of Operations.
 
 The
Company was organized February 22, 1999 and is a development stage company. Its
operations to date have been limited to obtaining exclusive licensing rights for
three technologies, conducting preliminary marketing efforts, and conducting
product testing.
 
 As of August 4th, 2005, Kogure's six proprietary rights (See "Patents" below)
to the license of the technologies and parts in connection with constructing
the rotary kiln and its title were transferred to Amanasu Environment Corporation,
and the amount of $290,000 that the Company previously funded to Kogure for
marketing and promotion purposes replaced in as transfer fee.  As a result, the
Company possesses the exclusive worldwide right to the product, and can receive
royalties from the sales of the rotary kiln by other companies.
 
 Patents
 Rotary kiln (Patent number 3564012, as of July 2nd, 2005); 2. Rotary kiln-Taiwan
(Patent number 131102, as of August 21st, 2001); 3. Gas lark (petition number
2000-358861, patent pending); 4. Ash melting furnace and incinerating system
(petition number 2002-325560, patent pending); 5. The interior wall of the kiln
(petition number 2004-208198, patent pending); and 6. The method of cooling
down the kiln (petition number 2004-208199, patent pending)
 
 As of December 19th, 2005, the Company established a new company, Amanasu
Holdings Corporation ("Amanasu Holdings"), located at 1-5 Suda-cho, Chiyoda-ku,
Tokyo, as a subsidiary company of Amanasu Environment Corporation with 100 %
control.  Amanasu Holdings and the former employees of Kogure jointly established
an incorporation, named Amanasu Echo Frontier Corporation ("Amanasu Echo Frontier"),
with a capital of $240,000 (28,000,000 Yen) of which Amanasu Holdings invested
$103,000 (12,000,000 Yen) in December, 2005, and have employed 10 former
technicians of Kogure.  Amanasu Echo Frontier, which conducts its operation as
a subsidiary company of Amanasu Holdings, is mainly producing incinerator, furnace,
and medical waste treatment plant using the 6 proprietary rights purchased from
Kogure as stated above at a location of 1-24-8 Iwagami-cho, Maebashi, Gunma, Japan.
The Company's business plan for 2006 is to sell 5 units of furnace for $2,440,000
(285,000,000 Yen) per unit in Japan and 3 units of medical waste treatment plants
for $1,300,000-$1,700,000 (150,000,000-200,000,000 Yen) per unit in china.
Also Amanasu Echo Frontier and Onyx, a used car sales company in Japan, has
made a temporary agreement on an order of manufacturing and delivering an
incinerator for $14,000,000 (1,650,000,000 Yen) to Onyx by the end of 2007.
 Amanasu Holdings will invest $85,000 (10,000,000 Yen) in the production of a model plant of water purification
system managed by Amanasu Shinwa, and 5 units of water purification system ($85,000 (10,000,000 Yen) per unit)
for pools at sports clubs will be produced and distributed in Japan for the next 12 months.
 The Company had an option of business cooperation with Kogure investing the capital of approximately $300,000,
however the Company determined discontinuation of discussion in regard to settlement on a business relation with
Kogure, therefore there is no further business projection in connection with Kogure at this present time.
 The Company or Amanasu Echo Frontier is considering establishing an organization of a joint venture with
MINMETAL in China for the purpose of conducting a joint marketing of medical waste treatment plant with MINMETAL.
The establishment might take place in 2006 with total investment of 50,000,000 Yen, 51% of which will be invested by
The Amanasu Environment or Amanasu Echo Frontier.
 The Company was expecting to expand the distribution line over the country of Japan having a cooperation of
Mitsui & Co., Ltd. ideally starting in April of 2006. However, consulting MINMETAL's will, the Company decided to
refuse the involvement of Mitsui & Co., Ltd. to this project.
 Other than the provision of alternating business planning costs discussed above, the Company estimates that
its operating overhead, which includes general and administrative charges, will be approximately $120,000 for the
next 12 months. This amount is comprised of the following estimated costs; $10,000 in annual salaries for office
personnel and consultants, $50,000 for rent, $20,000 for professional fees and $20,000 for miscellaneous expenses.
The Company does not anticipate paying salaries to any of its officers for the next 12 months. The Company has
sufficient cash on hand to support its overhead for the next 12 months but no material commitments for capital
at this time other than as described above.  The Company and/or Amanasu Holdings will need issue and sell the
shares to gain the capital of the operation.
 
 During
the fiscal 2005 and 2004 years, the Company spent $-0- and $-0- respectively on research and development.
  10
  Liquidity
And Capital Resources .
 
 In May 2001, the Company received $200,000 resulting from the exercise of
20,000,000 stock purchase options by the Company's principal shareholder.
During 2003, in connection with the acquisition of the Fire Bird boiler, the
Company's President made a contribution of capital to the Company in the
amount of $95,000. In addition during the 2003 period, the Company raised
$100,000 from the sale of 20,000 shares of its common stock to one investor.
The Company intends to raise additional funds in the approximate amount of
$2,000,000 to $3,000,000 in near future through the private placement of its
common stock. The proceeds from such private placement will be used to fund
the refinement of the three technologies as described above, and to funds it
annual overhead. The Company cannot predict whether it will be successful in
raising any capital, which capital is essential to its plan of operations.
 
 Total
assets as of December 31, 2005 were
$3,198,771 representing an increase of $2,867,223 from total
assets of $331,548
as of December 31, 2004.
 
 
 Forward
Looking Statements .
Certain of the statements contained in this Annual Report on Form 10-KSB include forward looking statements.
All statements other than statements of historical facts included in this Form 10-KSB regarding the Company's
financial position, business strategy, and plans and objectives of management for future operations and capital
expenditures, and other matters, are forward looking statements. These forward looking statements are based
upon management's expectations of future events.  Although the Company believes the expectations reflected
in such forward looking statements are reasonable, there can be no assurances that such expectations will prove
to be correct. Additional statements concerning important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are disclosed below in the Cautionary
Statements section and elsewhere in this Form 10-KSB. All written and oral forward looking statements attributable
to the Company or persons acting on behalf of the Company subsequent to the date of this Form 10-KSB are
expressly qualified in their entirety by the Cautionary Statements.
 
 **Cautionary
Statements** . Certain
risks and uncertainties are inherent in the Company's business. In addition to
other information contained in this Form 10-KSB, the following Cautionary
Statements should be considered when evaluating the forward looking statements
contained in this Form 10-KSB:
 
 **Developmental
Stage Company** .
The Company was incorporated on February 22, 1999, and is a development stage company.  Presently, it has
acquired certain technologies; however, the Company does not have any products available for commercial sale.
As a development stage enterprise, the Company may be subject to the many pitfalls commonly associated with
development stage enterprises, such as testing and proving technologies. These risks are in addition to normal
business risks. The Company's ability to emerge from the development stage with respect to its planned principal
business activity is dependent upon a number of factors, including product development of existing technologies
and successfully raising additional financing to meet its working capital needs.
 
 **Ability
To Develop Commercial Product** .
The Company presently maintains rights to three different technologies. At this time, proto-type versions of products for each
of the three technologies have been developed, however, none of the products are commercially ready for sale.  In order to
reach a stage of commercial sales for the products, the Company prefers to put emphasis on joint venturing and funding a
company who has advanced technological knowledge and progressed sales history of the same field for the purpose of cooperation.
The Company can not predict that it will be successful in developing commercially ready products for any of the technologies
in the near future or at any time.
 
 **Rapid
Technological Changes** .
The industries in which the Company intends to compete with their technologies are subject to rapid technological changes.
No assurances can be given that the technological advantages which may be enjoyed by the Company in respect of their
technologies can not or will not be overcome by technological advances in the respective industries rendering the Company's
technologies obsolete or non?competitive.
  11
  **Lack
of Indications Of Product Acceptability** .
The success of the Company will be dependent upon its ability to develop commercially acceptable products and to sell such products
in quantities sufficient to yield profitable results. To date, the Company has received no indications of the commercial acceptability
of any of its proposed products. Accordingly, the Company can not predict whether its products can be marketed and sold in a commercial
manner.
 
 **Management** .
The ability of the Company to successfully conduct its business affairs will be dependent
upon the capabilities and business acumen of current management including Mr. Atsushi Maki,
the Company's President. Accordingly, shareholders must be willing to entrust all aspects
of the business affairs of the Company to its current management. Further, the loss of any
one of the Company's management team could have a material adverse impact on its continued operation.
 
 **Control
Exercised By Management** .

As of March 15, 2006, the existing officers and directors, and affiliates will control approximately 78.80% of the shareholder
votes. Consequently, management will control the vote on all matters brought before shareholders, and holders of common
stock may have no power in corporate decisions usually brought before shareholders.
 
 **Conflicts
of Interest** .

The officers of the Company are not full time employees. Presently, the Company does not have a formal
conflicts of interest policy governing its officers and directors. In addition, the Company does not have written
employment agreements with its officers. Its officers intend to devote sufficient business time and attention
to the affairs of the Company to develop the Company's business in a prudent and business-like manner.
However, the principal officer is engaged in other businesses related and unrelated to the business of the
Company, and in the future, will engage in other business ventures. As a result, the principal officer and other
officer of the Company may have a conflict of interest in allocating their respective time, services, and future
resources, and in exercising independent business judgment with respect to their other businesses and that of the Company.
 ****
 **Reliance
upon Third Parties** .
The Company does not intend on maintaining a significant technical staff nor does it intend on manufacturing its products.
Rather it will rely heavily on consultants, contractors, and manufacturers to design, develop and manufacture its products.
Accordingly, there is no assurance that such third parties will be available when needed at affordable prices.
 
 **Competition** .
Although management believes its products, if developed, will have significant
competitive advantages to other products in their respective industries, with
respect to such products, the Company will be competing in industries, such
as the industrial waste industry, where enormous competition exists. Competitors
in these industries have greater financial, engineering and other resources than
the Company. No assurances can be given that any advances or developments
made by such companies will not supersede the competitive advantages of the
Company's products.
 
 **Protection
Of Intellectual Property** .
The success of the Company will be dependent, in part, upon the protection of its proprietary of its various technologies
from competitive use. Certain of its technologies are the subject of various patents in varying jurisdictions (See "
Description of Business ? Proprietary Rights"). In addition to the patent applications, the Company relies on a combination
of trade secrets, nondisclosure agreements and other contractual provisions to protect its intellectual property rights.
Nevertheless, these measures may be inadequate to safeguard the Company's underlying technologies. If these measures
do not protect the intellectual property rights, third parties could use the Company's technologies, and its ability to
compete in the market would be reduced significantly. In addition, if the sale of the Company's product extends to foreign
countries, the Company may not be able to effectively protect its intellectual property rights in such foreign countries.
  12
  In the future, the Company may be required to protect or enforce its patents
and patent rights through patent litigation against third parties, such as infringement
suits or interference proceedings. These lawsuits could be expensive, take significant
time, and could divert management's attention from other business concerns.
These actions could put the Company's patents at risk of being invalidated or
interpreted narrowly, and any patent applications at risk of not issuing. In defense of
any such action, these third parties may assert claims against the Company. The
Company cannot provide any assurance that it will have sufficient funds to vigorously
prosecute any patent litigation, that it will prevail in any of these suits, or that the
damages or other remedies awarded, if any, will be commercially valuable. During the
course of these suits, there may be public announcements of the results of hearings,
motions and other interim proceedings or developments in the litigation which could
result in the negative perception by investors, which could cause the price of the
Company's common stock to decline dramatically.
 
 **Indemnification
of Officers and Directors for Securities Liabilities** .
The Company's By-Laws eliminates personal liability in accordance with the
Nevada Revised Statutes (NRS).  Section 78.7502 of the NRS provides that a
corporation may eliminate personal liability of an officer or director to the corporation
or its stockholders for breach of fiduciary duty as an officer or director provided
that such indemnification is limited if such party acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of the corporation. In  so  far  as indemnification for liability arising from the
Securities Act of 1933 ("Act") may be permitted to directors, officers or persons
controlling the Company, it  has  been  informed  that  in  the  opinion  of  the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and  is,  therefore,  unenforceable.
 
 **Penny
Stock Regulation** .

The Company's common stock may be deemed a "penny stock" under federal securities laws.
The Securities and Exchange Commission has adopted regulations that define a "penny stock"
generally to be any equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. These regulations impose additional sales practice requirements on any broker/dealer
who sell such securities to other than established investors and accredited investors.
For transactions covered by this rule, the broker/dealer must make certain suitability
determinations and must receive the purchaser's written consent prior to purchase. Additionally,
any transaction may require the delivery prior to sale of a disclosure schedule prescribed by the
Commission. Disclosure also is required to be made of commissions payable to the broker/dealer
and the registered representative, as well as current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information for the penny
stock held in the account of the customers and information on the limited market in penny stocks.
These requirements generally are considered restrictive to the purchase of such stocks, and may
limit the market liquidity for such securities.
 
  **Item
7. Financial Statements.**
 
 The
Financial Statements that constitute Item 7 of this Annual Report on Form 10-KSB
are included immediately following Item 14 below.
 
 **Item
8. Changes In And Disagreements With Accountants On Accounting And Financial
Disclosure.**
 
 None.
  13
  **Item
8A . Controls and Procedures** .
 Within the 90-day period prior to the filing of this annual report on Form 10-KSB,
the Company carried out an evaluation of the effectiveness of the Company's
disclosure controls and procedures (as defined by Rule 13a-14(c) under the
Securities Exchange Act of 1934) under the supervision and with the participation
of the Company's chief executive officer and chief financial officer. Based on
and as of the date of such evaluation, the aforementioned officers have concluded
that the Company's disclosure controls and procedures have functioned effectively
so as to provide those officers the information necessary whether:
 
 (i) this annual report on Form 10-KSB contains
any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this annual
report on Form 10-KSB, and(ii) the financial statements, and other financial information included in this annual report on Form
10-KSB, fairly present in all material respects the financial condition, results of operations and cash flows of the Company
as of, and for, the periods presented in this annual report on Form 10-KSB.
 
 There have been no significant changes in
the Company's internal controls or in other factors since the date of the Chief Executive Officer's and Principal Financial
Officer's evaluation that could significantly affect these internal controls, including any corrective actions with regards to
significant deficiencies and material weaknesses.
 
 
 **PART
III**
 
 **Item
9. Directors, Executive Officers, Promoters And Control
Persons** .
 
 The
directors and executive officers of the Company, their ages, and the positions
they hold are set forth below. The directors of the Company hold office until
the next annual meeting of stockholders of the Company and until their
successors in office are elected and qualified. All officers serve at the
discretion of the Board of Directors.
 
 Director/OfficerName
    
    Age
    
    Since
    
    PositionAtsushi
      Maki
    
    
    57
    
    
    1999
    
    Chairman/Treasurer
      and PresidentLina
      Lei
    
    
    44
    
    
    1999
    
    Secretary
 
 Atsushi
Maki has been
the President, Chief Financial Officer, Chairman and Director of the Company
since November 10, 1999. During the past ten years, Mr. Maki has been an
independent businessman involved mainly in real estate development projects in
Japan. In 1995, he served as a Director of the Japan-Korea Cooperation Committee
along with the former Prime Minister of Japan who acted as the Chairman of the
committee. In 1999, he was responsible for establishing the Japan-China
Association, a foundation for fostering better relations between the two
nations. He served as a director of the association, along with the Chairman of
Sony Corporation and the Honorary Chairman of Toyota Motor Corporation. Mr. Maki
is the husband of Lina Lei, the Secretary of the Company. Mr. Maki also is a
director of Amanasu Technologies Corporation, a reporting company under the
federal securities laws.
 
 Lina
Lei has been
the Secretary of the Company since November 10, 1999. Ms. Lei was appointed a
director in November 1999 and resigned from the board on August 21, 2002. From
May 1990 to November 1999, Ms. Lei was employed by Thunder Company Ltd, Tokyo,
Japan, in various capacities including as its managing director. Ms. Lei
completed her university studies in Shanghai, China in 1982, and obtained a
master's degree from Hitotsubashi University in Tokyo in 1990. During the past
five years, Ms. Lei's work involvement has been limited to activities of the
Company and that of Amanasu Technologies Corporation. Ms. Lei is the wife of
Atsushi Maki, the Chairman and President of the Company.
 
 Takashi
Yamaguchi was a Director of the Company between October 1, 2001 and May 26,
2004. From 1999 to June 2001, he was president of Daiichi Building Corporation,
a construction company located in Tokyo, Japan, and form June 2001 to June 2002,
he acted as a consultant for the same company. From June 2002 to the present,
Mr. Yamaguchi has provided managerial consulting services to a variety of
companies located in Japan, and he is an individual adviser of the Company at
present.
  14
  **Item
10. Executive Compensation.**
 
 The
compensation for all directors and officers individually for services rendered
to the Company for the fiscal
years ended December 31, 2005, 2004, 2003, and 2002, respectively:
 
 SUMMARY
COMPENSATION
  Annual
      CompensationName andPrincipal
    
    
    
    Salary
    
    Bonus
    
    OtherPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)Atsushi
      Maki
    
    
    2005
    
    
    -0-
    
    
    -0-
    
    
    -0-2004
    
    
    -0-
    
    
    -0-
    
    
    -0-2003
    
    
    -0-
    
    
    -0-
    
    
    -0-Chairman,
      President
    
    
    2002
    
    
    -0-
    
    
    -0-
    
    
    -0-And
      TreasurerLina
      Lei
    
    
    2005
    
    
    -0-
    
    
    20,000
    
    
    -0-2004
    
    
    -0-
    
    
    -0-
    
    
    -0-2003
    
    
    10,000(1)
    
    
    -0-
    
    
    -0-Secretary
    
    
    2002
    
    
    -0-
    
    
    -0-
    
    
    -0-
 (2). Ms. Lei received salary
compensation in the form of 312,500 shares of common stock of the Company for the period from
November 1999 through fiscal 2001. The shares were valued at $0.01 per share. Of the total amount
of shares, 24,100 shares were allocated for fiscal 1999, with the balance allocated equally between
2000 and 2001. In 2003, Ms. Lei received $10,000 in exchange for consulting services performed
for the Company.
 
 The officers of the Company are not full time employees. Presently, the Company does not have a formal conflicts
of interest policy governing its officers and directors. In addition, the Company does not have written employment
agreements with its officers. Its officers intend to devote sufficient business time and attention to the affairs of the
Company to develop the Company's business in a prudent and business-like manner. However, the principal officer
is engaged in other businesses related and unrelated to the business of the Company, and in the future, will engage
in other business ventures. A future arrangement will be subject to the approval of the Company's board of directors.
Except for the arrangement with Ms. Lei, the Company and its officers have agreed that the officers of the Company
will not receive any other compensation until such time as the Company reaches profitability for a full fiscal quarter.
The terms of any such employment arrangement have not been determined at this time. Other than as indicated above,
the Company did not have any other form of compensation payable to its officers or directors, including any stock
option plans, stock appreciation rights, or long term incentive plan awards for the periods during the above fiscal years.
 
 The
Company's directors received no fees for their services in such capacity;
however, they will be reimbursed for expenses incurred by them in connection
with the Company's business.
  15
  **Item
11. Security Ownership Of Certain Beneficial Owners And
Management.**
 
 The following table will identify, as of March 15, 2006,
the number and percentage of outstanding shares of common stock of the Company owned by (i) each person known to the Company
who owns more than five percent of the outstanding common stock, (ii) each officer and director, and (iii) and officers and directors
of the Company as a group. The following information is based upon 44,000,816 shares of common stock of the Company which
are issued and outstanding as of March 15, 2006. The address for each individual below is 701  Fifth  Avenue,  42nd  Floor, Seattle,
Washington 98104, the address of the Company.
 
 Title
    
    Name
      and Address
    
    Amount
      and nature
    
    Percentof
      Security
    
    of
      Beneficial Owner
    
    Beneficial
      Ownership(1)
    
    of
      ClassCommon
    
    Amanasu
      Corporation(2)
    
    
    33,000,000
    
    
    72.6
    %Stock
    
    #902
      Ark Towers, 1-3-40,Roppongi,
      Minatoku,Tokyo,
      JapanCommon
      Stock
    
    Atsushi
      Maki(3)(4)
    
    
    35,858,500
    
    
    78.80
    %Common
      Stock
    
    Lina
      Lei(4)
    
    
    35,858,500
    
    
    78.80
    %Common
      Stock
    
    Officers
      andDirectors,
      as agroup
      (2 persons)
    
    
    35,858,500
    
    
    78.80
    %
 (1).
"Beneficial ownership" means having or sharing, directly or indirectly (i)
voting power, which includes the power to vote or to direct the voting, or (ii)
investment power, which includes the power to dispose or to direct the
disposition, of shares of the common stock of an issuer. The definition of
beneficial ownership includes shares underlying options or warrants to purchase
common stock, or other securities **** convertible
into common **** stock,
that currently are exercisable or convertible or that will become exercisable or
convertible within 60 days. Unless otherwise indicated, the beneficial owner has
sole voting and investment power.
 (2). Mr.
Atsushi Maki, the Company's Chairman and President, is the sole shareholder of
Amanasu Corporation and is deemed the beneficial owner of such
shares.
 (3).
Includes 1,496,000 shares of common stock held individually by Mr. Maki,
1,000,000 shares of common stock deposited with a third party (see "Item 12
"Certain Relationships and Related Transactions"), 33,000,000 shares of common
stock held by Amanasu Corporation, and 362,500 shares of common stock held by
Mr. Maki's wife, Lina Lei. Mr. Maki disclaims beneficial ownership of the shares
held by his wife.
 (4).
Includes 362,500 shares of common stock held individually by Ms. Lei, and
35,490,000 shares of common stock beneficially owned by Ms. Lei's husband,
Atsushi Maki. Ms. Lei disclaims beneficial ownership of the shares held by her
husband.
 
 **Item
12. Certain Relationships And Related Transactions.**
 
 On
December 15, 1999, the Company entered into an agreement with Amanasu
Corporation, a Japanese corporation, under which Amanasu Corporation agreed to
arrange the grant of a license theto the Amanasu Furnace to the Company. In
exchange for obtaining the license to the Technology, the Company agreed to
issue to Amanasu Corporation 13,000,000 shares of its common stock and stock
purchase options to acquire another 20,000,000 shares of common stock at a price
per share of $0.01. In addition under the terms of the agreement, the Company
agreed to issue 1,000,000 shares of common stock to the inventor of the
technology, and 200,000 shares of common stock to the executive director of the
inventor. In May 2001, Amanasu Corporation exercised its option to acquire
20,000,000 shares of common stock of the Company and paid the sum of $200,000 to
the Company. Mr. Atsushi Maki, the Company's Chairman and President, is the
president and sole shareholder of Amanasu Corporation.
  16
  Mr. Maki
received salary compensation in the form of 3,200,000 shares of common stock of
the Company for the period from November 1999 through fiscal 2001. The shares
were valued at $0.01 per share or a total of $32,000. Ms. Lei received salary
compensation in the form of 312,500 shares of common stock of the Company for
the period from November 1999 through fiscal 2001. The shares were valued at
$0.01 per share or a total of $3,125.
 
 On June
8, 2000, the Company entered into an exclusive licensing agreement with the
inventor of the Amanasu Furnace. Under the licensing agreement, the Company
obtained the worldwide production and marketing rights of the Technology for 30
years, and the Company is required to pay the inventor a royalty of 2% on gross
sales of the Technology.
 
 Effective
September 30, 2002, the Company entered into a license agreement with Sanyo
Kogyo Kabushiki Gaisha and Ever Green Planet Corporation, both Japanese
companies, whereby the Company received the worldwide, exclusive license for a
term of 30 years for the production and marketing of a hot water boiler which
incinerates waste tires in a safe and non-polluting manner and extracts heat
energy from the incineration process. As consideration for this acquisition, the
Company paid the licensors $250,000, of which the Company's President paid
$95,000, issued to them 600,000 shares of common stock, and issued to an
affiliate of the licensors 50,000 shares of common stock. The $95,000 paid by
the Company's President is a contribution to capital to the Company. The
licensors are entitled to receive a two percent royalty on the gross receipts
from the sale of the products related to the technology.
 
 On June
30, 2003, the Company acquired the exclusive worldwide rights to produce and
market a patented process that purifies seawater, and removes hazardous
pollutants from wastewater. The term of the license is 30 years from the date of
the agreement. As consideration for obtaining the license, the Company issued
1,000,000 shares to Etsuro Sakagami, the licensor, and 50,000 shares to a
finder. The licensor is entitled to receive a two percent royalty on the gross
receipts from the sale of the products related to the technology.
 
 On May
14, 2003, the Company entered into a Stock Purchase Agreement to acquire from
Jipangu Inc. ("Jipangu"), a private, unaffiliated Japanese company, 10,000,000
shares of Kyoei Reiki Industrial Corporation Ltd ("Kyoei"), a publicly traded
company in Tokyo, Japan. The purchase price for the shares is $4,993,000. The
agreement called for the payment of 20% of the purchase price on May 31, 2003,
and the balance was due on June 25, 2003. On or about May 31, 2003, Atsushi
Maki, the Company's President and controlling shareholder, deposited with
Jipangu 1,000,000 shares of common stock of the Company owned by Mr. Maki.
However, the Stock Purchase Agreement with Jipangu provided that if Kyoei
becomes bankrupt or is under receivership for bankruptcy before the remaining
amount (80%) is due, Jipangu waives the right to collect the final amount. On
June 25, 2003, Kyoei was placed under receivership with Tokyo District Court.
The Company believes that it is not required to pay Jipangu the remaining amount
due under the Stock Purchase Agreement. The deposit of common stock made to
Jipangu by Mr. Maki was made on behalf of the Company. **** On
December 10, 2003, the Company transferred its rights under the agreement with
Jipangu to Mr. Maki, and Mr. Maki has released and indemnified the Company from
any obligation under the Jipangu agreement **.**
 
 The
Company shares office space for its Seattle and Tokyo offices and shares an
apartment in Seattle with Amanasu Technologies Corporation, a reporting company
under the Securities Exchange Act of 1934, and a company controlled by the
Company's Chairman, President and majority shareholder (See "Part I - Item 2
Description of Property").
  17
  **Item
13(A). Exhibits.**
 
 Number
    Description3(i)(a)
    Articles
      of Incorporation of the Company (Incorporated by reference to
      theCompany's
      Form 10-SB filed on June 20, 2001).3(i)(b)
    Certificate
      of Amendment to Articles of Incorporation(Incorporated byreference
      to the Company's Form 10-SB filed on June 20, 2001).3(i)(c)
    Certificate
      of Amendment to Articles of Incorporation (Incorporated byreference
      to the Company's Form 10-KSB filed on March 31, 2003).3(ii)(a)
    Amended
      and Restated By - Laws of the Company (Incorporated byreference
      to the Company's Form 10-SB filed on June 20, 2001).10(i)
    Agreement
      between Family Corporation and the Company dated December 15,1999.
      (Incorporated by reference to the Company's Form 10-SB filed onJune
      20, 2001).10(ii)
    License
      agreement between the Company and Masaichi Kikuchi dated June
      8,2000.
      (Incorporated by reference to the Company's Form 10-SB filed on June
      20,2001).10(iii)
    Technical
      Consulting Agreement the Company and Masaichi Kikuchi dated
      June9,
      2001. (Incorporated by reference to the Company's Form 10-SB filed onJune
      20, 2001).10(iv)
    Amendment
      No. 1 to Licensing Agreement dated July 30, 2001,
  however,effective
      June 8, 2000 by and between the Company and Masaichi Kikuchi.(Incorporated
      by reference to the Company's Form 10-SB/A filed onAugust
      9, 2001).10(v)
    License
      Agreement made as of September 30, 2002 by and between the
      Companyand
      Sanyo Kogyo Kabushiki Gaisha and Ever Green Planet
      Corporation.(Incorporated
      by reference to the Company's Form 10-KSB filed on March
    31,2003).10(vi)
    Addendum
      to License Agreement made as of September 30, 2002 by and
      betweenthe
      Company and Sanyo Kogyo Kabushiki Gaisha and Ever Green
    PlanetCorporation.
      (Incorporated by reference to the Company's Form 10-KSBfiled
      on March 31, 2003).10(vii)
    Stock
      Purchase Agreement dated May 14, 2003 by and between the
      Companyand
      Jipangu, Inc.10(viii)
    Desalination
      License Agreement made as of May 30, 2003 by and between
    theCompany
      Etsuro Sakagami. (Incorporated by reference to the
    Company'sForm
      10-QSB filed on August 13, 2003).
 
 31
Certification under Section 906 of the Sarbanes-Oxley Act.
 32
Certification under Section 906 of the Sarbanes-Oxley Act.
 
 (b).
Reports on Form 8-K.
 The Company has reached the conclusion of establishing a new subsidiary company
named AMANASU HOLDING CORPORATION ("AMANASU HOLDINGS"), and an amount
of $831,000 was paid by the Company on December 9th, 2005 as Capital investment
for the initiation. (Filed on December 28, 2005)
 Extension of expiration date on the
term of Loan Contract concluded between Amanasu Environment Corporation ("the Company")
and Mr. Izuo Kato ("Mr. Kato").  (Filed on December 28, 2005)
 As of December 5th, 2005, Amanasu Environment Corporation ("the Company")
entered into a contract with Amanasu Technologies Corporation ("Amanasu Technologies")
for a purchase of common stock of Amanasu Technologies. As of December 9th,
2005, the Company purchased 50,000 shares of the common stock of Amanasu
Technologies for $2.00 per share and paid the sum of $100,000. (Filed on December 28, 2005)
 On April 8, 2005, Amanasu Environment Corporation ("the Company") entered into an agreement with Mr.
Izuo Kato ("Mr. Kato") to loan $94,000 to Kato for the purpose of marketing, researching, development,
networking and other expenses regarding a marketing promotion of the Company's products. (Filed on August 9, 2005)
 On April 11, 2005, Amanasu Environment Corporation ("the Company") purchased a model plant of furnace
for ash disposal called "Swing Melter" from Kogure Works Co., LTD. ("Kogure"), and paid the amount of $400,000
for the model on April 19, 2005. (Filed on August 9, 2005)
 On March 8, 2005, Amanasu Environment Corporation ("the Company") entered into an agreement with Kogure
Works. Co., LTD. ("Kogure") to fund $290,000 to Kogure for the purpose of promotion of Kogure's incinerator
to State Environmental Protection Administration of China and to receive a purchase order from the organization.
(Filed on May 10, 2005)
 On March 8, 2005, Amanasu Environment Corporation ("the Company") entered into an agreement with Shinwa
Yosetsu ("Shinwa Yosetsu") to fund $ 100,000 to establish a new company in order to conduct a project.
(Filed on May 10, 2005)
 
 **Item
14. Principal Accountant Fees and Services** .
 
 (1).
Audit fees for 2005 were $8,920 and for 2004 were $8,495.
 (2) Audit Related Fees for 2005 and 2004 were $0.
 (3) Tax Fees for 2005were $0 and 2004 were $0
 (4) All
Other Fees were $0.
 (5)
N/A
 (6) Not
greater than 50% for 2005 and 2004.
  18
  **AMANASU
ENVIRONMENT CORPORATION**
 
 **(A
Development Stage Company)**
 
 **FINANCIAL
STATEMENTS**
 
 **DECEMBER
31, 2005**
 
  **CONTENTS**
  PageAccountant's Audit Report
    1Balance Sheet
    2Statements of Operations
    3Statements of Changes in Stockholder's
    Equity
    4Statements of Cash Flows
    5Notes to Financial Statements
    6
  
  ROBERT G. JEFFREY
 
 **CERTIFIED
PUBLIC ACCOUNTANT**
 **61
BERDAN AVENUE**
 **WAYNE,
NEW JERSEY 07470**
 
 LICENSED
      TO PRACTICE
    
    TEL:
      973-628-0022IN
      NEW YORK AND NEW JERSEY
    
    FAX:
      973-696-9002MEMBER
      OF AICPA
    
    E-MAIL:
      rgjcpa@optonline.net
 PRIVATE
COMPANIES PRACTICE SECTION
 MEMBER
CENTER FOR PUBLIC COMPANY AUDIT FIRMS
 REGISTERED
PUBLIC ACCOUNTING FIRM WITH
 PUBLIC
COMPANY ACCOUNTING OVERSIGHT BOARD
 
 
 Board of
Directors
 Amanasu
Environment Corporation
 
 I have
audited the accompanying balance sheet of Amanasu Environment Corporation (a
development stage company) as of December 31, 2005 and the related statements of
operations and deficit accumulated during development stage, changes in
stockholders' equity, and cash flows for the years ended December 31, 2005, and
2004. These
financial statements are the responsibility of the Company management. My
responsibility is to express an opinion on these financial statements based on
my audit.
 
 I conducted the audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that I 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.  I believe that my audit provides a reasonable basis for my opinion.
 
 In my opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amanasu Environment Corporation and Subsidiaries as of December 31, 2005, and the results of its operations and its cash flows for the years ended December 31, 2005 and 2004 in conformity with U.S. generally accepted accounting principles.
 
 /s/
Robert G. Jeffrey
 ROBERT G.
JEFFREY
 May 18,
2005
 Wayne,
New Jersey
  
  **AMANASU ENVIRONMENT CORPORATION**
 **(A
Development Stage Company)**
 **BALANCE
SHEET**
 **December
31, 2004**
 
 
 ASSETSCurrent
      Assets:Cash
    
    $
    523,318Certificate Of Deposit
	    
	    $
	    1,000,000Accounts and notes receivables
	    
	    $
	    78,434Work in progress
	    
	    $
	    19,186Advance to vendor
	    
	    $
	    94,000Advances to employees
    
    
    24,179Total
      current assets
    
    
    1,739,117Fixed
      Assets:Machinery and
      equipment
    
    
    485,846Less,
      accumulated depreciation
    
    
    71,462Net
      fixed assets
    
    
    414,384Other
      Assets:Advances to affiliates
    
    
    101,885Investments
	    
	    
	    747,370Security Deposits
    
    
    143,595Advance to shareholders
    
    
    42,420Licensing agreements
      
      
      10,000Total
      other assets
    
    
    1,045,270Total
      Assets
    
    $
    3,198,771LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Short Term Bank Loan
    
    $
    21,210Accounts Payable
    
    
    19,425Accrued expenses
	    
	    
	    3,578Payroll and other taxes payable
	    
	    
	    16,420Employee loans
	    
	    
	    14,640Shareholder advance
	    
	    
	    100Total
      current liabilities
    
    
    75,373Stockholders'
      Equity:Common
      stock: authorized 100,000,000 sharesof
      $.001 par value; 44,000,816 issued andoutstanding
    
    
    44,001Additional
      paid in capital
    
    
    4,257,039Retained deficit
    
    
    (1,182,637
    )Other comprehensive income
      
      
      4,995Total
      stockholders' equity
    
    
    3,123,398Total
      Liabilities and Stockholders' Equity
    
    $
    3,198,771
 
 The
accompanying notes are an integral part of these financial
statements.
  -2-
  **AMANASU ENVIRONMENT CORPORATION and SUBSIDIARIES**
 ****
 **CONSOLIDATED STATEMENTS
OF OPERATIONS AND DEFICIT**
 **ACCUMULATED
DURING DEVELOPMENT STAGE**
  Year2005
    
    Year2004Sales
    
    $
    478,003
    
    $
    -Cost of Goods sold
	    
	    $
	    271,552Gross Profit
	    
	    $
	    206,451Expenses
    
    
    533,125
    
    
    149,835Operating
      Loss
    
    
    (326,674
    )
    
    (149,835
    )Other
      Income(expense)Interest Income
      
      
      50,783
      
      
      158
      )Impairment Charge - write downof licensing agreements
        
        
        (292,030
        )
    
    
    
    
    
    
    
    
    
    


  Net Loss
    
    $
    (567,921
    )
    $
    (149,677
    )Net
      loss per share -Basic
      and Diluted
    
    $
    -
    
    $
    (-
    )Average
      number ofshares
      outstanding
    
    
    43,940,542/font>
    
    
    43,000,916
 
 The
accompanying notes are an integral part of these financial
statements.
  -3-
  **AMANASU ENVIRONMENT CORPORATION and SUBSIDIARIES**
 ****
 **CONSOLIDATED STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY**
 **For
the Years Ended December 31, 2005, and 2004**
 
 Common
      Stock
    
    Additional
    
    Retained
        Other ComprehensiveShares
    
    Amount
    
    Paid
      in Capital
    
    Deficit
    
        Income
    
    TotalBalance,
      December 31, 2003
    
    
    43,020,816
    
    $
    28,821
    
    $
    872,119
    
    $
    (465,039
          $
	      -
    
    $
    435,901Adjustments
    
    
    (20,000)
    
    $
    14,180
    
    $
    (114,080)
    
    
    
          
	      
    
    
    (99,000)Net loss for period
    
    
    
    
    
    
    
    
    
    
    
    (149,677
          
	      
    
    
    (149,677)Balance, December 31, 2004
    
    
    43,000,816
    
    
    43,001
    
    
    758,039
    
    
    (614,716
          
	      
    
    
    186,324Sales of common stock
    
    
    1,000,000
    
    
    1,000
    
    
    3,499,000
    
    
    
          
	      
    
    
    3,500,000Net
      loss for period
    
    
    
    
    
    
    
    
    
    
    
    (567,921)
          
	      
    
    
    (567,921)comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
          
	      4,995
    
    
    4,995Balance,
      December 31, 2005
    
    
    44,000,816
    
    $
    44,001
    
    $
    4,257,039
    
    $
    (1,182,637
    )
          $
	      4,995
    $
    3,123,398
  The
accompanying notes are an integral part of these financial
statements.
  -4-
  **AMANASU ENVIRONMENT CORPORATION and SUBSIDIARIES**
 ****
 **STATEMENTS
OF CASH FLOWS**
  Year2004
    
    Year2003**CASH
      FLOWS FROM OPERATIONS:**Net
      loss
    
    $
    (567,921
    )
    $
    (149,077
    )Charges
      not requiring the outlay of cash:Depreciation
      and amortization
    
    
    58,777
    
    
    22,406Write down of licensing agreements
    
    
    292,030
    
    
    -Equity in losses of investee companies
    
    
    11,780
    
    
    -
    
    
    
    


  Changes
      in current assets and liabilities:Increase in notes and accounts receivable
    
    
    (78,434)Increase in work in progress
    
    
    (19,186)Increase in advance to vendor
    
    
    (94,000)Increase in advance to employees
    
    
    (24,179)Increase in short term bank loan
    
    
    21,210Increase in accounts payable
    
    
    19,425Increase in advance to shareholders
    
    
    (42,420)Increase in payroll and other taxes payable
    
    
    13,430
    
    
    2,990Increase in accured expenses
    
    
    3,578Increase employee loans
    
    
    14,640**Net
      Cash Consumed By****Operating
      Activities**
    
    
    (391,270****
    )****
    
    ****(123,681
    ****)
    
    (****
    )******CASH
      FLOWS FROM INVESTING **ACTIVITIES:****Acquisition of machinery and equipment
    
    
    (459,987)
    
    
    -Investments
    
    
    (801,384)
    
    
    -Increase in security deposits
    
    
    (100,000)
    
    
    -Advance to affiliate
	      
	      
	      (138,595)
	      
	      
	      -Investment in certificate of deposit
	      
	      
	      (1,000,000)
	      
	      
	      -**Net
      Cash Provided (Consumed)****By
      Investing Activities**
    
    
    ****(2,499,966)
    
    
    
    
    
    (
    )**CASH
      FLOWS FROM FINANCING **ACTIVITIES:****Issuances
      of common stock
    
    
    3,500,000Refund of stock investment(99,000)**Net
      Cash Provided By****Financing
      Activities**
    
    
    3,400,100Exchange Rate Effect on cash
		    
		    
		    4,995**Net
      Change in Cash Balances**
    
    
    513,859
    
    
    (123,681)Cash
      balance, beginning of period
    
    
    9,459
    
    
    133,140Cash
      balance, end of period
    
    $
    523,318
    
    $
    9,459
  The
accompanying notes are an integral part of these financial
statements.
  -5-
  **AMANASU ENVIRONMENT CORPORATION and SUBSIDIARIES**
 ****
 **NOTES
TO FINANCIAL STATEMENTS**
 **December
31, 2005**
 
 **1.**
    **ORGANIZATION and BUSINESS**
 
 **Organization
of Company**
 The
Company is a Nevada Corporation, formed February 22, 1999, as Forte
International, Inc. The name was changed to Amanasu Energy Corporation on March
27, 2001, and to Amanasu Environment Corporation on October 18,
2002.
 
 **Business**
 On October 19, 2004, the Company invested $100,000 for a 100% interest in a newly formed subsidiary,
Amanasu Shinwa Corporation (Shinwa), which is located in Gunma, Japan.  On December 16, 2005, a
second 100% owned subsidiary was formed, Amanasu Holdings, Inc. (Holdings), which is located in Tokyo, Japan.
Holdings made investments in five other Japanese companies during 2005, including an $84,288 investment in Shinwa.
The investee companies are involved in a variety of businesses, described in Note 8.  Shinwa performs fabricating services,
principally welding, on stainless steel piping; it has also developed, and continues development of systems for
cleaning the waters of rivers, streams and lakes.
 During
the year 2000, the Company acquired worldwide licensing rights for nuclear
incinerator technology, known as "The Amanasu Furnace". The Furnace is a
positive ion breeder incinerator process that converts domestic and industrial
wastes to ions through high temperature exposure. The resultant residue consists
of oxygen gas and inert slag pellets. On September 30, 2002, the Company was
granted a worldwide exclusive license for the production and marketing of a hot
water boiler which extracts heat energy from waste tires. On June 30, 2003, the
Company acquired the worldwide rights to produce and market a patented process
that purifies seawater, and removes hazardous pollutants from wastewater.
 
 **Development
Stage Accounting**
 The Company was, until 2005, a development stage company, as defined in Statement of Financial Accounting Standards No. 7.
Generally accepted accounting principles that apply to established operating enterprises govern the recognition of revenue by a
development stage enterprise and the accounting for costs and expenses.  The Company is no longer in the development stage.
 
 **Risk and Uncertainties**
 Approximately 60% of the sales of Shinwa are to one customer.  Management
does not view this concentration as a significant risk.
 
 **Basis of Consolidation**
 The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Holdings and Shinwa.  All significant intercompany
balances and transactions have been eliminated in consolidation.
  -6-
  **AMANASU
ENVIRONMENT CORPORATION**
 **(A
Development Stage Company)**
 **NOTES
TO FINANCIAL STATEMENTS**
 **December
31, 2005**
 
  **2.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Cash**
 For purposes of the statements of cash flows, the Company considers all short
term debt securities purchased with a maturity of three months or less to be cash equivalents.
 **Concentrations
of Credit Risk**
 Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, miscellaneous receivables, and miscellaneous payables.  The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
 
 **Fixed
Assets**
 Fixed assets are recorded at cost.  Depreciation is computed using accelerated methods, with lives of five years for vehicles, and seven years for machinery and equipment, ten years for tools, and fifteen years for building improvements.
 
 **Licensing
Agreement**
 During the year 2000, the Company issued 13,000,000 shares of common stock
to a company that is wholly owned by the Company's president as a fee for arranging
for the acquisition of the licensing agreement for the nuclear incinerator technology.
Another 1,200,000 shares was issued in 2001 in connection with the acquisition
of this agreement.  No value has been assigned to this intangible asset.
 
 The license for the hot water boiler was acquired at a cost of $250,000, plus
650,000 shares of common stock.  The stock was valued at $.10 per share,
bringing the total cost to $315,000.  The license for the seawater purification
process was acquired for 1,050,000 shares of common stock which were valued at
$31,500.  Amortization of these costs has been provided by the straight line method
using lives of 17 years, which is based on patent life.  The latter two intangible assets
were evaluated during 2005 and a write off was made of a substantial portion of their
book value.  (See Note 8).
 
 **Income
Taxes**
 Deferred income taxes are recorded to reflect the tax consequences or benefits to future years of any temporary differences between the tax basis of assets and liabilities, and of net operating loss carryforwards.
 
 **Recognition Of Revenue**
 Revenue is realized from sales of products and services.  Recognition occurs upon delivery.
	In determining recognition, the following criteria are considered:  persuasive evidence exists
	that there is an arrangement between the buyer and seller; delivery has occurred; the sales
	price is fixed or determinable; and collectability is reasonably assured.
 
 **Use
Of Estimates**
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimated.
  -7-
  **AMANASU
ENVIRONMENT CORPORATION**
 **(A
Development Stage Company)**
 **NOTES
TO FINANCIAL STATEMENTS**
 **December
31, 2005**
 
  **2	.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONT'D)**
 
 **Foreign Currency Translation**
 Substantial Company assets are located in Japan.
These assets and related liabilities are recorded on the
books of the Company in the currency of Japan (Yen).
They are translated into US dollars as follows:
 (a)	Current assets, current liabilities and long term monetary assets and liabilities, at the rate of exchange in effect as at the balance sheet date;
(b)	Non-monetary assets and liabilities at the exchange rates prevailing at the time of the acquisition of the assets or assumptions of liabilities; and, 
(c)	Revenues and expenses, at the average rate of exchange for the year.
 **Other Comprehensive Income**
 The Company reports as other comprehensive income revenues, expenses, and gains and losses that are not included in the determination of net income.  No such transactions occurred during the years 2005 or 2004.
 **Advertising
Costs**
 The
The Company will expense advertising costs when an advertisement occurs.  Amounts expensed were $3,750 during 2005; there was no such expense in 2004.
 
 **Segment
Reporting**
 Management will treat the operations of the Company as one segment.
 
 **Fair
Value of Financial Instruments**
 The carrying amounts of the Company's financial instruments, which include cash, miscellaneous receivables, and payroll taxes payable, approximate their fair values at December 31, 2005.
 
 **Net
Loss Per Share**
 The Company computes net income (loss) per common share in accordance with SFAS No. 128, "Earnings Per Share"
and SEC Staff Accounting Bulletin No. 98 ("SAB 98").  Under the provisions of SFAS No. 128 and SAB 98, basic and
diluted net loss per common share are computed by dividing the net income (loss) available to common shareholders for
the period by the weighted average number of shares of common stock outstanding during the period.  Accordingly, the
number of weighted average shares outstanding as well as the amount of net income (loss) per share are presented for
basic and diluted per share calculations for all periods reflected in the accompanying consolidated financial statements.
 **Recent Accounting Pronouncements**
 The Company does not anticipate the adoption of recently issued accounting pronouncement to have a significant effect on the Company's results of operations, financial position or cash flows.
  -8-
  **AMANASU
ENVIRONMENT CORPORATION**
 **(A
Development Stage Company)**
 **NOTES
TO FINANCIAL STATEMENTS**
 **December
31, 2005**
   **3.**
    **RELATED
      PARTY TRANSACTIONS**
 
 The Company advanced $100,000 in October, 2005 to a company with which the Company president is affiliated.  Another $100,000 was advanced to that Company in January 2006.  Both advances were repaid, without interest, in March 2006.
 
 The Company president received a $27,000 advance from Shinwa in November 2004, and a $45,000 advance from Shinwa in December 2005.  The $27,000 advance was repaid, without interest, in December 2004.
 
 **4.**
    **PROVISION FOR DOUBTFUL ACCOUNTS**





The balance of notes and accounts receivable has been reduced by a provision for doubtful accounts in the amount of $1,347.







-9-


**AMANASU
ENVIRONMENT CORPORATION**


**(A
Development Stage Company)**


**NOTES
TO FINANCIAL STATEMENTS**


**December
31, 2005**







**5.**
    **INCOME
      TAXES**





The Company has experienced losses during each year since 1999, which have
totaled $1,143,640.  As a result, it has incurred no Federal income tax.
The Internal Revenue Code allows net operating losses (NOL's) to be carried forward
and applied against future profits for a period of twenty years.  The potential benefit
of the NOL has been recognized on the books of the Company, but it has been offset
by a valuation allowance.  If not used, a portion of the NOL carryforward will expire each
year during the years 2019 to 2024.





Under Statement of Financial Accounting Standards No. 109, recognition of deferred
tax assets is permitted unless it is more likely than not that the assets will not
be realized.  The Company has recorded noncurrent deferred tax assets as follows:





Deferred
      Tax Assets
    
    $
    194,644Valuation
      Allowance
    
    
    194,644Balance
      Recognized
    
    $
    -




**6.**
    **INVESTMENTS**





On December 16, 2005, Holdings made investments in four operating companies
which are located in Japan. The equity interest in each of these companies is
not more than 50% and the companies are not consolidated in these financial
statements.  They are accounted for by the equity method of accounting.  These
investments are summarized below, along with a brief description of each





|                     |  |            |                        |                  |   |           |  |   |        |  | 
|-------------------- |  | ---------- | ---------------------- | ---------------- | - | --------- |  | - | ------ |  | 
|                     |  | Investment |                        | Company Share Of |   |           |  |   |        |  | 
|                     |  | Debt       |                        | Equity           |   | 2005 Loss
|                     |  |            |                        |                  |   |           |  |   |        |  | 
|BJSS, Inc.           |  |            | $                    - |                  | $ | 89,346    |  | $ | 3,307 
|Felice, Inc.         |  |            | 42,114                 |                  |   | 84,228    |  |   | 8,473 
|Echo Frontier Corp.  |  |            | 42,114                 |                  |   | 101,073   |  |   | -     
|Creative Ducks Corp. |  |            | 106,969                |                  |   | -         |  |   | -     
|Total                |  |            | 191,197                |                  | $ | 274,647   |  | $ | 11,780 | 

During January 2006, investments totaling $129,000 were made in two other companies located in Japan.







-10-


**AMANASU
ENVIRONMENT CORPORATION**


**(A
Development Stage Company)**


**NOTES
TO FINANCIAL STATEMENTS**


**December
31, 2005**








**6.**
    **INVESTMENTS (CONT'D)**





BJSS, Inc.
	This is a temporary employment agency with offices in Bangladesh and Japan.Felice, Inc.
	This company will operate beauty salons.  The salons will be operated on a membership basis.Echo Frontier Corp.
	This company will manufacture products for which the Company holds patents.  The Company expects to receive patent royalties on the sales of this company.Creative Ducks Corp.
	This company will produce plants for sterilization systems, primarily to treat the ozone effect.


**7.**
    **INVESTMENT IN SWING MELTER**





In March 2005, the Company made a $290,000 equity investment in Kogure Susakusho Ltd.,
	(Kogure), a Japanese company which held patents for an industrial incinerator, called the Swing Melter.
	The original intention was that the Company would receive 20% of the profits on sales of the incinerator.
	In April 2005, the Company purchased for $400,000 a demonstration model of the Swing Melter for use in
	attracting customers.  Subsequently, Kogure ceased doing business and the Company exchanged its
	investment for the Kogure patents.  In October 2005, a new company, now named Echo Frontier Corp.,
	was formed by former employees of Kogure to produce the Swing Melter.  On December 16, 2005, the
	Company made a $143,187 investment in the new company.  In addition to its equity interest in the new company,
	the Company will receive patent royalties on sales of the Swing Melter.


**8.**
    **IMPAIRMENT**





The Company has investments which totaled $346,500 in licensing rights to three
products (see Note 1).  During 2005, the value of these rights was reviewed and
impairment was found to have occurred.  As a result, the remaining unamortized
cost of these rights was reduced to $10,000 through a $292,030 loss provision.


**9.**
    **SHORT TERM BANK LOAN**





The short term bank loan bears interest at 8% and is due June 7, 2006.


**10.**
    **RENTALS UNDER OPERATING LEASES**





The Company conducts its operations from a leased office facility in Seattle,
Washington under a noncancelable operating lease which expires September 30, 2005.
In addition, the Company leases a Seattle apartment under an operating lease that expires October 10, 2006.
The Company also leases office facilities and an apartment in Tokyo under operating leases.
During 2005, the Company incurred rent expense of $206,823.  In 2004, rent expense was $32,100.
The following is a schedule of future minimum rental payments required under the above operating leases as of December 31, 2005.Year
      endingDecember
      31,
    
    Amount2006
    
    $

    210,4932007
    
    $

    170,493



**11.**
    **SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION**

There was no cash paid for interest or income taxes during the years 2005 and 2004.
There was no non-cash financing or investing activity during these years.

-11-

SIGNATURES

In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Amanasu
Environment Corporation

/s/ Atsushi
      Maki
    May 14, 2006PresidentAnd
      Principal Accounting 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.

May 14, 2006,/s/ Atsushi
      MakiDirector




12