UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  Form 10-KSB/A



(Mark one)

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

For the fiscal year ended December 31, 2005

[_]  Transition Report Under Section 13 or 15(d) of The Securities  Exchange Act
     of 1934

For the transition period from ______________ to _____________



Commission File Number: 0-32379


                            American Ammunition, Inc.
                 ----------------------------------------------
        (Exact name of small business issuer as specified in its charter)


          Nevada                                              91-2021594
--------------------------                            --------------------------
  (State of incorporation)                              (IRS Employer ID Number)


                      3545 NW 71st Street, Miami, FL 33147
                 ----------------------------------------------
                    (Address of principal executive offices)


                                 (305) 835-7400
                 ----------------------------------------------
                           (Issuer's telephone number)




Securities registered under Section 12 (b) of the Exchange Act - None

Securities  registered under Section 12(g) of the Exchange Act: - Common Stock -
$0.001 par value






<PAGE>



Check  whether  the issuer  has (1) filed all  reports  required  to be files by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period the Company was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]



Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of Company'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. [_]



The  issuer's  revenues  for the  fiscal  year  ended  December  31,  2005  were
$3,243,633.



The aggregate market value of voting common equity held by  non-affiliates as of
September 17, 2007 was approximately $_______________.



State the number of shares outstanding of each of the issuer's classes of common
equity as of the  latest  practicable  date:  As of  September  17,  2007:,  the
Transfer Agent's records indicate that there are 28,372,922 shares  outstanding.
Of  these  shares,  a total of  21,803,335  shares  were  subject  to an  escrow
agreement referenced in later filings.



Transitional Small Business Disclosure Format: Yes [_] No [X]







<PAGE>


                               RESTATEMENT ISSUES

The December 31, 2005 financial statements have been restated to account for the
derivative  liability  that was  incurred in  connection  with the common  stock
conversion  features and the warrants  issued with  certain  notes  payable (see
Notes I and J to the accompanying consolidated financial statements).

The Company  accounts  for debt with  embedded  conversion  features and warrant
issues in accordance with EITF 98-5: "Accounting for convertible securities with
beneficial  conversion features or contingency  adjustable  conversion" and EITF
No. 00-27:  "Application of issue No 98-5 to certain  convertible  instruments".
Conversion features determined to be beneficial to the holder are valued at fair
value and recorded to additional  paid in capital.  The Company  determines  the
fair value to be ascribed to the detachable warrants issued with the convertible
debentures  utilizing  the  Black-Scholes  method.  Any  discount  derived  from
determining the fair value to the debenture  conversion features and warrants is
amortized  to financing  cost over the life of the  debenture.  The  unamortized
discount, if any, upon the conversion of the debentures is expensed to financing
cost on a pro rata basis.

Debt issues with the variable  conversion features are considered to be embedded
derivatives  and are  accountable in accordance  with FASB 133;  "Accounting for
Derivative  Instruments and Hedging Activities".  The fair value of the embedded
derivative is recorded to derivative liability. This liability is required to be
marked each reporting period. The resulting discount on the debt is amortized to
interest expense over the life of the related debt.


                  CAUTION REGARDING FORWARD-LOOKING INFORMATION

Certain  statements  contained  in  this  annual  filing,   including,   without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions:  demographic  changes; the ability
of the Company to sustain,  manage or  forecast  its growth;  the ability of the
Company to successfully make and integrate acquisitions;  raw material costs and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.

Given  these  uncertainties,  readers  of this Form  10-KSB  and  investors  are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to update any such  factors or to  publicly
announce the result of any  revisions to any of the  forward-looking  statements
contained herein to reflect future events or developments.




<PAGE>



                            AMERICAN AMMUNITION, INC.
                         Annual Report on Form 10-KSB/A
                          Year ended December 31, 2005

                                Index to Contents

                                                                           Page
                                                                          Number
Part I

Item 1   Description of Business                                              5
Item 2   Description of Property                                             15
Item 3   Legal Proceedings                                                   16
Item 4   Submission of Matters to a Vote of Security Holders                 16


Part II

Item 5   Market for Company's Common Stock and Related Stockholders Matters  17
Item 6   Management's Discussion and Analysis or Plan of Operation           18
Item 7   Financial Statements                                                22
Item 8   Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosures                        22
Item 8A  Controls and Procedures                                             22


Part III

Item 9   Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act              23
Item 10  Executive Compensation                                              25
Item 11  Security Ownership of Certain Beneficial Owners and Management
              and Related Stockholder Matters                                25
Item 12  Certain Relationships and Related Transactions                      26
Item 13  Exhibits and Reports on 8-K                                         26
Item 14  Principal Accountant Fees and Services                              26

Index to Consolidated Financial Statements                                   F-1

Signatures                                                                   53








<PAGE>



                                     PART I

Item 1 - Description of Business

     American  Ammunition,  Inc. (the "Company") was incorporated on February 1,
2000  in   accordance   with  the   Laws  of  the   State   of   California   as
FirsTelevision.com.  In 2001, we consummated a reverse  acquisition  transaction
with American Ammunition Inc., a then-privately held Florida  corporation.  Upon
completion of the reverse  acquisition  transaction  with  American  Ammunition,
Inc., we have been engaged in the manufacture and sale of small-arms  ammunition
for the wholesale and governmental markets.

     Effective  January 1,  2006,  we changed  our state of  incorporation  from
California  to  Nevada by means of a merger  with and into a Nevada  corporation
formed  on  December  28,  2005  solely  for  the  purpose  of   effecting   the
reincorporation.  The  Certificate  of  Incorporation  and  Bylaws of the Nevada
corporation  are the  Certificate of  Incorporation  and Bylaws of the surviving
Nevada corporation.  There were no changes to the Company's capital structure as
a result of this action.

     On or about  January 9, 2006,  we completed a previously  approved 1 for 20
reverse split of our then issued and outstanding  common stock. This action took
our issued and outstanding  shares from  92,576,839 to 4,629,831.  All share and
per share  amounts  reflect  this action as of the first day of the first period
presented in our financial statements or discussed in our narrative(s).

     We are an  established  small arms munition  manufacturer  with an existing
distribution  network. The small-arms ammunition market is principally dominated
by three domestic and approximately ten international major  manufacturers.  Our
operations  are geared to provide  the  highest  quality  product in  quantities
significant to meet our developed  wholesale and governmental market demands. We
began as an assembler and re-loader of  ammunition in several  calibers.  As our
operations  grew,  our  management  realized that the only way to break into the
industry  was to  become a  vertically  integrated  manufacturer.  Our  founders
invested heavily in research and development, equipment, and technology in prior
years to focus on increasing our market share. Our current product line consists
of various  calibers with varying  projectiles  as follows:  9  millimeter,  .45
automatic, .380 automatic, .32 automatic, .40 Smith and Wesson, 38 Special, .357
Magnum, 30 carbine,  223 Remington,  38 Super, .44 Special,  32 Smith and Wesson
Long,  44 special,  44 Magnum,  .45 Colt and 6.8 SPC. We have  identified  these
products as having the largest  share of the market for the next several  years.
We sell  our  products  to  both  retail  consumers  and  governmental  agencies
domestically  and  principally  to  governmental  agencies  internationally  for
military use.

     During Calendar 2005, 2004 and 2003, our sales were  approximately  79.42%,
78.06% and 93.77% in domestic markets and approximately 20.58%, 21.94% and 6.23%
internationally,  respectively.  We continue  to  anticipate  the  international
governmental  portion of our business to grow in future periods;  however, we do
not anticipate our international business to outgrow our domestic sales.

     Our principal executive offices are located at 3545 NW 71st Street,  Miami,
Florida 33147 and our telephone number is (305) 835-7400.

Equipment and Production Line Capabilities

     We own all the  equipment  necessary to take the raw  material,  consisting
primarily of brass,  lead, primer and powder, to the finished product,  a loaded
round of ammunition. The process of manufacturing diverse calibers of ammunition
is  extremely  complex  and  requires  very tight  tolerances  to be  maintained
throughout  the process.  Our  technology  and equipment  enable us to produce a
large  variety  of  handgun  and rifle  ammunition.  We have a machine  shop and
maintain our own testing and quality assurance equipment and program. Ammunition
is a performance-based  product.  Therefore,  after the manufacturing process is
complete,  the ammunition must comply with specific  protocols such as velocity,
accuracy,  and  pressure.  We purchase raw  materials in bulk and strive to take
advantage  of  prepayment  discounts  to  produce  significant  savings  in  the
manufacturing  process.  There are and have been  instances  when discounts have



                                       5
<PAGE>



been and may be missed due to cash flow  restrictions.  We  continue to evaluate
the addition of several products to our existing production lines, including the
addition of high speed  projectile  forming  machines to supplement the existing
casting machines.  This addition would  effectively  double or triple projectile
production capacity, while improving projectile quality and performance. We also
are making  provisions to increase other aspects of production  capacity,  which
would  complement  long  term  goals  of  both  production  volume  and  product
diversity.

     In prior years,  we acquired  equipment which will allowed us to expand our
production  capacity  in areas  which they have  traditionally  been slower than
other areas of our manufacturing process. The acquisition of additional presses,
for example,  has helped us to balance out our assembly line process so that all
portions of our  projectiles  are  manufactured in time with each other. We hope
this will cut our  manufacturing  and labor costs and as a result,  make us more
efficient at producing small arms ammunition.

Business Strategy

     We are an autonomous  manufacturer  of ammunition,  with the technology and
equipment to take advantage of the growing  small-arms  ammunition  market.  The
barrier to entry into the ammunition market is extremely high,  however,  we are
an established small arms munitions manufacturer,  with an existing distribution
network.  We  manufacture  our ammunition  utilizing  purchased raw materials to
fabricate  the  necessary  components  in  our  own  production   facility.   In
management's opinion, the consumer and governmental  ammunition market has grown
each  year and it  appears  that  supply is not  keeping  up with  demand,  thus
allowing for companies like American  Ammunition to make a significant impact in
sales through our dealer  direct  program,  established  in the first quarter of
2004,  and our  historically  strong  relationships  with  various  domestic and
foreign governmental agencies.

     We continue to seek the  necessary  working  capital to allow us to enlarge
our operations to take advantage of our technological capacities,  equipment and
the existing marketplace.

Marketing and Sales Distribution

     In first quarter 2004, we launched our Dealer Direct Program.  In doing so,
we completely revamped the way we distribute and sell our products domestically.
This program  allowed us to eliminate the "middle man"  distributor  by offering
our products directly to and soliciting orders directly from the 66,000 licensed
dealers  in the United  States.  In doing  this,  we may offer our  products  to
dealers  cheaper than dealers  would  otherwise  obtain them from  distributors,
while increasing our profit margins as well. It also eliminates a second freight
charge from the distributor to the dealer,  as product is shipped  directly from
our facility to the ultimate seller of our products.

     Our marketing  strategy consists of several key features to attract dealers
directly to our company,  rather than to a distributor.  First,  we are offering
"net 60" day credit terms to smaller dealers,  who would ordinarily be forced to
pay for product up front.  We have developed a screening  process for qualifying
these smaller dealers on an individual  basis.  Although  offering net 60 credit
terms to  dealers  results  in  increased  risk to our  company  in our  account
receivables as compared to payment in advance, we have exponentially diversified
our  receivables  (and therefore our credit risk) from 13 main  distributors  to
potentially thousands of individual dealers. Secondly, we now offer free freight
(shipping) to dealers on certain orders which exceed a specified  dollar volume.
Shipping of small arms  ammunition  has always been a large  portion of the cost
passed to consumers as the product is considered "dense" by shipping  companies,
such as UPS, and requires extra care in shipping. We have determined that we can
ship our products at a reduced  rate in quantity and can offer free  shipping as
an incentive on qualified  orders.  As previously  explained,  a second  freight
charge  has  also  been  avoided  by  eliminating  the   distributor   from  the
transaction.  Additionally,  our increasing automation and dealer direct program
have  considerably  sped up the time we take to provide a dealer  with  demanded
product. Our management has become aware of an unfulfilled need of dealers to be
provided with almost instant  gratification when demand at retail establishments



                                       6
<PAGE>



increases.  Many dealers have communicated with our company  complaining that we
took their  distributors too long to provide them with additional product supply
when demand dictated. We believe that our new distribution strategy complimented
with  recent  automation  has cut the  time it  takes a dealer  to  receive  our
products by more than half.  We only  recently  upgraded  our website to include
e-commerce  capacity,  wherein licensed dealers who are pre-registered  with our
company can order online  direct from us. Sales in this manner have been slow to
develop,  primarily due to the documentation  requirements for pre-qualification
of dealers;  however,  management is hopeful that our dealers will begin to take
advantage of the ease of use and time savings related to placing orders directly
via electronic means. We anticipate  further  automation in the way in which our
qualified dealers place product orders from our company.  We plan to continue to
aggressively  pursue new customers  through  promotions,  advertising  and trade
shows. We intend to solicit  original  equipment  manufacturer  subcontract work
from the three major domestic manufacturers; seek additional means of commercial
distribution;  seek further Department of Defense and other governmental  agency
contracts and new  relationships;  contracts;  solicit further export sales and,
potentially, develop relationships with various mass merchandisers/chain stores.

     We have been certified by the United States Small  Business  Administration
as a "qualified  HUBZone small  business  concern."  Under this  program,  small
businesses can qualify for special set-aside contracts,  get up to a 10% edge in
competitive  contract  bidding or even be the sole-source  bidder in some cases.
The program's name signifies the effort to promote  businesses in  "historically
underutilized  business  zones,",  generally  located  in  "blighted"  areas (as
defined)  and a primary  purpose  is to  create  jobs for those who live in such
areas. We are marketing our manufacturing  flexibility to numerous Department of
Defense and commercial munitions  manufacturers as subcontractors allowing prime
contractors  to  reap  the  benefits  of our  "HUBZone  certification",  thereby
allowing such prime contractors to comply with Federal Acquisition  Requirements
for the use of  "small  and  under-utilized  minority  business"  in  fulfilling
government contracts.  The Small Business  Reauthorization Act of 1997 increased
the overall government agencies' procurement goals for small business to 23% and
called for HUBZone  contracts to increase from 1.5% of these  procurements to 3%
by 2003.

Pricing and Value

     We have been able to price our products competitively at a price lower than
any of the three major domestic manufacturers:  Remington,  ATK, and Winchester.
We strive to capitalize on the fact that these three competitors have very large
corporate  infrastructures and, in management's opinion, have to pay much higher
labor  costs  to  their  manufacturing  plant  personnel.  We  believe  that our
production cost structure and,  accordingly,  our pricing  strategy  permits our
customers  to purchase  our product and sell it at a retail  price that is lower
than competitive distribution channels for our competitors' products.

Advertising & Promotion

     We intend to gear our advertising towards magazine and print media, focused
on the gun and ammunition,  handgun and shooting  markets.  We believe that such
advertising will result in greater name recognition among individual  consumers.
Currently,  our sales are generated with very little  advertising and we believe
that advertising could significantly improve retail/mass  merchandiser sales and
increase market share.

Status of Publicly Announced  Products and Services Israeli Military  Industries
Ltd

     We have  developed a relationship  with Israeli  Military  Industries  Ltd.
("IMI"),  whereby we work  together on  individual  projects.  To date,  we have
primarily  focused  their  cooperation  on federal  contracts  and on our dealer
direct  program.  In such contracts,  projectiles  manufactured by IMI have been
assembled by our company under IMI's strict quality  control  requirements.  The
joint venture has benefited our company in several ways. First and foremost, IMI
has a distinct  following as a result of offering very high quality  products of
the course of many  years.  Associating  our name with IMI's  history  has added
value to our brand and reputation in the small arms ammunition industry. Second,
IMI manufactures different calibers and products than us, thereby increasing the



                                       7
<PAGE>



catalogue  of  items  we may  offer  to our  dealers.  IMI  produces  commercial
ammunition,  similar  to  our  company.  However,  we  also  specialize  in  the
production of law enforcement and military grade ammunition,  which we currently
do not have the production capability to produce on our own. Lastly, on past and
current cooperation  initiatives,  IMI has shipped projectiles and materials for
future assembly on a consignment basis, thereby saving us the time value of such
costs  were we to have  produced  such  items or  purchased  such raw  materials
ourselves.  During  2005,  we saw a  downturn  in this  relationship  and we are
focusing more on internally developed and manufactured products.

Triton

     On February 10, 2004, we executed a non-binding letter of intent to acquire
the assets of Triton Ammunition Corporation ("Triton").  This transaction closed
on October 19,  2004,  with the  issuance  of  1,111,112  shares of  restricted,
unregistered common stock valued at $500,000.

     The assets acquired consisted of various pieces of manufacturing machinery,
raw materials and finished inventory and various  intellectual  property rights.
Triton  conveyed  the sole usage  patent right  agreements  and various  related
licenses for the Hi-Vel and Quik-Shok lines of ammunition.

     The  allocation  of  the  purchase  price  was  as  follows:  Manufacturing
equipment -  approximately  $134,000;  Raw  materials  and finished  inventory -
approximately $89,500; and Patents and a Covenant not-to-compete - approximately
$276,500.    As   the    assigned    patents,    related    licenses   and   the
covenant-not-to-compete  have a combined  remaining  life and/or initial term of
approximately  5 years,  the Company will amortize the  approximate  $276,500 to
operations  over a  60-month  period,  commencing  on the  closing  date  of the
acquisition transaction.

     We believe that with the acquisition of certain Triton specialty ammunition
and our cooperative  relationship with IMI on certain  ventures,  we allow us to
offer an increased product line to our dealers.

ECO-AMMOTM

     We are  now  manufacturing  and  distributing  ECO-AMMO(TM).  This  product
utilizes a lead-free  projectile with reduced lead pollutants sometimes referred
to  as  "green"  ammo.   ECO-AMMO(TM)  is  ideal  for  indoor  ranges  since  it
disintegrates  upon  impact  and,  therefore,  does not  ricochet.  We have been
acquiring  and  developing  technology to market this  environmentally  friendly
ammunition for some time.  The advent of the dealer direct  program  enables the
product to be  distributed at a lower cost and should open up the market to more
consumers.

Frangible Aircraft Bullet

     We were  assigned a serial  number  (60/325,046)  from the U.S.  Patent and
Trademark Office for our provisional  patent  application filed on September 26,
2001 for a  projectile  that  will not  pierce  an  aircraft  fuselage  but will
penetrate human soft tissue. The product has been specifically  designed for use
inside  the  cabin  of  a  commercial  aircraft;  however,  we  have  additional
applications for use in other environments with similar containment issues, such
as security at nuclear power plants, hazardous materials storage facilities, and
for consumer home defense.  We departed  completely from standard ballistics for
the design of this  projectile to meet what American  Ammunition  perceives as a
growing and unfilled  need.  Two of the basic design  criteria in ballistics are
penetration and expansion of the projectile.  In this design,  these two factors
have been  controlled to meet the specific  requirements  of weapons  discharged
inside  a  confined  space  while  ensuring  the  integrity  of the  surrounding
environment.  This design is a new concept in close quarter ammunition: a bullet
capable of incapacitating an assailant without damaging  surrounding  structure.
Design and material selection allows for the inverted expansion and aft internal
collapse of the projectile mass. Our initial  testing,  using test sections of a
commercial  airliner  fuselage,  has revealed that upon impact with the aircraft
fuselage,  the bullet  internally  collapses;  therefore  not  allowing  for the



                                       8
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transfer of kinetic energy  forward or penetration  above that required for soft
tissue  penetration.  Further,  our testing  has been  successful  in  ballistic
testing  using both  ordinance  gelatin  and  bovine  tissue.  This  performance
criterion is accomplished without sacrificing the standard velocity and accuracy
of the caliber  being used.  A video of those tests can be viewed on our website
at www.a-  merc.com in the New Product  Section.  We believe that these research
and  development  efforts  will  provide a new product to the public  safety and
security marketplace.

Industrial Plating Enterprise Company

     Industrial  Plating  Enterprise Company (IPE), a wholly owned subsidiary of
the Company,  is a high volume "barrel plating" facility currently  operating at
below  50.0% of its  designed  capacity.  IPE is meeting  all of our  projectile
plating needs at this time. As our projectile plating requirement grows, IPE has
the surplus capacity to increase  production to meet that need. IPE's innovative
hazardous materials and hazardous waste management and treatment system is fully
capable of meeting increased production requirements.  IPE's management, intends
to explore adding  additional  metallization  and coating processes to diversify
its  services to the parent  company as well as offering  its  services to other
industries with the eventual goal of generating  revenue to our company of which
there are no guarantees.

Competition

     The market for small arms  ammunition is extremely  competitive.  Companies
such as  Remington,  Federal  and  Winchester  are  all  better  equipped,  more
experienced and better financed than us. For years, the large manufacturers have
supplied the component parts of the  manufacturing  process to smaller companies
to assemble and distribute. A company making its own components, can produce and
market a quality lower cost product.  This concept,  coupled with technology and
progressive and  environmentally  sound  manufacturing  practices (i.e. cans and
recycled  plastic  packaging),  has  resulted in a quality,  affordable  product
reaching the marketplace.

     Management  undertook a study of the  production  process and our equipment
utilization  during  December 2004 and the first quarter of 2005. As a result of
this study,  our  management  continues  to believe  that we can our  production
capacity  through the renovation and  restructuring  of our plant flow utilizing
our existing equipment and increasing only labor,  material and other incidental
costs.

Sources and Availability of Raw Materials

     We manufacture our ammunition by creating most of the components ourselves.
The materials  needed to produce our  ammunition  products are widely  available
from numerous third parties.  While we believe that no critical shortages of our
key raw material components, such as brass, lead and powder. We are cognizant of
recent press related to the  availability of lead as no new mines have opened in
many  years  due to  environmental  regulations.  We have  experienced  limited,
infrequent delays in receiving lead;  however,  we have always been able to meet
our production requirements from our normal sources.  Current demand for our raw
material  components  in the domestic  and  international  markets,  principally
driven by  international  military  conflicts,  may work to our advantage in our
contracts  and  relationships  with various  domestic  and foreign  governmental
agencies.  However,  we cannot state with any certainty  that any  disruption of
supply may or may not occur.

Research and Development

     We believe that  research  and  development  is an important  factor in our
future  growth.  The small arms  ammunition  industry  is closely  linked to the
latest  technological  advances.  Therefore,  we must continually  invest in the
technology to provide the best quality  product to the public and to effectively
compete with other companies in the industry.  No assurance can be made that the
Company will have sufficient  funds to purchase  technological  advances as they
become available.



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<PAGE>



Patents, Copyrights and Trademarks

     We intend to protect  our  original  intellectual  property  with  patents,
copyrights  and/or  trademarks  as  appropriate.  Our head  stamp  "A-MERC " was
registered as a trademark on May 10,1994.

     We were  assigned a serial  number  (60/325,046)  from the U.S.  Patent and
Trademark Office for our provisional  patent  application filed on September 26,
2001 for a bullet that will not pierce an aircraft  fuselage but will  penetrate
human soft tissue.

     Our October 2004 acquisition of certain  intellectual  technology  property
from Triton  Ammunition  Corporation  included the  assignment  of the following
patents  related  to  the  design  and   manufacture  of  certain   fragmentable
projectiles:  4,836,110, dated June 6, 1989; 4,882,822, dated November 28, 1989;
and 4,947,755, dated August 8, 1990.

Governmental Regulation

     In accordance  with the  provisions of Title 1, Gun Control Act of 1968, we
are required to be licensed to import  firearms and  manufacture  ammunition for
firearms.  Such  licensing  is subject to  limitations  in Chapter 44, Title 18,
United  States Code.  In the event such licenses are not renewed for any reason,
we would have to cease our operations. In accordance with these requirements, we
carry two licenses  issued by the  Department  of  Treasury,  Bureau of Alcohol,
Tobacco and Firearms: * License No.  1-59-025-06-3D 69152 for "06 - Manufacturer
of  Ammunition  for  Firearms",  which license  expires on April 1, 2007;  and *
License  No.   1-59-025-08-3D-69454  for  "08-Importer  of  Firearm  other  than
Destructive  Devices",  which license expires on April 1, 2007. We are not aware
of any other license requirements or government regulation at a state or federal
level specific to their business and believe that we are in full compliance with
our existing licenses.

Effect of Probable Governmental Regulation on the Business

     We are not aware of any pending  legislation at either the State or Federal
level that would change the  requirements  under which it is licensed and is not
aware of any  reason  why the  existing  licenses  cannot  be  renewed  at their
expiration  dates.  There  can be no  assurance  that  legislation  will  not be
proposed  and  enacted at some time in the future  that would  preclude  us from
continuing our operations.  Should such legislation be enacted, and should we be
precluded from  continuing our  operations,  it would have a materially  adverse
effect upon our business and future.

Cost and Effects of Compliance with Environmental Laws

     As a  manufacturer,  we are  subject to general  Local,  State and  Federal
regulations  governing  environmental  concerns.  We believe that we have always
been and continue to be in compliance  with all such laws.  Special  precautions
have been taken us to ensure that adequate ventilation exists for the portion of
our  operations  that utilize lead and/or  brass.  Additionally,  our  gunpowder
supply is humidity and  temperature  controlled in a secure and  environmentally
controlled facility

Employees

     At April 6, 2006, we employ approximately 58 persons. None of our employees
are  represented  by a labor union for  purposes of  collective  bargaining.  We
consider  our  relations  with our  employees  to be  excellent.  We may  employ
additional personnel,  as necessary,  to accommodate future sales and production
requirements  and believe that an ample supply of qualified  labor exists in our
geographic area to facilitate any required growth.





                                       10
<PAGE>



Risk Factors

     An  investment  in our common  stock has a high degree of risk.  Before you
invest you should carefully consider the risks and uncertainties described below
and the other  information  in this  prospectus.  If any of the following  risks
actually occur, our business, operating results and financial condition could be
harmed and the value of our stock  could go down.  This means you could lose all
or a part of your investment.

     RISKS RELATING TO OUR BUSINESS: We may never become profitable and continue
as a going concern because we have had losses since our inception.  We may never
become  profitable  and  continue as a going  concern  because we have  incurred
losses and experienced negative operating cash flow since our formation. We have
incurred  losses  and  experienced   negative  operating  cash  flow  since  our
formation. For our fiscal years ended December 31, 2005, 2004 and 2003, we had a
net   loss  of   approximately   $(6,067,084),$(3,361,000)   and   $(2,968,000),
respectively.  We may  continue to incur  significant  operating  expenses as we
maintain our current line of  small-arms  ammunition  and continue  research and
development  toward  improving  projectile  quality and  performance.  We cannot
estimate  exactly  when our  operating  expenses  will not outpace  revenues and
result in  significant  losses in the near term.  We may never be able to reduce
these losses, which will require us to seek additional debt or equity financing.
If such  financing  is  available  you  may  experience  significant  additional
dilution.

     THERE MAY EXIST AN UNCERTAINTY AS TO OUR  CONTINUATION  AS A GOING CONCERN:
Our audited  financial  statements for the fiscal years ended December 31, 2005,
2004 and 2003 reflect an  accumulated  deficit of  approximately  $(26,113,212),
$(19,989,875)  and  $(16,629,044)  since  our  inception,   working  capital  of
approximately $(432,660),  $872,000 and $2,028,000,  and stockholders' equity of
approximately $(845,000).  $4,385,000 and $4,508,000. Our auditor issued a going
concern opinion on our financial statements for the year ended December 31, 2005
and 2004.  Our  ultimate  survivability  is  dependent  upon our  being  able to
generate  sufficient cash flows from operations to support its daily  operations
as well as provide  sufficient  resources  to retire  existing  liabilities  and
obligations on a timely basis.  We anticipate that our available cash and future
commitments  for equity  placements  will be  sufficient  to meet our  operating
expenses  and  capital  expenditures  through  2006.  If we  continue  to  incur
operating  losses,  we may not be able to fund continuing  business  operations,
which could lead to the limitation or closure of some or all of our operations.

     WE MAY HAVE TO CURTAIL OUR BUSINESS IF WE CANNOT FIND ADEQUATE FUNDING:  We
currently have no legally binding  commitments  with any third parties to obtain
any  material  amount of  additional  equity or debt  financing  outside  of the
financing with La Jolla,  which has been  renegotiated  in 2005 and the ultimate
funding  may be  questionable.  We need  immediate  funds and may not be able to
obtain  any  additional  financing  in the  amounts  or at the times that we may
require the  financing  or, if we do obtain any  financing,  that it would be on
acceptable terms because of the following:

     *    we have no assets to pledge as security for the loan; and
     *    we are in poor  financial  condition  where we maybe  viewed as a high
          market risk

     As a  result,  we  may  not  have  adequate  capital  to  implement  future
expansions,  maintain our current  levels of  operation  or to pursue  strategic
acquisitions. Our failure to obtain sufficient additional financing could result
in the delay or  abandonment  of some or all of our  development,  expansion and
expenditures, which could harm our business and the value of our common stock.

     Our  competitive  position  may be  harmed if we fail to  respond  to rapid
changes in the market for small arms ammunition.

     Our  competitive  position  may be  harmed if we fail to  respond  to rapid
changes in the market for small arms ammunition.  Our future success will depend
significantly  on our ability to develop and market new products  that keep pace
with technological developments and evolving industry standards for hand gun and
rifle  ammunition.  Our delay or failure  to  develop  or acquire  technological



                                       11
<PAGE>



improvements,  adapt our  products to  technological  changes or provide  higher
quality  product  lines  that  appeals  to our  customers  may  cause us to lose
customers  and may prevent us from  generating  revenue  which could  ultimately
cause us to cease operations.

     Our revenues may decrease from  production  delays due to fire or explosive
incidents.  Our  revenues  may decrease  from  production  delays due to fire or
explosive  incidents.  Our ammunition  products,  involve the manufacture and/or
handling of a variety of explosive and flammable  materials.  This manufacturing
and/or  handling  may result in  incidents  that will  temporarily  shut down or
otherwise disrupt our manufacturing,  causing production delays and resulting in
liability for workplace  injuries and  fatalities.  We cannot assure you that we
will not  experience  these  types of  incidents  in the  future  or that  these
incidents will not result in production delays, which can lead to a reduction in
revenues.

     We may incur substantial costs in complying with environmental laws and may
be  subject  to  substantial  liability  resulting  from  the  use of  hazardous
substances or required cleanup of contaminated  sites. Our operations and use of
real property are subject to a number of federal,  state and local environmental
laws and regulations which, among other things,  require us to obtain permits to
operate and to install  pollution control equipment and regulate the generation,
storage, handling, transportation, treatment and disposal of hazardous and solid
wastes.  Our  operations,  as well as historical  operations at our sites,  also
subject us to  liability  for the cleanup of releases of  hazardous  substances.
Environmental  laws and regulations  change  frequently,  and it is difficult to
predict whether and to what extent we may be subject to liability for compliance
with environmental laws and regulations.

     Our  business  operations  will  be  harmed  if we  are  unable  to  obtain
additional  funding.  Our business operations will be harmed if we are unable to
obtain additional funding outside of the La Jolla financing. We believe that our
available short-term assets, investment income and financing arrangement with La
Jolla will be sufficient to meet our operating expenses and capital expenditures
through the end of fiscal year 2005. We do not know if additional financing will
be available  when  needed,  or if it is  available,  if it will be available on
acceptable  terms.  Insufficient  funds may  prevent  us from  implementing  our
business  strategy or may require us to delay,  scale back or eliminate  certain
contracts for the provision of our technology and products.

     Our competitors may  misappropriate  our  intellectual  property because we
have only one trademark and five patents.

     We attempt to protect our limited  proprietary  property through trademark,
trade secret,  nondisclosure  and  confidentiality  measures.  Such protections,
however, may not preclude competitors from developing similar technologies.  Any
inability  to  adequately  protect  our  proprietary  technology  could harm our
ability to compete.

     Our  future  success  and  ability  to  compete  depends  in part  upon our
proprietary  technology  and our  trademark,  which we attempt to protect with a
combination  of  trademark  and   confidentiality   procedures  and  contractual
provisions.  These legal  protections  afford only  limited  protection  and are
time-consuming  and expensive to obtain and/or  maintain.  Further,  despite our
efforts,  we may be unable to prevent  third  parties  from  infringing  upon or
misappropriating our intellectual property.

     RISKS  RELATING TO OUR  CURRENT  FINANCING  ARRANGEMENT:  There are a large
number of shares underlying our convertible  debentures and warrants that may be
available  for future  sale and the sale of these  shares may depress the market
price of our common stock.

     As of April 6, 2006,  we had  4,897,112  shares of common  stock issued and
outstanding and convertible  debentures  outstanding  that may be converted into
shares of our common stock at current market prices, and outstanding warrants to
purchase  133,318 shares of common stock.  In addition,  the number of shares of
common stock issuable upon conversion of the outstanding  convertible debentures
may  increase  if the market  price of our stock  declines.  All of the  shares,
including all of the shares  issuable upon conversion of the debentures and upon
exercise of our  warrants,  may be sold without  restriction.  The sale of these
shares may adversely affect the market price of our common stock.


                                       12
<PAGE>



     The  continuously  adjustable  conversion  price feature of our convertible
debentures  could require us to issue a substantially  greater number of shares,
which will cause dilution to our existing stockholders.

     Our  obligation  to  issue  shares  upon   conversion  of  our  convertible
debentures  is  essentially  limitless.  The  number of  shares of common  stock
issuable upon  conversion  of our  convertible  debentures  will increase if the
market price of our stock  declines,  which will cause  dilution to our existing
stockholders.

     The  continuously  adjustable  conversion  price feature of our convertible
debentures  may  encourage  investors  to make short sales in our common  stock,
which could have a depressive effect on the price of our common stock.

     The convertible  debentures are convertible into shares of our common stock
at a 24%  discount  to the  trading  price  of the  common  stock  prior  to the
conversion.  The significant  downward pressure on the price of the common stock
as the selling  stockholder  converts and sells material amounts of common stock
could  encourage  short sales by investors.  This could place  further  downward
pressure on the price of the common stock.  The selling  stockholder  could sell
common  stock  into the market in  anticipation  of  covering  the short sale by
converting their securities,  which could cause the further downward pressure on
the stock price. In addition, not only the sale of shares issued upon conversion
or exercise of debentures,  warrants and options,  but also the mere  perception
that these sales  could  occur,  may  adversely  affect the market  price of the
common stock.

     The issuance of shares upon  conversion of the  convertible  debentures and
exercise of outstanding warrants may cause immediate and substantial dilution to
our existing stockholders.

     The issuance of shares upon  conversion of the  convertible  debentures and
exercise of warrants  may result in  substantial  dilution to the  interests  of
other  stockholders  since the selling  stockholders may ultimately  convert and
sell the full amount issuable on conversion.  Although the selling  stockholders
may not convert their  convertible  debentures and/or exercise their warrants if
such  conversion  or  exercise  would  cause  them to own more  than 9.9% of our
outstanding  common  stock,  this  restriction  does  not  prevent  the  selling
stockholders  from converting  and/or exercising some of their holdings and then
converting  the rest of their  holdings.  In this way, the selling  stockholders
could sell more than this limit while never holding more than this limit.  There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.

In The Event That Our Stock Price Declines, The Shares Of Common Stock Allocated
For Conversion Of The  Convertible  Debentures  and  Registered  Pursuant To Our
Pending  Prospectus  May  Not Be  Adequate  And We May  Be  Required  to  File A
Subsequent  Registration  Statement Covering Additional Shares. If The Shares We
Have Allocated And Are Registering Herewith Are Not Adequate And We Are Required
To File An Additional  Registration Statement, We May Incur Substantial Costs In
Connection Therewith.

     Based on our current market price and the potential  decrease in our market
price as a result of the issuance of shares upon  conversion of the  convertible
debentures,  we have made a good  faith  estimate  as to the amount of shares of
common stock that we are required to register and allocate for conversion of the
convertible  debentures.  We have allocated and registered  42,861,322 shares to
cover the conversion of the convertible debentures.  In the event that our stock
price decreases,  the shares of common stock we have allocated for conversion of
the convertible debentures and are registering hereunder may not be adequate. If
the shares we have allocated to the registration  statement are not adequate and
we are  required  to file an  additional  registration  statement,  we may incur
substantial  costs  in  connection  with  the  preparation  and  filing  of such
registration statement.





                                       13
<PAGE>



If We  Are  Required  for  any  Reason  to  Repay  Our  Outstanding  Convertible
Debentures,  We Would Be Required to Deplete Our Working Capital,  If Available,
Or Raise Additional Funds. Our Failure to Repay the Convertible  Debentures,  If
Required,  Could Result in Legal Action Against Us, Which Could Require the Sale
of Substantial Assets.

     We entered into a Securities Purchase Agreement with La Jolla on October 4,
2002 for the sale of (I) $250,000 in convertible debentures and (ii) warrants to
buy 30,000,000 shares of our common stock. On March 13, 2003 and May 6, 2003, La
Jolla  advanced an aggregate  of $350,000 to our company  which such funding was
allocated  towards the principal  balance of our convertible  debentures.  As of
April 6, 2006, $226,365 of the debenture remained  outstanding.  The convertible
debentures are due and payable, with 8% interest on June 30, 2006, unless sooner
converted  into shares of our common  stock.  In addition,  any event of default
could require the early repayment of the convertible debentures at a price equal
to 125% of the  amount due under the  debentures.  We  anticipate  that the full
amount of the convertible  debentures,  together with accrued interest,  will be
converted into shares of our common stock,  in accordance  with the terms of the
convertible debentures.  If we are required to repay the convertible debentures,
we would be  required to use our limited  working  capital and raise  additional
funds.  If we were unable to repay the debentures  when required,  the debenture
holders  could  commence  legal  action  against us and  foreclose on all of our
assets to recover the amounts due.  Any such action would  require us to curtail
or cease operations.

     RISKS  RELATING TO OUR COMMON  STOCK:  If We Fail to Remain  Current on Our
Reporting  Requirements,  We Could be Removed From the OTC Bulletin  Board Which
Would Limit the Ability of Broker-Dealers to Sell Our Securities and the Ability
of Stockholders to Sell Their Securities in the Secondary Market.

     Companies  trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports  under  Section 13, in order to maintain  price
quotation  privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements,  we could be removed from the OTC Bulletin Board. As
a result,  the market liquidity for our securities  could be severely  adversely
affected by limiting the ability of  broker-dealers  to sell our  securities and
the ability of stockholders to sell their securities in the secondary market.

     Our directors and executive officers  beneficially own approximately  37.4%
of our stock;  their interests could conflict with yours;  significant  sales of
stock held by them could have a negative effect on our stock price; stockholders
may be unable to exercise control.

     As of April 6, 2006, our executive officers and directors,  which primarily
include the Fernandez family, beneficially own approximately 23.5% of our common
stock. As a result,  our executive  officers and directors will have significant
influence to:

     *    elect or defeat the election of our directors;
     *    amend or prevent amendment of our articles of incorporation or bylaws;
     *    effect  or  prevent  a  merger,  sale of  assets  or  other  corporate
          transaction; and
     *    control the outcome of any other matte  submitted to the  stockholders
          for vote.

     As a result of their  ownership and positions,  our directors and executive
officers collectively are able to significantly  influence all matters requiring
stockholder  approval,  including  the  election of  directors  and  approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors and  executive  officers,  or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock  ownership may discourage a potential  acquirer from making a tender offer
or otherwise  attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders  from realizing a premium over our stock
price.




                                       14
<PAGE>



Our  Common  Stock is  Subject  to the  "Penny  Stock"  Rules of the SEC and the
Trading Market in Our  Securities is Limited,  Which Makes  Transactions  in Our
Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

     The  Securities  and  Exchange  Commission  has  adopted  Rule 15g-9  which
establishes the definition of a "penny stock," for the purposes  relevant to us,
as any equity  security  that has a market price of less than $5.00 per share or
with an  exercise  price of less  than  $5.00  per  share,  subject  to  certain
exceptions.  For any  transaction  involving a penny stock,  unless exempt,  the
rules require:

     *    that a broker or dealer approve a person's account for transactions in
          penny stocks; and
     *    the broker or dealer receives from the investor a written agreement to
          the transaction,  setting forth the identity and quantity of the penny
          stock to be purchased

     In order to approve a person's  account for  transactions  in penny stocks,
the broker or dealer must:

     *    obtain financial  information and investment  experience objectives of
          the person; and
     *    make a reasonable  determination that the transactions in penny stocks
          are suitable for that person and the person has  sufficient  knowledge
          and  experience in financial  matters to be capable of evaluating  the
          risks of transactions in penny stocks.

     The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure  schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:

     *    sets  forth  the  basis  on  which  the  broker  or  dealer  made  the
          suitability determination; and
     *    that the broker or dealer  received a signed,  written  agreement from
          the investor prior to the transaction.

     Generally,   brokers  may  be  less  willing  to  execute  transactions  in
securities  subject to the "penny stock" rules.  This may make it more difficult
for  investors  to dispose of our common stock and cause a decline in the market
value of our stock.

     Disclosure also has to be made about the risks of investing in penny stocks
in both public  offerings  and in  secondary  trading and about the  commissions
payable to both the  broker-dealer  and the registered  representative,  current
quotations  for the  securities  and the rights  and  remedies  available  to an
investor  in  cases  of fraud in  penny  stock  transactions.  Finally,  monthly
statements  have to be sent  disclosing  recent price  information for the penny
stock held in the account and information on the limited market in penny stocks.


Item 2 - Description of Property

     We  lease  our  corporate  office  and  manufacturing   facility  from  our
controlling  stockholder under a long-term operating lease agreement.  The lease
requires a monthly payment of approximately  $5,735,  including applicable State
sales taxes. We are responsible for all utilities and maintenance expenses.  The
lease  expires on December 1, 2009 and  contains a clause that upon  expiration,
the Company and the controlling  shareholder shall renegotiate the annual rental
amount.

     Our subsidiary,  IPE, leases it's manufacturing  facility from an unrelated
third-party  under a long-term  operating lease  agreement.  This lease is for a
period of five (5) years and requires  graduated monthly  payments,  changing on
the lease anniversary date,  ranging from approximately  $1,751 to $1,914,  plus
the applicable  sales taxes.  The Company is  responsible  for all utilities and
maintenance expenses.  The lease expires on February 28, 2007 and may be renewed
for an additional five (5) year term at a rental rate of  approximately  $1,971,




                                       15
<PAGE>



plus applicable sales taxes for the first renewal year and 3.0% increase on each
succeeding   anniversary   date.   Total  rent  expense  under  this  lease  was
approximately  $20,752 and  $16,622,  respectively,  for each of the years ended
December 31, 2004 and 2003.

     In May 2004,  we entered into a long-term  lease  agreement for a warehouse
facility in close  proximity to our primary  office and  manufacturing  facility
with an unrelated third-party..  This lease is for a period of two (2) years and
requires payments of approximately  $6,206 per month for the first 12 months and
approximately  $6,393 for the second 12 months,  plus applicable sales taxes. We
are responsible for all utilities and maintenance  expenses.  This lease expires
on May 31, 2006.  Further,  we are responsible  for any incremental  real estate
taxes and property  insurance in excess of the amounts  incurred by the landlord
for the calendar year immediately preceding the execution of the lease.

     Future minimum rental payments on the above leases are as follows:

              Year ended
              December 31,         Amount
              -----------         -----------
              2006                $   117,244
              2007                     72,643
              2008                     68,815
              2007                     68,815
                                  -----------
              Totals              $   317,517
                                  ===========

     For the respective years ended December 31, 2005 and 2004, the Company paid
an  aggregate  of  $175,552  and$131,804,  respectively,  for rent  under  these
agreements.


Item 3 - Legal Proceedings

     The Company is a nominal  defendant,  stakeholder,  and affected party in a
civil action styled Independent Banker's Bank v. Eduardo A. Godoy, et. al., Case
Number 2003 CA 002466,  currently  pending in the Circuit Court of the Fifteenth
Judicial Circuit In And For Palm Beach County,  Florida. The action was filed by
a creditor of a  shareholder  of the  Company,  and as Issuer of shares to other
Defendants  in the action,  the Company is named as a  stakeholder  and affected
party in the action.  Presently  no monetary  claim is asserted in this  pending
action  against the  Company.  The Company and its counsel  believe that no such
monetary  claims should be made, and if made, are without merit and  defensible.
The Company will vigorously defend any such claim(s).

     From time to time, the Company may be subject to various legal  proceedings
which are incidental to the ordinary  conduct of its business.  The Company does
not  consider  any such  proceedings  to  date,  either  individually  or in the
aggregate,  to be  material  to its  business  or likely to result in a material
adverse effect on its future operating  results,  financial  condition,  or cash
flows.


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

     On June 27, 2005, pursuant to a Written Consent of Shareholder(s)  Pursuant
to  California  General  Corporation  Law,  shareholders  holding  approximately
69,111,256  shares (or  approximately  61%) of the then  issued and  outstanding
shares  approved  the  merger of an entity to be formed  under  Nevada  Law with
American  Ammunition,  Inc. (a California  corporation)  for the sole purpose of
effecting the reincorporation and change in corporate domicile.





                                       16
<PAGE>



                                     PART II


Item 5 - Market for Company's Common Stock and Related Stockholder Matters

Market for Trading

     Our common stock of the Company  currently is quoted on the NASDAQ Over the
Counter  Bulletin Board since October 23, 2001. Our current  symbol,  as changed
for the January 2006 reverse stock split, is "AAMU".  Prior to January 2006, our
common stock traded under symbol "AAMI".  Our common stock, in prior years,  was
approved for trading under the symbol "FBIB";  however, no trades were conducted
using this symbol.

     The ask/high and bid/low  information  for each quarter  since  October 23,
2001 are as follows:

      Quarter                     Ask/High        Bid/Low

1/1/2002 - 3/31/2002               0.81            0.33
4/1/2002 - 6/30/2002               0.65            0.36
7/1/2002 - 9/30/2002               0.57            0.31
10/1/2002 - 12/31/2002             0.47            0.38

1/1/2003 - 3/31/2003               0.78            0.53
4/1/2003 - 6/30/2003               0.85            0.42
7/1/2003 - 9/30/2003               0.55            0.37
10/1/2003 - 12/31/2003             0.42            0.22

1/1/2004 - 3/31/2004               0.50            0.27
4/1/2004 - 6/30/2004               0.42            0.17
7/1/2004 - 9/30/2004               0.27            0.17
10/1/2004 - 12/31/2004             0.24            0.15

1/1/2005 - 3/31/2005               0.17            0.09
4/1/2005 - 6/30/2005               0.14            0.07
7/1/2005 - 9/30/2005               0.14            0.08
10/1/2005 - 12/31/2005             0.15            1.04

1/1/2006 - 3/31/2006               1.18            0.29
4/1/2006 - 4/5/2006                0.34            0.30

     Please note that  over-the-counter  market  quotations  have been  provided
herein.  The  quotations  reflect  inter-dealer  prices,  without retail markup,
mark-down or commission and may not represent actual transactions.

     As of March 31, 2006,  we had  approximately  489  shareholders  of record,
exclusive of our stockholders with their holdings in street name.

Common Stock

     The  holders  of the  issued  and  outstanding  shares of common  stock are
entitled to receive dividends when, as and if declared by our Board of Directors
out of any funds lawfully available therefore. The Board of Directors intends to
retain future  earnings to finance the development and expansion of our business
and does not expect to declare any  dividends  in the  foreseeable  future.  The
holders of the common  stock have the  right,  in the event of  liquidation,  to
receive pro rata all assets  remaining after payment of debts and expenses.  The
common stock does not have any  preemptive  rights and does not have  cumulative
voting rights.  The issued and outstanding shares of common stock are fully paid
and nonassessable. Holders of shares of common stock are entitled to vote at all
meetings  of such  shareholders  for the  election  of  directors  and for other
purposes.  Such  holders  have one vote for each  share of common  stock held by
them.

Transfer Agent

     Our independent  stock transfer agent for our common and preferred stock is
Atlas Stock Transfer Corporation.  Their mailing address and telephone number is
5899 South State Street, Salt Lake City, Utah 84107; (801) 266-7151.



                                       17
<PAGE>



Reports to Stockholders

     The Company  plans to furnish its  stockholders  with an annual  report for
each fiscal year ending December 31 containing  financial  statements audited by
its  registered  independent  public  accounting  firm. In the event the Company
enters  into a business  combination  with  another  Company,  it is the present
intention of management to continue  furnishing  annual reports to stockholders.
Additionally, the Company may, in its sole discretion, issue unaudited quarterly
or other interim  reports to its  stockholders  when it deems  appropriate.  The
Company intends to maintain compliance with the periodic reporting  requirements
of the Securities Exchange Act of 1934.

Dividend policy

     No dividends  have been paid to date and the  Company's  Board of Directors
does not  anticipate  paying  dividends  in the  foreseeable  future.  It is the
current  policy to retain all  earnings,  if any, to support  future  growth and
expansion.


Item 6 - Management's Discussion and Analysis or Plan of Operation

Caution Regarding Forward-Looking Information

     Certain  statements  contained in this annual  filing,  including,  without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

     Such factors include, among others, the following: international,  national
and local  general  economic and market  conditions:  demographic  changes;  the
ability of the Company to sustain, manage or forecast its growth; the ability of
the Company to successfully make and integrate acquisitions;  raw material costs
and availability; new product development and introduction;  existing government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.

     Given these  uncertainties,  readers of this Form 10-KSB and  investors are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to update any such  factors or to  publicly
announce the result of any  revisions to any of the  forward-looking  statements
contained herein to reflect future events or developments.

Restatement issues

     The December 31, 2005  financial  statements  have been restated to account
for the  derivative  liability  that was incurred in connection  with the common
stock  conversion  features and the warrants  issued with certain  notes payable
(see Notes I and J to the accompanying consolidated financial statements).

     The Company accounts for debt with embedded conversion features and warrant
issues in accordance with EITF 98-5: "Accounting for convertible securities with
beneficial  conversion features or contingency  adjustable  conversion" and EITF
No. 00-27:  "Application of issue No 98-5 to certain  convertible  instruments".
Conversion features determined to be beneficial to the holder are valued at fair
value and recorded to additional  paid in capital.  The Company  determines  the
fair value to be ascribed to the detachable warrants issued with the convertible
debentures  utilizing  the  Black-Scholes  method.  Any  discount  derived  from



                                       18
<PAGE>



determining the fair value to the debenture  conversion features and warrants is
amortized  to financing  cost over the life of the  debenture.  The  unamortized
discount, if any, upon the conversion of the debentures is expensed to financing
cost on a pro rata basis.

     Debt issues with the  variable  conversion  features are  considered  to be
embedded   derivatives   and  are  accountable  in  accordance  with  FASB  133;
"Accounting for Derivative  Instruments and Hedging Activities".  The fair value
of the embedded derivative is recorded to derivative  liability.  This liability
is required to be marked each reporting  period.  The resulting  discount on the
debt is amortized to interest expense over the life of the related debt.

General

     American  Ammunition,   Inc.  is  a  holding  company  with  two  operating
subsidiaries: F&F Equipment, Inc. and Industrial Plating Enterprise Co.

     F&F  Equipment,  Inc. (F&F) was  incorporated  on October 4, 1983 under the
laws of the  State of  Florida.  F&F was  formed to  engage  principally  in the
"import,  export,  retail & wholesale of firearms equipment,  ammunition & other
devices and for the purpose of transacting any and/or all lawful  business." F&F
conducts   its  business   operations   under  the  assumed  name  of  "American
Ammunition."

     In June 2002, American  Ammunition,  Inc. formed a wholly owned subsidiary,
Industrial  Plating  Enterprise Co. (IPE),  which started production on June 14,
2002.  IPE  is a  fully  licensed  and  approved  electrochemical  metallization
facility with  significant  capacity for  processing  our line of projectiles as
well as other products and services while employing  environmentally sound water
conservation and proven waste treatment techniques.

Results of Operations

Year ended December 31, 2005 compared to Year ended December 31, 2004

     During the year ended  December  31, 2005,  we  experienced  aggregate  net
revenues  of  approximately  $3,244,000,  with  approximately  $1,010,000  being
realized  during the 4th quarter,  as compared to  approximately  $3,247,000  in
total net revenues for the year ended December 31, 2004.

     We experienced costs of goods sold of approximately $4,592,000 for the year
ended  December 31, 2005 as compared to  approximately  $4,621,000  for the year
ended December 31, 2004.

     During 2005 and 2004, we  experienced  negative  trends off of our standard
production  costs for  material  and labor due to  difficulties  in training new
employees, adding new products to our catalog and lower than expected orders due
to  uncontrollable  delays in ordering by various U. S.  Governmental  entities.
Management is of the opinion that the production  labor force is stable and able
to maintain a constant  standard of quality for future  periods.  We  experience
variable  costs in the area of material  consumption  and direct labor.  We have
recognized   depreciation  expense  on  production  equipment  of  approximately
$770,000 and $729,000,  respectively, in the above cost of goods expense totals.
These  depreciation  levels are  anticipated  to  fluctuate  nominally in future
periods based upon either the full  depreciation of older  equipment  and/or the
addition of new equipment to expand capacity.

     In accordance with Statement of Financial Accounting Standards No. 144, due
to our lack of  profitability  and positive gross margins and the uncertainty of
the receipt of budgeted  orders during future periods,  management  recognized a
4th quarter  adjustment to fully impair the undepreciated  balance on all of our
property and equipment.  This action  resulted in a one-time  non-cash charge to
operations of approximately $2,778,000.

     For the year ended December 31, 2005 and 2004, respectively, we generated a
negative  gross  profit  of  approximately   $(1,349,000),   or  (41.58%),   and
approximately  $(1,373,000),  or (42.49%). While we have a backlog of orders and



                                       19
<PAGE>



future order  commitments  from  governmental  agencies,  we anticipate  that we
should be able to generate a positive gross profit in future  periods;  however,
there are no guarantees or any certainty that this will occur.

     We experienced  nominal research and development  expenses of approximately
$2,000 and $11,000,  respectively,  during the years ended December 31, 2005 and
2004, principally related to the expansion of our product line.

     Other  general  and  administrative  expenses  increased  by  approximately
$258,000 from  approximately  $1,825,000 for the year ended December 31, 2005 as
compared to  approximately  $1,567,000 for the year ended December 31, 2004. The
most significant  increases relate to salaries and wages and interest expense on
working capital loans.

     During 2005 and 2004, respectively, we experienced charges to operations of
approximately  $257,000 and $382,000 for compensation  expense related to common
stock  issuances at less than "fair  value".  The  calculation  of these charges
result from our issuing  common stock for either cash or services at  valuations
below the closing  quoted  market price of our common stock (as  discounted,  as
applicable)  and either the cash received or the value of the services  provided
to us by third parties.

     We recognized a net loss of approximately $(6,067,000) and $(3,318,000) for
the respective years ended December 31, 2005 and 2004, respectively,  or $(1.56)
and $(0.94) per share.

Liquidity

     As of December 31, 2005 and 2004,  respectively,  we had working capital of
approximately $(433,000) and $872,000. We have used cash in operating activities
of approximately $(1,802,000) and $(649,000) during the years ended December 31,
2005 and 2004, respectively.

Capital Requirements

     During the years ended December 31, 2005 and 2004,  respectively,  we added
approximately  $124,000 and $717,000 in new  equipment.  The equipment  added in
2004 was related to 1) the expansion of our production  line; 2) the addition of
computerized  quality control inspection  processes and 3) the automation of our
packaging line.

     Depending  on  future  demand  for our  products,  we may  need to  further
increase  our  production  capability  and  management  is of the  opinion  that
adequate  equipment,  either new or used,  will be available to  facilitate  any
future expansion.

Convertible Debenture

     The Company entered into a Securities Purchase Agreement with La Jolla Cove
Investors,  Inc. ("La Jolla") on October 4, 2002 for the sale of (I) $250,000 in
convertible  debentures and (ii) warrants to buy 30,000,000 shares of our common
stock.  On March 13, 2003 and May 6, 2003,  La Jolla  advanced an  aggregate  of
$350,000 to our company which such funding was  allocated  towards the principal
balance of our convertible debentures.

     As of  December  31,  2005,  the  outstanding  balance  on the  convertible
debenture is approximately $226,365 and we have approximately 2,263,650 warrants
outstanding.

     The debentures bear interest at 8%, mature on June 31 [sic],  2007, and are
convertible  into our common stock,  at the selling  stockholder's  option.  The
convertible  debentures are convertible  into the number of our shares of common
stock equal to the principal amount of the debentures being converted multiplied
by 11,  less the  product of the  conversion  price  multiplied  by 10 times the
dollar  amount  of the  debenture.  The  conversion  price  for the  convertible
debentures is the lesser of (I) $1.00 or (ii) seventy six percent of the average
of the five lowest volume weighted average prices during the twenty (20) trading
days  prior  to the  conversion.  Accordingly,  there is in fact no limit on the



                                       20
<PAGE>



number of shares into which the  debenture  may be  converted.  However,  in the
event  that our  market  price is less than  $0.30,  we will have the  option to
prepay the  debenture  at 125%  rather  than have the  debenture  converted.  In
addition,   the  selling  stockholder  is  obligated  to  exercise  the  warrant
concurrently  with  the  submission  of  a  conversion  notice  by  the  selling
stockholder.  As of December 31, 2005, the warrant is exercisable into 2,263,650
shares of common stock at an exercise price of $1.00 per share.

     In December 2004, we entered into an addendum to the convertible  debenture
and warrant whereby the Company agreed to the following:

     *    the discount multiplier was reduced from eighty percent to seventy six
          percent;
     *    within five  business  days after this  registration  statement  being
          declared  effective,  La  Jolla is  required  to  submit  a  debenture
          conversion  in the  amount of  $10,000  and every  ten  business  days
          thereafter La Jolla shall submit three additional debenture conversion
          in the amount of $10,000 each;
     *    within five  business  days after this  registration  statement  being
          declared effective, La Jolla shall wire $400,000 to us as a prepayment
          towards the exercise of its warrant; and
     *    immediately  following  the  sale of all  shares  held by La  Jolla in
          connection with the debenture  conversions in the aggregate  amount of
          $40,000,  La Jolla shall wire  $275,000 to us as a prepayment  towards
          the exercise of its warrant and shall submit a debenture conversion in
          the amount of $6,250 on the first business day of each month until the
          debenture is no longer outstanding.

     In May 2005,  we entered  into an  additional  addendum to the  convertible
debenture and warrant whereby the Company agreed to the following:

     *    The Company shall deposit 4,000,000 unregistered shares in the name of
          LaJolla with the  Company's  Escrow Agent and,  upon  confirmation  of
          receipt,  LaJolla will wire the Company  $150,000 as an advance on the
          $400,000  amount that LaJolla was  obligated  to fund  pursuant to the
          December 2004 Addendum.  In the event that the Company's  Registration
          Statement  was not  declared  effective  within nine (9) months of the
          date of this Addendum, the 4,000,000 shares in escrow will be released
          to LaJolla and sold by LaJolla  pursuant to Rule 144. If LaJolla sells
          these  shares for net sales  proceeds of more than  $150,000  (without
          interest  accruing on this  amount),  the excess over $150,000 will be
          refunded to the Company.
     *    The  maturity  date  of the  convertible  debenture  and  warrant  was
          extended to June 31, [sic], 2007.
     *    All other terms and conditions remain in full force and effect.

     LaJolla  has  contractually  agreed to  restrict  its ability to convert or
exercise  its  warrants  and  receive  shares of our common  stock such that the
number of shares of common  stock held by them and their  affiliates  after such
conversion  or exercise  does  exceed  4.9% of the then  issued and  outstanding
shares of common stock.

     Due to the contractually agreed mandatory conversion of this Debenture, the
Company has  reflected  this  transaction  in its balance sheet as a "mezzanine"
level debt  obligation on its balance  sheet,  between "Total  Liabilities"  and
"Stockholders'  Equity". Upon the respective mandatory  conversion,  the Company
will  relieve  the  respective  portion  of the  Debenture  and the any  related
accrued,  but unpaid interest,  and credit this amount to the respective "common
stock" and "additional  paid-in capital"  accounts in the  stockholder's  equity
section for the par value and excess amount over the par value of the respective
shares issued.

     As  the  warrant  is   non-detachable   from  the  Debenture  and  requires
simultaneous exercise upon conversion of the Debenture, no value was assigned to
the issued  warrant.  Upon exercise of the warrant,  the Company will record the
issuance of the underlying  shares as a new issuance of common stock on the date
of each respective exercise.





                                       21
<PAGE>



     On various dates through December 31, 2003, the Debenture Holder elected to
convert an aggregate $208,635, through 24 separate transactions,  in outstanding
Debenture  principal into restricted,  unregistered  common stock. This election
caused the Company to issue 4,561,753 shares of restricted,  unregistered common
stock to the Debenture Holder. Additionally, pursuant to the contract terms, the
Debenture Holder concurrently  exercised a portion of the outstanding Warrant to
purchase 2,086,350 shares of the Company's restricted, unregistered common stock
for gross proceeds of $2,086,350.

     On  various  dates  between  January 1, 2004 and  December  31,  2004,  the
Debenture  Holder elected to convert an aggregate  $150,000,  through 6 separate
transactions,  in outstanding  Debenture principal into registered common stock.
This election  caused the Company to issue  4,900,000  shares of common stock to
the  Debenture  Holder.  Additionally,  pursuant  to  the  contract  terms,  the
Debenture Holder concurrently  exercised a portion of the outstanding Warrant to
purchase  1,500,000  shares of the Company's  common stock for gross proceeds of
$1,500,000.  As of December  31, 2004,  an aggregate of 1,000,000  shares of the
Company's  common  stock have been  issued by the  Company and are being held in
escrow by the Company's  counsel  pending receipt of the final $150,000 from the
Debenture Holder.

     On various dates  between June 28, 2005 and August 10, 2005,  the Debenture
Holder elected to convert an aggregate $40,000, through 4 separate transactions,
in outstanding  Debenture  principal into registered common stock. This election
caused the Company to issue  5,872,048  shares of common stock to the  Debenture
Holder.  Additionally,  pursuant to the contract  terms,  the  Debenture  Holder
concurrently  exercised a portion of the outstanding Warrant to purchase 400,000
shares of the Company's common stock for gross proceeds of $400,000.


Item 7 - Index to Financial Statements

     The required financial statements begin on page F-1 of this document.


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

     None


Item 8A - Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures

     Under  the  supervision  and  with  the  participation  of our  management,
including our principal  executive officer and principal  financial officer,  we
conducted an evaluation of our disclosure controls and procedures,  as such term
is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934, as amended  (Exchange Act), for the quarter ended December 31, 2005. As of
the end of the period  covered by this report,  management,  including the chief
executive officer and chief financial officer evaluated the effectiveness of the
design and operation of our disclosure  controls and procedures.  Based upon and
as of the date of that evaluation, our CEO and CFO concluded that the disclosure
controls and procedures were effective

(b)  Changes in Internal Controls

     There were no significant changes (including corrective actions with regard
to significant  deficiencies  or material  weaknesses) in our internal  controls
over  financial  reporting  that occurred  during the quarter ended December 31,
2005 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.





                                       22
<PAGE>



                                    PART III

Item  9 -  Directors,   Executive   Officers,  Promoters  and  Control  Persons;
           Compliance with Section 16(a) of the Exchange Act

     The directors and executive officers serving the Company are as follows:

    Name              Age      Position Held and Tenure

J. A. Fernandez, Sr.  68    Chairman of the Board and Director of Sales
Andres F. Fernandez   40    President and Chief Executive Officer
Emilio D. Jara        40    Vice-President of Operations, Secretary and Director
Maria A. Fernandez    45    Director

     All  directors  hold office until the next annual  meeting of the Company's
shareholders and until their successors have been elected and qualify.  Officers
serve at the pleasure of the Board of Directors. The officers and directors will
devote such time and effort to the business and affairs of the Company as may be
necessary  to  perform  their  responsibilities  as  executive  officers  and/or
directors of the Company.

Family Relationships

     J. A. Fernandez, Sr. is the father of Andres and Maria Fernandez. There are
no other  family  relationships  between  or among the  executive  officers  and
directors of our company.

Business Experience

     J. A.  Fernandez,  Sr.  currently  serves as the  Chairman of the Board and
Director or Sales.  He has been employed by us since our inception in 1983.  Mr.
Fernandez is the founder F&F Equipment, which began as a family business, and is
responsible for our sales activities. Mr. Fernandez has over 40 years experience
in diverse  industries  including  aerospace,  advanced  polymer  manufacturing,
munitions,  mining and  processing  of gemstones and metal ores and has utilized
such experience for the growth and  development of the Company.  He is fluent in
Spanish.

     Andres Fernandez currently serves as President and Chief Executive Officer.
Mr.  Fernandez has served in each of these  capacities  since September 2001. He
has been employed by our company for over a decade. Mr. Fernandez is responsible
for day to day  operations.  He  studied  physics  and  calculus  at St.  Thomas
University,  FL and at the  University  of Miami,  FL. He is a  licensed  pilot,
having  graduated from the American  Institute of Aeronautics,  FL, and received
his  certificate  as a private pilot (fixed wing) as well as private  helicopter
(rotary)in 1989. In 1989, Mr.  Fernandez  graduated from the Institute of Public
Service (Pan Am), GA as a tactical rappel instructor. In 1990, he graduated from
Omni Explosives,  TN with a specialty in tactical explosives.  Mr. Fernandez was
certified  by the  Florida  Department  of Law  Enforcement  Academy  in special
operations/entry techniques in 1990. He has served as a tactical advisor to U.S.
Treasury  Department,  Bureau of Alcohol,  Tobacco and  Firearms,  U.S.  Customs
Service and the Florida Department of Law Enforcement.  He has received numerous
commendations  and  letters  of  appreciation.  He also  served  on the Board of
Veterans Affairs (Hialeah, FL) from 1990 to 1991. He is fluent in Spanish.

     Emilio Jara currently  serves as Vice  President of  Operations,  Corporate
Secretary and a Director.  Mr. Jara has served in each of these capacities since
September 2001. He has been employed with our company since 1988. He has been an
integral part of our technological growth. His abilities have contributed to our
research and  development  and  subsequent  increase in the number of production
lines. Mr. Jara is extremely well versed in metallurgical  and ballistic issues.
He studied business administration at Miami- Dade Community College (1984/1985).
In 1989,  he graduated  from the  Institute of Public  Service (Pan Am), GA as a
Tactical Rappel Instructor. In 1990, Mr. Jara graduated from Omni Explosives, TN
with a specialty in Tactical Explosives. He is fluent in Spanish.




                                       23
<PAGE>



     Maria A.  Fernandez  currently  serves as a Director.  Mrs.  Fernandez  has
served as a Director since September 2001. She has been the managing  partner at
Fernandez  Friedman  Grossman & Kohn PLLC, a Louisville,  KY law firm, since May
1998.  Prior to that date,  she was a partner at  Taustine  Post  Sotsky  Berman
Fineman  & Kohn.  She  concentrates  her legal  practice  in the areas of estate
planning,  probate  and  administration.  She  also  practices  in the  areas of
Medicaid  and  disability  planning,   corporate  and  individual  taxation  and
corporate law, with an emphasis in closely held corporations.  She is a graduate
of the University of Miami, FL (Bachelor of Business  Administration  and Master
of Professional  Accounting) and the Brandeis School of Law at the University of
Louisville,  KY. Ms.  Fernandez is licensed to practice in Kentucky and Florida.
She has lectured in the areas of estate planning and probate,  Medicaid planning
and elder law. She is a member of the Louisville, Florida, Kentucky and American
Bar Associations  and is fluent in Spanish.  Ms. Fernandez is the past President
of the Women Lawyers Association of Jefferson County, Kentucky and current Board
Member of the Louisville  Bar  Association.  A Graduate of the Kentucky  Women's
Leadership  Network,  she is active in various civic organizations and is on the
board of several non-profit corporations.

Compliance with Section 16(a) of the Securities Exchange Act

     Section  16(a)  of  the  Securities  Exchange  Act  of  1934  requires  our
directors,  certain officers and persons holding 10% or more of our common stock
to file reports  regarding their ownership and regarding their  acquisitions and
dispositions of the  Registrant's  common stock with the Securities and Exchange
Commission ("SEC").  Such persons are required by SEC regulations to furnish our
company  with copies of all Section  16(a) forms they file.  Based solely upon a
review  of Forms 3 and 4 and  amendments  thereto  furnished  to us  under  Rule
16a-3(d) during fiscal 2003, and certain written  representations from executive
officers and directors,  we are unaware that any required  reports that have not
been timely filed.

Code of Ethics

     We have adopted a code of ethics which has been filed as an exhibit to this
report.

Committees of the Board of Directors

     We  presently  have  not  established  an  audit  committee,   compensation
committee,  nominating  committee,  an  executive  committee  of  our  board  of
directors, stock plan committee or any other committees. Our Board of Directors,
as defined in Sarbanes-Oxley Act of 2002, is the defacto  composition of any and
all committees.

Terms of Office

     Our  directors  are  appointed for a one year term to hold office until the
next annual general  meeting of the holders of our Common Stock or until removed
from office in  accordance  with our by-laws.  Our officers are appointed by our
Board of Directors and hold office until removed by our Board of Directors.

Conflicts of Interest

     We know of no  identified  or  disclosed  conflicts  of interest  among our
officers or directors and the affairs of the Company.

Indemnification for Securities Act Liabilities

     The Company's By-Laws provide for the  indemnification  of its,  directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses  incurred by them in any litigation to which they become
a party  arising  from their  association  with or  activities  on behalf of the
Company.  The Company will also bear the expenses of such  litigation for any of




                                       24
<PAGE>



its directors,  officers,  employees,  or agents,  upon such persons  promise to
repay the Company therefore if it is ultimately  determined that any such person
shall not have been entitled to  indemnification.  This  indemnification  policy
could result in substantial  expenditures by the Company, which it may be unable
to recoup.


Item 10 - Executive Compensation

     The following  summary  compensation  table sets forth the  aggregate  cash
compensation paid or accrued in excess of $100,000 by the Company to each of the
Company's  executive  officers for services  rendered to the Company  during the
Company's  fiscal years ended December 31, 2005,  2004 and 2003 and all plan and
non-plan  compensation  awarded  to,  earned  by or paid to  certain  designated
executive officers.

<TABLE>
<CAPTION>
                                                                          Long-Term
                                                                        Compensation
                                          Annual Compensation              Awards            Payouts
                                      --------------------------     -------------------     -------
                                                      Other      Restricted    Securities                  All
                                        Salary/       Annual        Stock      Underlying     LTIP        Other
Name/Title                     Year      Bonus     Compensation    Awards     Options/SARs  Payouts   Compensation
----------                     ----   -- ------    ------------    ------     ------------  -------   ------------
<S>                            <C>     <C>             <C>          <C>           <C>         <C>       <C>
J. A. Fernandez, Sr.           2005    $104,000        $-0-         $-0-          $-0-        $-0-      $-0-
Chairman and Vice President    2004    $104,000        $-0-         $-0-          $-0-        $-0-      $-0-
of Sales                       2003    $104,000        $-0-         $-0-          $-0-        $-0-      $-0-

Andres F. Fernandez            2005    $132,600        $-0-         $-0-          $-0-        $-0-      $-0-
President and Chief            2004    $132,600        $-0-         $-0-          $-0-        $-0-      $-0-
Executive Officer              2003    $132,600        $-0-         $-0-          $-0-        $-0-      $-0-
</TABLE>

Compensation of Directors

     We have no existing  arrangements  for compensating our directors for their
attendance at meetings of the Board of Directors.  Depending  upon market forces
and  regulatory  mandates,  we may  find it  necessary  to  implement  a  formal
compensation  plan in future periods to obtain and retain  qualified  members of
our Board of Directors.


Item 11 - Security Ownership of Certain Beneficial Owners and Management

     The  following  table  sets  forth,  as of the  date of  this  Registration
Statement, the number of shares of Common Stock owned of record and beneficially
by  executive  officers,  directors  and  persons  who  hold  5% or  more of the
outstanding  Common Stock of the Company.  Also  included are the shares held by
all executive officers and directors as a group.

                                % of Class
     Name and address         Number of Shares       Beneficially Owned
     ----------------         ----------------       ------------------
Andres F. Fernandez                  5.7%              277,932
J. A. Fernandez, Sr.                12.4%              605,439
Amelia C. Fernandez                  4.4%              214,095
Maria A. Fernandez                    *                 13,000
Emilio D. Jara                        *                  2,713

Total securities held by
officers  and directors
 as a group (5 people)              23.5%             1,113,179
-----------------------------
*    Less than 1%


                                       25
<PAGE>



     The contact  address for each of our officers and directors is 3545 NW 71st
Street, Miami, FL 33147.

     Beneficial  Ownership is  determined  in  accordance  with the rules of the
Securities and Exchange  Commission and generally  includes voting or investment
power with respect to  securities.  Shares of common stock subject to options or
warrants  currently  exercisable or  convertible,  or exercisable or convertible
within 60 days of January  5, 2005 are  deemed  outstanding  for  computing  the
percentage  of the person  holding  such  option or  warrant  but are not deemed
outstanding  for computing the percentage of any other person.  J. A. Fernandez,
Sr. is the  father  of Andres  and Maria  Fernandez.  The table  above  does not
include the 19,225 shares Maria  Fernandez holds as a Trustee for an Irrevocable
Trust in which  neither she nor any of the other  Officers or  Directors  is the
beneficial owner.


Item 12 - Certain Relationships and Related Transactions

     We  lease  our  corporate  office  and  manufacturing   facility  from  our
controlling  stockholder under a long-term operating lease agreement.  The lease
requires a monthly payment of approximately  $5,735,  including applicable State
sales taxes. We are responsible for all utilities and maintenance expenses.  The
lease  expires on December 1, 2009 and  contains a clause that upon  expiration,
the Company and the controlling  shareholder shall renegotiate the annual rental
amount.


Item 13 - Exhibits

31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.


Item 14 - Principal Accountant Fees and Services

     The  Company  paid or accrued the  following  fees in each of the prior two
fiscal years to it's principal accountant, S. W. Hatfield, CPA of Dallas, Texas.

                                           Year ended        Year ended
                                          December 31,       December 31,
                                              2005               2004
                                          ------------       ------------
1.         Audit fees                     $     35,663       $     35,663
2.         Audit-related fees                        -                  -
3.         Tax fees                              4,725              4,725
4.         All other fees                            -                  -
                                          ------------       ------------
   Totals                                 $     40,388       $     40,388
                                          ============       ============

     We have  considered  whether the  provision of such  non-audit  services is
compatible with S. W. Hatfield,  CPA maintaining its independence and determined
that these services do not compromise their independence.

     Financial Information System Design and Implementation: S. W. Hatfield, CPA
did not charge the Company any fees for financial  information system design and
implementation fees.




          [Balance of this page Company any intentionally left blank.]





                                       26
<PAGE>



     The Company has no formal  audit  committee.  However,  the entire Board of
Directors (the "Board") is the Company's defacto audit committee. In discharging
its oversight  responsibility  as to the audit process,  the Board obtained from
the independent auditors a formal written statement describing all relationships
between  the  auditors  and  the  Company  that  might  bear  on  the  auditors'
independence  as  required  by  Independence  Standards  Board  Standard  No. 1,
"Independence  Discussions with Audit  Committees." The Board discussed with the
auditors any  relationships  that may impact their objectivity and independence,
including fees for non-audit services,  and satisfied itself as to the auditors'
independence.  The Board also discussed with management,  the internal  auditors
and the independent  auditors the quality and adequacy of the Company's internal
controls.

     The Company's principal accountant, S. W. Hatfield, CPA, did not engage any
other  persons  or  firms  other  than  the  principal  accountant's  full-time,
permanent employees.







          [Balance of this page Company any intentionally left blank.]






                Financial Statements follow beginning on Page F-1










                                       27
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
                    Annual Consolidated Financial Statements
                          Year ended December 31, 2005

                                      Index



                                                                           Page
                                                                          Number

Report of Registered Independent Certified Public Accounting Firm           F-2

Consolidated Financial Statements

   Consolidated Balance Sheets
     as of December 31, 2005 and 2004                                       F-3

   Consolidated Statement of Operations and Comprehensive Loss
     for the years ended December 31, 2005 and 2004                         F-5

   Consolidated Statement of Changes in Stockholders' Equity
     for the years ended December 31, 2005 and 2004                         F-6

   Consolidated Statement of Cash Flows
     for the years ended December 31, 2005 and 2004                         F-8

   Notes to Consolidated Financial Statements                              F-10












                                      F-1
<PAGE>

Report of Registered Independent Certified Public Accounting Firm


Board of Directors and Stockholders
American Ammunition, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  American
Ammunition,  Inc. (a Nevada corporation) and Subsidiaries (Florida corporations)
as of  December  31, 2005 and 2004 and the related  consolidated  statements  of
operations and  comprehensive  loss,  changes in  stockholders'  equity and cash
flows for each of the two years ended December 31, 2005 and 2004,  respectively.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
American Ammunition,  Inc. and Subsidiaries as of December 31, 2005 and 2004 and
the results of their  consolidated  operations and  consolidated  cash flows for
each of the two  years  ended  December  31,  2005 and  2004,  respectively,  in
conformity with accounting principles generally accepted in the United States of
America.

We  initially  issued a  Report  of  Independent  Certified  Public  Accountants
(Report) on the above listed financial  statements on April 6, 2006.  Subsequent
to the date of that Report,  Management determined that the Company's accounting
for certain  notes payable to  shareholders  and other  affiliated  parties with
embedded conversion features and warrant issues.  Conversion features determined
to be  beneficial  to the  holder  are  valued  at fair  value and  recorded  to
additional paid in capital and debt issues with the variable conversion features
are considered to be embedded derivatives and are accountable in accordance with
FASB 133;  "Accounting  for  Derivative  Instruments  and  Hedging  Activities".
Accordingly,  these matters created a situation requiring the restatement of the
Company's  financial  statements as of and for the year ended December 31, 2005.
The results of these findings resulted in an additional charges of approximately
$125,415 to operations.

Accordingly,  no further  reliance should be placed on our Report dated April 6,
2006.

                                                        /s/S. W. HATFIELD
                                                        ----------------------
                                                           S. W. HATFIELD, CPA
Dallas, Texas
September 17, 2007

                                      F-2
<PAGE>

The December 31, 2005 financial statements have been restated to account for the
derivative  liability  that was  incurred in  connection  with the common  stock
conversion features and the warrants issued with certain notes payable.


<TABLE>
<CAPTION>
                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2005 and 2004

                                                                                  (Restated)
                                                                                  December 31,      December 31,
                                                                                    2005                2004
                                                                                --------------     -------------
<S>                                                                             <C>                <C>
                                     ASSETS
Current Assets

   Cash on hand and in bank                                                     $      431,050     $     805,465
   Accounts receivable - trade,
     net of allowance for doubtful accounts
      of $12,463 and $-0-, respectively                                                571,427           639,444
   Inventory                                                                           560,090           912,424
   Prepaid interest                                                                    452,337                 -
   Prepaid expenses                                                                     56,789            58,847
                                                                                --------------     -------------

     Total Current Assets                                                            2,071,693         2,416,180
                                                                                --------------     -------------


Property and Equipment - at cost or contributed value
   Manufacturing equipment                                                           8,095,110         7,976,248
   Office furniture and fixtures                                                        69,889            69,889
   Leasehold improvements                                                              190,277           184,939
                                                                                --------------     -------------
                                                                                     8,355,276         8,231,076
   Accumulated depreciation                                                         (5,577,447)       (4,801,695)
   Impairment of recoverability of carrying value                                   (2,777,829)                -
                                                                                --------------     -------------

     Net Property and Equipment                                                              -         3,429,381
                                                                                --------------     -------------


Other Assets
   Patents, Trademarks and Noncompetition agreement,
     net of accumulated amortization of approximately
     $64,328 and $9,190, respectively                                                  211,362           266,500
   Loan costs and fees, net of accumulated amortization
     of approximately $11,309 and $-0-, respectively                                    53,941                 -
   Deposits and other                                                                   83,660            83,660
                                                                                --------------     -------------

     Total Other Assets                                                                348,963           350,160
                                                                                --------------     -------------

TOTAL ASSETS                                                                    $    2,420,656     $   6,195,721
                                                                                ==============     =============
</TABLE>

                                  - Continued -

                                      F-3
<PAGE>


<TABLE>
<CAPTION>
                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                           December 31, 2005 and 2004


                                                                                  (Restated)
                                                                                  December 31,      December 31,
                                                                                    2005                  2004
                                                                                --------------     -------------
<S>                                                                             <C>                <C>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Notes payable to shareholders                                                $      975,000     $           -
   Working capital advance                                                             150,000                 -
   Customer deposits                                                                   232,690           440,906
   Accounts payable - trade                                                            846,617           936,885
   Accrued salaries and wages                                                          245,929           135,970
   Accrued interest payable                                                             26,388            15,000
   Accrued dividends payable                                                            27,729            15,989
                                                                                --------------     -------------

     Total Liabilities                                                               2,504,353         1,544,660
                                                                                --------------     -------------

Long-Term Liabilities
   Convertible debenture                                                               226,365           266,365
   Derivative liability from note conversion features                                  535,202                 -
                                                                                --------------     -------------

     Total Liabilities                                                               3,265,920         1,811,025
                                                                                --------------     -------------

Commitments and Contingencies

Stockholders' Equity
   Preferred stock - $0.001 par value
     20,000,000 shares authorized.
     1,795,320 shares allocated to Series A
     91,700 shares allocated to Series B
     1,905,882 shares allocated to Series C                                              1,990             2,010
   Common stock - $0.001 par value.
     300,000,000 shares authorized.
     4,172,983 and 3,743,121shares issued and outstanding                                4,173             3,743
   Additional paid-in capital                                                       25,394,235        24,543,818
   Accumulated other comprehensive income                                               42,550                 -
   Accumulated deficit                                                             (26,113,212)      (19,989,875)
                                                                                --------------     -------------
                                                                                      (670,264)        4,559,696
   Stock subscription receivable                                                      (175,000)         (175,000)
                                                                                --------------     -------------

   Total Stockholders' Equity                                                         (845,264)        4,384,696
                                                                                --------------     -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $    2,420,656     $   6,195,721
                                                                                ==============     =============
</TABLE>

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

                                       F-4
<PAGE>


<TABLE>
<CAPTION>
                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                     Years ended December 31, 2005 and 2004


                                                                                  (Restated)
                                                                                  Year ended        Year ended
                                                                                  December 31,      December 31,
                                                                                    2005               2004
                                                                                --------------     -------------
<S>                                                                             <C>                <C>

Revenues                                                                        $    3,243,633     $   3,247,368
                                                                                --------------     -------------

Cost of Sales
   Materials                                                                         2,001,076         2,383,198
   Direct Labor                                                                      1,193,259           836,386
   Other direct costs and expenses                                                     627,813           671,787
   Depreciation                                                                        770,062           729,295
                                                                                --------------     -------------
     Total Cost of Sales                                                             4,592,210         4,620,666
                                                                                --------------     -------------

Operating Expenses
   Research and development expenses                                                     2,251            11,457
   Marketing and promotion expenses                                                    184,566           440,248
   Salaries, wages and related expenses                                                583,000           365,633
   Other operating expenses                                                            681,969           718,610
   Bad debt expense                                                                     12,463                 -
   Interest expense                                                                    167,882            16,005
   Depreciation expense                                                                  5,691             6,009
   Amortization of intangibles                                                          55,138             9,190
   Compensation expense related to common stock
     issuances at less than "fair value"                                               257,213           381,902
                                                                                --------------     -------------
     Total Operating Expenses                                                        1,950,173         1,949,054
                                                                                --------------     -------------
Loss from Operations                                                                (3,298,750)       (3,256,352)

Other Income (Expense)
   Other income (expense)                                                                9,495             4,279
   Impairment charge against carrying value of property and equipment               (2,777,829)                -
                                                                                --------------     -------------
Loss before Income Taxes                                                            (6,067,084)       (3,318,073)
Provision for Income Taxes                                                                   -                 -
                                                                                --------------     -------------
Net Loss                                                                            (6,067,084)       (3,318,073)

Other Comprehensive Income
   Change in derivative related to note conversion                                      42,550                 -
                                                                                --------------     -------------
Comprehensive Loss                                                                  (6,024,534)       (3,318,073)

Preferred Stock Dividends                                                              (56,253)          (42,758)
                                                                                --------------     -------------
Net Loss available to Common Shareholders                                       $   (6,080,787)    $  (3,360,831)
                                                                                ==============     =============

Loss per weighted-average share of common stock outstanding,
   computed on net loss - basic and fully diluted                               $        (1.56)    $       (0.94)
                                                                                ==============     =============

Weighted-average number of common shares outstanding                                 3,907,499         3,590,725
                                                                                ==============     =============
</TABLE>

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

                                       F-5
<PAGE>

<TABLE>
<CAPTION>
                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
                  EQUITY Years ended December 31, 2005 and 2004


                                                Mandatory Convertible
                                                   Preferred Stock        Common Stock                Additional
                                               -----------------------   --------------------          paid-in
                                                 Shares       Amount       Shares      Amount          capital
                                               ------------ ----------- ------------ ----------  -----------------

<S>                                            <C>          <C>         <C>          <C>         <C>
Balances at January 1, 200                          462,700 $       104    3,345,217 $    3,345  $      21,652,340

Issuance of preferred stock for cash              1,905,882       1,906            -          -            322,094
Issuance of common stock forCash                          -           -       75,000         75          1,499,925
     Less subscription receivable                         -           -            -          -                  -
   Conversion of debenture                                -           -      245,000        245            505,755
     Less subscription receivable                         -           -            -          -                  -
   Payment of costs to acquire capital                    -           -       15,000         15             59,985
     Less cost of capital                                 -           -            -          -            (36,000)
   Acquisition of assets                                  -           -       55,556         56            499,944
   Payment of preferred stock dividends                   -           -        7,348          7             39,775
   Dividends declared on Preferred Stock                  -           -            -          -                  -
Net loss for the year                                     -           -            -          -                  -
                                               ------------ ----------- ------------ ----------  -----------------

Balances at December 31, 2004                     2,009,582       2,010    3,743,121      3,743         24,543,818

Conversion of Preferred Stock into
   Common Stock                                     (19,420)        (19)      66,810         67                (47)
Issuance of common stock forCash                          -           -      293,603        294            476,312
     Compensation expense for value of
     common stock sold at less than "fair value"          -           -            -                       257,213
     Less cost of capital                                 -           -            -                       (10,000)
   Loan fees and costs                                    -           -       37,500         38             65,212
   Employee bonus                                         -           -        8,334          8             17,325
   Payment of preferred stock dividends                   -           -       23,615         24             44,400
   Dividends declared on Preferred Stock                  -           -            -          -                  -
   Change in derivative related to
     note conversion                                      -           -            -          -                  -
Net loss for the year                                     -           -            -          -                  -
                                               ------------ ----------- ------------ ----------  -----------------

Balances at December 31, 2004-Restated            1,990,162 $     1,990    4,172,983 $    4,173  $      25,394,233
                                               ============ =========== ============ ==========  =================
</TABLE>


                                  - Continued -



                                       F-6
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
                  EQUITY Years ended December 31, 2005 and 2004
                                   (Continued)

                 Accumulated
                    other
                comprehensive     Accumulated
                    income          deficit             Total
                 ------------   ----------------    -------------

                 $          -   $    (16,629,044)   $   5,026,745

                            -                  -          324,000
                            -                  -        1,500,000
                            -                  -         (150,000)
                            -                  -          506,000
                            -                  -          (25,000)
                            -                  -           60,000
                            -                  -          (36,000)
                            -                  -          500,000
                            -                  -           39,782
                            -            (42,758)         (42,758)
                            -         (3,318,073)      (3,318,073)
                 ------------   ----------------    -------------

                            -        (19,989,875)       4,384,696


                            -                  -                -
                            -                  -          436,607

                            -                  -          257,213
                            -                  -          (10,000)
                            -                  -           65,250
                            -                  -           17,333
                            -                  -           44,424
                            -            (56,253)         (56,253)

                       42,550                  -           42,550
                            -         (6,067,084)      (6,067,084)
                 ------------   ----------------    -------------


                 $     42,550   $    (26,113,212)   $    (845,264)
                 ============   ================    =============

Stock subscription receivable at
         December 31, 2005 and 2004                 $    (175,000)
                                                    =============



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

                                       F-7
<PAGE>


<TABLE>
<CAPTION>
                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2005 and 2004


                                                                                 (Restated)
                                                                                  Year ended        Year ended
                                                                                  December 31,      December 31,
                                                                                    2005               2004
                                                                                --------------     -------------
<S>                                                                             <C>                <C>
Cash flows from operating activities
   Net loss for the year                                                        $   (6,067,084)    $  (3,318,073)
   Adjustments to reconcile net loss to net
     cash provided by operating activities
       Depreciation and amortization                                                   967,612           744,494
       Bad debt expense                                                                 12,463            85,490
       Acquisition of inventory with common stock                                            -            89,510
       Payment of expenses with common stock                                            17,333                 -
       Compensation expense related to common stock
         issuances at less than "fair value"                                           257,213           381,902
       (Increase) Decrease in
,        Accounts receivable                                                            55,554          (204,099)
         Inventory                                                                     352,334           200,332
Prepaid expenses, deposits and other                                                     2,057           (24,258)
       Increase (Decrease) in
         Accounts payable and other accrued liabilities                                (90,269)          808,023
         Accrued payroll payable                                                       109,959           135,970
         Accrued interest payable                                                       11,388            15,000
         Customer deposits                                                            (208,216)          436,806
                                                                                --------------     -------------
Net cash provided by (used in) operating activities                                 (1,801,824)         (648,903)
                                                                                --------------     -------------

Cash flows from investing activities
   Cash received on sale of equipment                                                        -                 -
   Purchase of property and equipment                                                 (124,198)         (717,462)
                                                                                --------------     -------------
Net cash used in investing activities                                                 (124,198)         (717,462)
                                                                                --------------     -------------

Cash flows from financing activities
   Proceeds from loans from stockholders                                               975,000                 -
   Amount funded on working capital advance                                            150,000                 -
   Principal paid on long-term capital leases                                                -            (7,841)
   Cash received on sale of Preferred Stock                                                  -           324,000
   Cash received on issuance of Mandatory Convertible Debenture                        436,607         1,350,000
   Cash paid to acquire capital                                                        (10,000)                -
                                                                                --------------     -------------
Net cash provided by financing activities                                            1,551,607         1,666,159
                                                                                --------------     -------------

INCREASE (DECREASE) IN CASH                                                           (374,415)          299,794

Cash at beginning of year                                                              805,465           505,671
                                                                                --------------     -------------

Cash at end of year                                                             $      431,050     $     805,465
                                                                                ==============     =============
</TABLE>

                                  - Continued -

                                       F-8
<PAGE>




<TABLE>
<CAPTION>
                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                     Years ended December 31, 2004 and 2003


                                                                                 (Restated)
                                                                                  Year ended        Year ended
                                                                                  December 31,      December 31,
                                                                                    2005               2004
                                                                                --------------     -------------
<S>                                                                             <C>                <C>
Supplemental disclosure of interest
   and income taxes paid
     Interest paid for the period                                               $       19,770     $       1,005
                                                                                ==============     =============
     Income taxes paid for the period                                           $            -     $           -
                                                                                ==============     =============

Supplemental disclosure of non-cash
   investing and financing activities
     Conversion of debt into common stock                                       $       40,000     $     125,000
                                                                                ==============     =============
     Payment of accrued dividends on preferred
       stock with common stock                                                  $       44,424     $      37,878
                                                                                ==============     =============
     Acquisition of equipment and intangibles
       with common stock                                                        $            -     $     410,490
                                                                                ==============     =============
</TABLE>














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

                                       F-9
<PAGE>



                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2005 and 2004


Note A - Organization and Description of Business

American Ammunition,  Inc. (AAI or Company) was incorporated on February 1, 2000
in accordance with the Laws of the State of California. The Company functions as
a holding company providing  management  oversight services to it's wholly-owned
operating  subsidiaries;  F&F Equipment,  Inc. and Industrial Plating Enterprise
Co.

F&F Equipment,  Inc.(F&F) was incorporated on October 4, 1983 in accordance with
the Laws of the State of Florida. F&F is engaged in the design,  manufacture and
international  sales of small arms  ammunition.  F&F has  conducted its business
operations under the assumed name of "American Ammunition" since its inception.

Industrial  Plating  Enterprise Co. (IPE),  which was incorporated and commenced
production on June 14, 2002.  IPE is a fully  licensed and approved state of the
art electrochemical  metallization facility for processing the Company's line of
small arms  projectiles as well as other  products and services while  employing
environmentally  sound water conservation and proven waste treatment techniques.
The facility meets or exceeds all current environmental  requirements and enjoys
the "conditionally exempt small quantity generator" status for State and Federal
regulations.  All  activities of IPE since it's inception have been dedicated to
the needs and demands of F&F.

On January 9, 2006,  by written  consent in lieu of  meeting,  a majority of the
Company's  stockholders  approved a  recommendation  by the  Company's  Board of
Directors  to effect a one share for twenty  shares  reverse  stock split of our
common stock,  par value $.001 per share,  with fractional  shares rounded up to
the nearest whole share.  The reverse split became  effective on that date. As a
result of the reverse split,  the total number of issued and outstanding  shares
of the Company's  common stock  decreased  from  92,576,839 to  4,629,381shares,
after giving effect to rounding for fractional shares. The effect of this action
is reflected in the  Company's  financial  statements as of the first day of the
first period presented.


Note B - Preparation of Financial Statements

The  Company and its  subsidiaries  follow the accrual  basis of  accounting  in
accordance with accounting principles generally accepted in the United States of
America and have adopted a year-end of December 31 for all entities.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

Management further acknowledges that it is solely responsible for adopting sound
accounting  practices,   establishing  and  maintaining  a  system  of  internal
accounting  control and preventing and detecting  fraud. The Company's system of
internal  accounting  control is designed to assure,  among other items, that 1)
recorded  transactions  are valid; 2) valid  transactions  are recorded;  and 3)
transactions  are  recorded in the proper  period in a timely  manner to produce
financial  statements which present fairly the financial  condition,  results of
operations  and cash  flows of the  Company  for the  respective  periods  being
presented

For  segment  reporting  purposes,  the Company  operated  in only one  industry
segment during the periods represented in the accompanying  financial statements
and makes all  operating  decisions and  allocates  resources  based on the best
benefit to the Company as a whole.

The  accompanying  consolidated  financial  statements  contain the  accounts of
American Ammunition, Inc. and its wholly-owned subsidiaries, F&F Equipment, Inc.
and Industrial Plating Enterprise Co. All significant intercompany  transactions
have been eliminated.  The consolidated entities are collectively referred to as
"Company".

                                       F-10
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004

Note C - Summary of Significant Accounting Policies

1.   Cash and cash equivalents

     For  Statement of Cash Flows  purposes,  the Company  considers all cash on
     hand  and  in  banks,  certificates  of  deposit  and  other  highly-liquid
     investments with maturities of three months or less, when purchased,  to be
     cash and cash equivalents.

     Cash  overdraft  positions may occur from time to time due to the timing of
     making bank deposits and releasing checks, in accordance with the Company's
     cash management policies.

2.   Accounts receivable and Revenue Recognition

     In the normal course of business,  the Company extends  unsecured credit to
     virtually  all of its  customers  which are located  throughout  the United
     States.  Because of the credit risk  involved,  management  has provided an
     allowance for doubtful accounts which reflects its opinion of amounts which
     will   eventually   become   uncollectible.   In  the  event  of   complete
     non-performance, the maximum exposure to the Company is the recorded amount
     of trade  accounts  receivable  shown on the  balance  sheet at the date of
     non-performance.

     The Company ships all product on an FOB-Plant,  "as-is" basis. Accordingly,
     revenue  is  recognized  by the  Company  at the point at which an order is
     shipped at a fixed price,  collection is reasonably assured and the Company
     has no remaining  performance  obligations related to the sale. The Company
     sells all  products  with "no right of  return"  by the  purchaser  for any
     factor other than defects in the product's production.

     On rare  occasion,  the Company may elect to accept  product  returns  from
     customers on a  case-by-case  basis to offset unpaid  accounts  receivable.
     These  situations  are a "last case"  scenario and are  initiated by senior
     management through negotiations with the respective customer.

3.   Inventory

     Inventory  consists of raw  materials,  work-in-process  and finished goods
     related to the production and sale of small arms  ammunition.  Inventory is
     valued at the lower of cost or market using the first-in, first-out method.

4.   Property, plant and equipment

     Property and  equipment are recorded at  historical  cost.  These costs are
     depreciated over the estimated useful lives of the individual  assets using
     the straight-line method, generally three to ten years.

     Gains and losses from  disposition of property and equipment are recognized
as incurred and are included in operations.

     In accordance  with  Statement of Financial  Accounting  Standards No. 144,
     "Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets",  the
     Company  follows the policy of evaluating  all property and equipment as of
     the end of each reporting  quarter.  At December 31, 2005,  pursuant to the
     requirements of this accounting standard, management recorded an impairment
     for the future recoverability of these assets of approximately $2,777,829.

5.   Income Taxes

     The Company uses the asset and liability  method of  accounting  for income
     taxes.  At December 31, 2005 and 2004,  the deferred tax asset and deferred
     tax  liability  accounts,  as  recorded  when  material  to  the  financial
     statements,  are entirely the result of  temporary  differences.  Temporary
     differences   represent  differences  in  the  recognition  of  assets  and
     liabilities for tax and financial reporting purposes, primarily accumulated
     depreciation and amortization, allowance for doubtful accounts and vacation
     accruals.

                                       F-11
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note C - Summary of Significant Accounting Policies - Continued

5.   Income Taxes - continued

     As of December 31, 2005 and 2004,  the  deferred  tax asset  related to the
     Company's net operating loss  carryforward is fully reserved.  In the event
     that these carryforwards were not fully utilized, they will began to expire
     in 2005.

6.   Earnings (loss) per share

     Basic  earnings  (loss) per share is computed  by  dividing  the net income
     (loss) available to common shareholders by the  weighted-average  number of
     common shares  outstanding  during the respective  period  presented in our
     accompanying financial statements.

     Fully diluted earnings (loss) per share is computed similar to basic income
     (loss) per share  except that the  denominator  is increased to include the
     number of common  stock  equivalents  (primarily  outstanding  options  and
     warrants).

     Common  stock  equivalents  represent  the  dilutive  effect of the assumed
     exercise of the outstanding stock options and warrants,  using the treasury
     stock method, at either the beginning of the respective period presented or
     the date of  issuance,  whichever  is later,  and only if the common  stock
     equivalents  are  considered  dilutive  based upon the Company's net income
     (loss) position at the calculation date.

     As of December 31, 2005 and 2004, and subsequent  thereto,  the Company had
     no options outstanding.  The outstanding warrants and convertible preferred
     stock and mandatorily  convertible  debentures are anti-dilutive due to the
     Company's net operating loss position.

7.   Advertising costs

     The Company does not conduct any direct  response  advertising  activities.
     For non-direct response advertising, the Company charges the costs of these
     efforts  to  operations  at the  first  time  the  related  advertising  is
     published.


Note D - Correction of an Error

On August 22, 2007,  our  management  concluded  that the  financial  statements
included in our Forms 10-QSB for June and September 2005, the calendar year 2006
and for the period  ending March 31, 2007,  and the Forms 10-KSB for the periods
ending  December  31,  2005  and  December  31,  2006,  all of which  have  been
previously  filed  with  the  Securities  and  Exchange  Commission,  need to be
restated,  due to the  failure  to include  the  beneficial  conversion  feature
discount on unsecured convertible indebtedness.

Management  discovered  such  changes  needed to be made after  consulting  with
Pollard-Kelley  Auditing Services,  our independent registered public accounting
firm  as of  June  26,  2007,  who  have  concurred  with  management  as to the
reexamination of the above mentioned issues.




                                       F-12
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note D - Correction of an Error - Continued

The Company has entered into certain  notes  payable to  shareholders  and other
affiliated  parties with embedded  conversion  features and warrant issues.  The
appropriate  accounting is governed by EITF 98-5:  "Accounting  for  convertible
securities  with  beneficial  conversion  features  or  contingency   adjustable
conversion"  and  EITF No.  00-27:  "Application  of  issue  No 98-5 to  certain
convertible instruments". Conversion features determined to be beneficial to the
holder are valued at fair value and recorded to additional paid in capital.  The
fair value is determined to be ascribed to the detachable  warrants  issued with
the convertible  debentures  utilizing the  Black-Scholes  method.  Any discount
derived from determining the fair value to the debenture conversion features and
warrants is  amortized  to financing  cost over the life of the  debenture.  The
unamortized  discount, if any, upon the conversion of the debentures is expensed
to financing cost on a pro rata basis.

Debt issues with the variable  conversion features are considered to be embedded
derivatives  and are  accountable in accordance  with FASB 133;  "Accounting for
Derivative  Instruments and Hedging Activities".  The fair value of the embedded
derivative is recorded to derivative liability. This liability is required to be
marked each reporting period. The resulting discount on the debt is amortized to
interest expense over the life of the related debt.

The errors  discovered by management  relate  directly to the accounting for and
recording various conversion features and warrants as follows:

                                                                     Year ended
                                                                    December 31,
                                                                         2005
                                                                    -----------
Net Loss, as previously reported                                    $(5,941,669)

Effect of the correction of an error
(Increase) Decrease in Net Loss by financial statement line item:
     Operating expenses: Interest expense recognized
       from beneficial conversion discount feature on
       notes payable to shareholders and other affiliates              (125,415)
                                                                    -----------
   Total effect of changes on Loss from Operations and Net Loss        (125,415)
                                                                    -----------

Net Loss, as restated                                               $(6,067,084)
                                                                    ===========

Net loss available to common stockholders, as previously reported   $(5,997,922)

Effect of the correction of an error
   Total effect as shown above                                         (125,415)
                                                                    -----------
Net Loss available to common stockholders, as restated              $(6,080,787)
                                                                    ===========

Earnings per share, as previously reported                          $     (1.53)
Total effect of changes                                                   (0.03)
                                                                    -----------

Earnings per share, as restated                                     $     (1.56)
                                                                    ===========



                                       F-13
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note D - Correction of an Error - Continued

In  light of the  restatements  to the  financial  statements  disclosed  above,
caused,  in part, by a failure in the Company's  internal control over financing
reporting  due to the  limitations  in the  Company's  accounting  resources  to
identify  and  react  in  a  timely  manner  to   non-routine,   complex  and/or
transactions  originated by other parties on the  Company's  behalf,  as well as
gaining an adequate  understanding  of the disclosure  requirements  relating to
these types of transactions,  we feel that the existing  controls and procedures
were and remain  effective.  Because of said  controls,  which  resulted  in the
review,  discovery and disclosure by amendment of filings to adequately disclose
required information,  management also concludes that by requiring  supplemental
reviews of financing transactions that its existing controls and procedures will
be more effective.


Note E - Fair Value of Financial Instruments

The carrying amount of cash,  accounts  receivable,  accounts  payable and notes
payable, as applicable,  approximates fair value due to the short term nature of
these items  and/or the current  interest  rates  payable in relation to current
market conditions.

Interest  rate risk is the risk  that the  Company's  earnings  are  subject  to
fluctuations  in interest  rates on either  investments  or on debt and is fully
dependent  upon  the  volatility  of  these  rates.  The  Company  does  not use
derivative instruments to moderate its exposure to interest rate risk, if any.

Financial  risk  is  the  risk  that  the  Company's  earnings  are  subject  to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the  volatility  of  these  rates.  The  company  does  not use  derivative
instruments to moderate its exposure to financial risk, if any.


Note F - Inventory

As of  December  31,  2005  and  2004,  inventory  consisted  of  the  following
components:

                                      December 31,       December 31,
                                          2005                2004
                                      -----------        ------------
         Raw materials                $   522,524        $    522,585
         Work in process                   30,103             306,360
         Finished goods                     7,463              83,479
                                      -----------        ------------
         Totals                       $   560,090        $    912,424
                                      ===========        ============








                                       F-14
<PAGE>



                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004



Note G - Property and Equipment

Property and equipment consist of the following components:

                                     December 31,   December 31,     Estimated
                                         2005         2004          useful life
                                     ------------   ------------   ------------
   Manufacturing equipment           $  8,095,110   $  7,745,112     3-10 years
   Office furniture and fixtures           69,889         69,889     3- 7 years
   Leasehold improvements                 190,277        184,939     8-20 years
                                     ------------   ------------   ------------
                                        8,355,276      7,999,940
   Accumulated depreciation            (5,577,447)    (4,762,074)
   Impairment of recoverability
         of carrying value             (2,777,829)             -
                                     ------------   ------------
   Net property and equipment        $  3,237,866   $  3,237,866
                                     ============   ============

Total  depreciation  expense  charged to operations for the years ended December
31, 2005 and 2004 was approximately $775,753 and$717,349, respectively.

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets",  the Company
follows the policy of  evaluating  all property  and  equipment as of the end of
each reporting  quarter.  At December 31, 2005,  pursuant to the requirements of
this  accounting  standard,  management  recorded an  impairment  for the future
recoverability of these assets of approximately $2,777,829.


Note H - Loans from Shareholders

                                                                 December 31,
                                                                2005      2004
                                                              ---------  -------
Notes payable to three  separate  shareholders.  Interest at
8.0%, payable monthly. Principal due at maturity on December
31, 2006.  Shareholder/lender  has the option to convert the
principal  amount  into  common  stock of the Company at the
lesser of 66-2/3% of the  average  closing bid and ask price
on the date of conversion  or $0.07 per share.  Each note is
unsecured.                                                    $ 975,000  $     -
                                                              =========  =======





                                       F-15
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note I - Convertible Debenture

The Company  entered into a  Securities  Purchase  Agreement  with La Jolla Cove
Investors,  Inc. ("La Jolla") on October 4, 2002 for the sale of (I) $250,000 in
convertible  debentures and (ii) warrants to buy 30,000,000 shares of our common
stock.  On March 13, 2003 and May 6, 2003,  La Jolla  advanced an  aggregate  of
$350,000 to our company which such funding was  allocated  towards the principal
balance of our convertible debentures.

As of December 31, 2005, the outstanding balance on the convertible debenture is
approximately $226,365 and we have approximately 2,263,650 warrants outstanding.
A recap of the debenture activity is as follows:

                                        Debenture      Warrant
                                      (in dollars)    (in shares)
                                      ------------    -----------
       Initial amount                 $    600,000      6,000,000
       2003 redemptions                   (208,635)    (2,086,350)
       2004 redemptions                   (125,000)    (1,250,000)
       2005 redemptions                    (40,000)      (400,000)
                                      ------------    -----------
       Balances outstanding
         at December 31, 2005         $    246,365      2,233,650
                                      ============    ===========

The  debentures  bear  interest at 8%,  mature on June 31 [sic],  2007,  and are
convertible  into the  Company's  common  stock,  at the  selling  stockholder's
option.  The  convertible  debentures  are  convertible  into the  number of the
Company's shares of common stock equal to the principal amount of the debentures
being  converted  multiplied  by 11,  less the product of the  conversion  price
multiplied by 10 times the dollar amount of the debenture.  The conversion price
for the  convertible  debentures  is the lesser of (I) $1.00 or (ii) seventy six
percent of the average of the five lowest volume weighted  average prices during
the twenty (20) trading days prior to the conversion.  Accordingly,  there is in
fact no limit on the number of shares into which the debenture may be converted.
However,  in the event that our market  price is less than $0.30 per share,  the
Company  will have the option to prepay the  debenture  at 125% rather than have
the debenture  converted.  In addition,  the selling stockholder is obligated to
exercise the warrant  concurrently with the submission of a conversion notice by
the selling  stockholder.  As of December 31, 2005,  the warrant is  exercisable
into 2,263,650 shares of common stock at an exercise price of $1.00 per share.

In December 2004, we entered into an addendum to the  convertible  debenture and
warrant whereby the Company agreed to the following:

     *    the discount multiplier was reduced from eighty percent to seventy six
          percent;
     *    within five  business  days after this  registration  statement  being
          declared  effective,  La  Jolla is  required  to  submit  a  debenture
          conversion  in the  amount of  $10,000  and every  ten  business  days
          thereafter La Jolla shall submit three additional debenture conversion
          in the amount of $10,000 each;
     *    within five  business  days after this  registration  statement  being
          declared effective, La Jolla shall wire $400,000 to us as a prepayment
          towards the exercise of its warrant; and
     *    immediately  following  the  sale of all  shares  held by La  Jolla in
          connection with the debenture  conversions in the aggregate  amount of
          $40,000,  La Jolla shall wire  $275,000 to us as a prepayment  towards
          the exercise of its warrant and shall submit a debenture conversion in
          the amount of $6,250 on the first business day of each month until the
          debenture is no longer outstanding.

                                       F-16
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note I - Convertible Debenture - continued

In May 2005, we entered into an additional addendum to the convertible debenture
and warrant whereby the Company agreed to the following:

     *    The Company shall deposit 4,000,000 unregistered shares in the name of
          LaJolla with the  Company's  Escrow Agent and,  upon  confirmation  of
          receipt,  LaJolla will wire the Company  $150,000 as an advance on the
          $400,000  amount that LaJolla was  obligated  to fund  pursuant to the
          December 2004 Addendum.  In the event that the Company's  Registration
          Statement  was not  declared  effective  within nine (9) months of the
          date of this Addendum, the 4,000,000 shares in escrow will be released
          to LaJolla and sold by LaJolla  pursuant to Rule 144. If LaJolla sells
          these  shares for net sales  proceeds of more than  $150,000  (without
          interest  accruing on this  amount),  the excess over $150,000 will be
          refunded to the Company.
     *    The  maturity  date  of the  convertible  debenture  and  warrant  was
          extended to June 31, [sic], 2007.
     *    All other terms and conditions remain in full force and effect.

LaJolla has contractually  agreed to restrict its ability to convert or exercise
its  warrants  and  receive  shares of our common  stock such that the number of
shares of common stock held by them and their  affiliates  after such conversion
or exercise does exceed 4.9% of the then issued and outstanding shares of common
stock.

Due to the  contractually  agreed  mandatory  conversion of this Debenture,  the
Company has  reflected  this  transaction  in its balance sheet as a "mezzanine"
level debt  obligation on its balance  sheet,  between "Total  Liabilities"  and
"Stockholders'  Equity". Upon the respective mandatory  conversion,  the Company
will  relieve  the  respective  portion  of the  Debenture  and the any  related
accrued,  but unpaid interest,  and credit this amount to the respective "common
stock" and "additional  paid-in capital"  accounts in the  stockholder's  equity
section for the par value and excess amount over the par value of the respective
shares issued.

As the warrant is  non-detachable  from the Debenture and requires  simultaneous
exercise upon  conversion of the Debenture,  no value was assigned to the issued
warrant.  Upon exercise of the warrant,  the Company will record the issuance of
the  underlying  shares as a new  issuance  of common  stock on the date of each
respective exercise.

On various dates through  December 31, 2003,  the  Debenture  Holder  elected to
convert an aggregate $208,635, through 24 separate transactions,  in outstanding
Debenture  principal into restricted,  unregistered  common stock. This election
caused the Company to issue 4,561,753 shares of restricted,  unregistered common
stock to the Debenture Holder. Additionally, pursuant to the contract terms, the
Debenture Holder concurrently  exercised a portion of the outstanding Warrant to
purchase 2,086,350 shares of the Company's restricted, unregistered common stock
for gross proceeds of $2,086,350.

On various  dates between  January 1, 2004 and December 31, 2004,  the Debenture
Holder   elected  to  convert  an   aggregate   $125,000,   through  6  separate
transactions,  in outstanding  Debenture principal into registered common stock.
This election  caused the Company to issue  4,150,000  shares of common stock to
the  Debenture  Holder.  Additionally,  pursuant  to  the  contract  terms,  the
Debenture Holder concurrently  exercised a portion of the outstanding Warrant to
purchase  1,250,000  shares of the Company's  common stock for gross proceeds of
$1,250,000.  As of December  31, 2004,  an aggregate of 1,000,000  shares of the
Company's  common  stock have been  issued by the  Company and are being held in
escrow by the Company's  counsel  pending receipt of the final $175,000 from the
Debenture Holder. As of December 31, 2005, this amount remains unpaid.




                                       F-17
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004

Note I - Convertible Debenture - continued

On various dates between June 28, 2005 and August 10, 2005, the Debenture Holder
elected to convert an aggregate  $40,000,  through 4 separate  transactions,  in
outstanding  Debenture  principal into  registered  common stock.  This election
caused the Company to issue  5,872,048  shares of common stock to the  Debenture
Holder.  Additionally,  pursuant to the contract  terms,  the  Debenture  Holder
concurrently  exercised a portion of the outstanding Warrant to purchase 400,000
shares of the Company's common stock for gross proceeds of $400,000.


Note J - Derivative Liability arising from Warrants

The Company  accounts  for debt with  embedded  conversion  features and warrant
issues in accordance with EITF 98-5: "Accounting for convertible securities with
beneficial  conversion features or contingency  adjustable  conversion" and EITF
No. 00-27:  "Application of issue No 98-5 to certain  convertible  instruments".
Conversion features determined to be beneficial to the holder are valued at fair
value and recorded to additional  paid in capital.  The Company  determines  the
fair value to be ascribed to the detachable warrants issued with the convertible
debentures  utilizing  the  Black-Scholes  method.  Any  discount  derived  from
determining the fair value to the debenture  conversion features and warrants is
amortized  to financing  cost over the life of the  debenture.  The  unamortized
discount, if any, upon the conversion of the debentures is expensed to financing
cost on a pro rata basis.

Debt issues with the variable  conversion features are considered to be embedded
derivatives  and are  accountable in accordance  with FASB 133;  "Accounting for
Derivative  Instruments and Hedging Activities".  The fair value of the embedded
derivative is recorded to derivative liability. This liability is required to be
marked each reporting period. The resulting discount on the debt is amortized to
interest expense over the life of the related debt.


Note K- Preferred Stock Transactions

Preferred  stock  consists of the  following  as of December  31, 2005 and 2004,
respectively:

<TABLE>
<CAPTION>
                                                   December 31, 2005    December 31, 2004
                                                    ---------------     -----------------
                                                    # shares   value    # shares  value
                                                    --------   -----    --------  -----
<S>                                                 <C>       <C>      <C>        <C>
Series A Cumulative Convertible Preferred Stock        12,000 $ 60,000    12,000  $ 60,000
Series B Cumulative Convertible Preferred Stock        73,360  366,800    91,700   458,500
Series C Convertible Preferred Stock                1,905,882  324,000 1,905,882   324,000
                                                    ---------  ------- ---------  --------
                                                    1,991,242 $750,800 2,009,582  $842,500
                                                    =========  ======= =========  ========
</TABLE>

Series A Convertible Preferred Stock

In September,  October and November 2001, the Company sold an aggregate  222,600
shares of $5.00 Series A Convertible  Preferred Stock (Series A Preferred Stock)
for total  proceeds  of  approximately  $1,113,000  through a Private  Placement
Memorandum.  The Series A Convertible  Preferred  Stock  provides for cumulative
dividends at a rate of 8.0% per year,  payable  quarterly,  in cash or shares of
the  Company's  common stock at the Company's  election.  Each share of Series A
Preferred  Stock is  convertible  into 11 shares of the  Company's  common stock
initially  at any time  after 6 months  of the  date of issue  and  prior to the
notice of redemption  at the option of the holder,  subject to  adjustments  for
customary  anti-dilution events. In December 2001, at the request of the holders
of the Series A Preferred Stock, the Company and the individual holders modified
the holding period for conversion to allow for conversion in December 2001.


                                       F-18
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note K- Preferred Stock Transactions - Continued

In September 2001, the Company's principal stockholder  converted  approximately
$4,007,327 of unsecured  debt and  approximately  $3,546,273  of cumulative  and
unpaid accrued interest into 1,510,710 shares of Series A Preferred Stock.

In  September  2001, a creditor of the Company  agreed to convert  approximately
$10,000 of trade accounts payable into 2,000 shares of Series A Preferred Stock.

In December 2001,  concurrent with a modification in the holding period prior to
conversion,  certain holders of the Series A Preferred Stock orally notified the
Company of their intent to exercise the conversion  features on 1,749,720 issued
and outstanding  shares of Series A Preferred  Stock into  19,246,920  shares of
common  stock prior to December  31,  2001.  Due to the timing of the  requisite
documentation,  the  clerical  activities  related to this  conversion  were not
completed until February 2002.

In conjunction with the Series A Preferred Stock, certain shares were sold after
the Company's common stock was approved for trading by the National  Association
of Securities  Dealers on the OTC Bulletin  Board in October 2001. The shares of
Series A Preferred  Stock sold  subsequent  to this date had an  equivalent  per
share  value of  common  stock  below  the  ending  quoted  market  price of the
Company's common stock on their respective issue dates. This difference  created
a Beneficial  Conversion  Feature  Discount of  approximately  $1,207,993.  This
discount was then  amortized  over the unexpired time period between the date of
issue of the eligible shares and the eligible  conversion date, as amended.  All
of the shares sold  subsequent  to the initial  trading  date were  converted in
December  2001  and,  accordingly,  the  approximate  $1,207,993  in  Beneficial
Conversion Feature Discount was fully amortized to operations.

In December 2002, a holder of 5,000 shares of Series A Preferred Stock exercised
his  conversion  rights and converted  these shares of Series A Preferred  Stock
into 55,000 shares of restricted, unregistered common stock.

In January 2003,  three  separate  holders of 9,000 shares of Series A Preferred
Stock exercised their  conversion  rights and converted these shares of Series A
Preferred stock into 99,000 shares of restricted, unregistered common stock.

Series B Convertible Preferred Stock

In May 2003,  the Company  sold an  aggregate  91,700  shares of $5.00  Series B
Convertible  Preferred  Stock (Series B Preferred  Stock) for total  proceeds of
approximately  $458,500 through a separate  Private  Placement  Memorandum.  The
Series B Convertible Preferred Stock provides for cumulative dividends at a rate
of 8.0% per year, payable  quarterly,  in cash or shares of the Company's common
stock at the  Company's  election.  Each  share of Series B  Preferred  Stock is
convertible  into 11 shares of the Company's  common stock initially at any time
after 6 months of the date of issue and prior to the notice of redemption at the
option of the holder, subject to adjustments for customary anti-dilution events.

In  September  and  December  2004,  respectively,  the  Holders of the Series B
Preferred  Stock exercised  their  conversion  rights and exchanged an aggregate
18,340 shares of Series B Preferred  Stock for 1,336,200  shares of  restricted,
unregistered common stock.

                                       F-19
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note K- Preferred Stock Transactions - Continued

Series C Convertible Preferred Stock

In November  2004,  the Company sold  1,905,882  shares of Series C  Convertible
Preferred  Stock to an  existing  shareholder  and  officer of the  Company in a
private  transaction  pursuant to Section (4)2 of the Securities Act of 1933 for
gross proceeds of approximately $324,000. No underwriter was used in conjunction
with this transaction.

The Series C  Convertible  Preferred  Stock  provides for dividends at a rate of
4.0% per annum,  to be declared  and paid monthly in either cash or stock at the
discretion of the Company.

Each share of Series C  Preferred  Stock is  convertible  at a rate of $0.18 per
share into  1,800,000  shares of the  Company's  common stock at any time at the
option of the holder, subject to adjustments for customary anti-dilution events.


Note L - Common Stock Transactions

On January 9, 2006,  by written  consent in lieu of  meeting,  a majority of the
Company's  stockholders  approved a  recommendation  by the  Company's  Board of
Directors  to effect a one share for twenty  shares  reverse  stock split of our
common stock,  par value $.001 per share,  with fractional  shares rounded up to
the nearest whole share.  The reverse split became  effective on that date. As a
result of the reverse split,  the total number of issued and outstanding  shares
of the Company's  common stock  decreased  from  92,576,839 to  4,629,381shares,
after giving effect to rounding for fractional shares. The effect of this action
is reflected in the  Company's  financial  statements as of the first day of the
first period presented.

In  conjunction  with  the  above  discussed  reverse  stock  split,  all  share
references in the following paragraphs reflect the January 9, 2006 reverse split
action.

Calendar 2004 transactions

During the period from  February  13,  2004  through  June 4, 2004,  the Company
issued an aggregate 207,500 shares of common stock, in 5 separate  transactions,
in  exchange  for  the  redemption  of  approximately  $125,000  in  outstanding
debenture balance and approximately  $1,250,000 in cash from the exercise of the
affiliated warrant. Where the closing price of the Company's common stock was in
excess of the respective price per share on the respective transaction date, the
Company  recognized a charge to operations for "compensation  expense related to
common  stock  issuances at less than "fair  value".  The  cumulative  effect of
transactions  where the  transaction  price,  as  established  in the  Debenture
Agreement,  was less  than  the  closing  price  on the  date of the  respective
transactions  resulted in a cumulative  charge to  operations  of  approximately
$356,000 during this time period.

Additionally,  on June 29, 2004, the Company issued an additional  50,000 shares
of common  stock in  advance  of the  exercise  of a $25,000  redemption  on the
outstanding debenture payable and a $250,000 cash payment on the exercise of the
affiliated  warrant.  As of December 31, 2004, the Company has received $100,000
in cash on the warrant  exercise and has not applied the debt reduction  portion
of this transaction.


                                       F-20
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note L - Common Stock Transactions - Continued

Calendar 2004 transactions - continued

In January 2004,  the Company  issued 1,902 shares of  restricted,  unregistered
common stock in payment of approximately $10,000 in accrued dividends payable on
the Company's  outstanding Series A and Series B Preferred Stock for the quarter
ended  December 31, 2003. The Company relied upon Section 4(2) of the Securities
Act of 1933, as amended,  for an exemption from registration of these shares and
no underwriter was used in this transaction.

In May 2004, the Company issued 1,263 shares of restricted,  unregistered common
stock in payment of  approximately  $9,170 in accrued  dividends  payable on the
Company's  outstanding  Series B Preferred Stock for the quarter ended March 31,
2004.  The Company  relied upon Section 4(2) of the  Securities  Act of 1933, as
amended,  for an exemption from  registration of these shares and no underwriter
was used in this transaction.

On May 26, 2004, the Company  issued 15,000 shares of  restricted,  unregistered
common stock to two separate  corporations  in payment and full  satisfaction of
all  amounts  due for  fees  and/or  commissions  due in  conjunction  with  the
Company's  convertible  debenture  financing  transaction.  This transaction was
valued at  approximately  $36,000,  which was less than the closing price on the
date of the  respective  transaction  resulted  in a  charge  to  operations  of
approximately  $24,000.  The Company  relied upon Section 4(2) of the Securities
Act of 1933, as amended,  for an exemption from registration of these shares and
no underwriter was used in this transaction.

In August 2004,  the Company  issued 1,487  shares of  restricted,  unregistered
common stock in payment of approximately  $9,170 in accrued dividends payable on
the Company's  outstanding  Series B Preferred  Stock for the quarter ended June
30, 2004. The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended,  for an exemption from  registration of these shares and no underwriter
was used in this transaction.

On  October  19,  2004,   the  Company   issued  55,556  shares  of  restricted,
unregistered  common  stock to acquire  certain  assets  valued at an  aggregate
$500,000. The assets consist principally of equipment (approximately  $134,000),
inventory  (approximately  $89,500)  and patents  and a covenant  not-to-compete
(approximately $276,500).

In November 2004,  the Company  issued 2,695 shares of restricted,  unregistered
common stock in payment of approximately  $9,170 in accrued dividends payable on
the Company's  outstanding  Series B Preferred  Stock for the quarter ended June
30, 2004. The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended,  for an exemption from  registration of these shares and no underwriter
was used in this transaction.

Calendar 2005 Transactions

On various dates between June 28, 2005 and August 10, 2005, the Debenture Holder
elected to convert an aggregate  $40,000,  through 4 separate  transactions,  in
outstanding  Debenture  principal into  registered  common stock.  This election
caused the  Company to issue  293,602  shares of common  stock to the  Debenture
Holder.  Additionally,  pursuant to the contract  terms,  the  Debenture  Holder
concurrently  exercised a portion of the outstanding Warrant to purchase 400,000
shares of the Company's common stock for gross proceeds of $400,000.

In  September  and  December  2004,  respectively,  the  Holders of the Series B
Preferred  Stock exercised  their  conversion  rights and exchanged an aggregate
18,340  shares of Series B  Preferred  Stock for  66,810  shares of  restricted,
unregistered common stock.


                                       F-21
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note L - Common Stock Transactions - Continued

Calendar 2005 Transactions - continued

In July 2005, the Company  issued  approximately  8,333 shares of  unregistered,
restricted  common  stock to Paul  Goebel,  the  Company's  Director of Domestic
Sales, as an employee bonus. These shares were valued at approximately  $17,166,
which  approximated the market value of the shares on the transaction  date. The
Company relied upon Section 4(2) of the Securities Act of 1933, as amended,  for
an exemption from  registration  of these shares and no underwriter  was used in
this transaction.

In  February,  August,  September  and  December  2005,  the  Company  issued an
aggregate 23,615 shares of restricted,  unregistered  common stock in payment of
approximately  $44,124 in accrued dividends payable on the Company's outstanding
Series B Preferred  Stock for the quarters  ended  December 31, 2004,  March 31,
2005, June 30, 2005, September 30, 2005 and December 31, 2005, respectively. The
Company relied upon Section 4(2) of the Securities Act of 1933, as amended,  for
an exemption from  registration  of these shares and no underwriter  was used in
this transaction.

In August,  November  and December  2005,  respectfully,  the Company  issued an
aggregate 37,500 shares of restricted,  unregistered common stock to an existing
shareholder as payment of various fees and costs  associated with the funding of
approximately  $875,000  short-term  working  capital loans to the Company.  The
Company relied upon Section 4(2) of the Securities Act of 1933, as amended,  for
an exemption from  registration  of these shares and no underwriter  was used in
this transaction.


Note M - Rental Commitments

The Company  leases its  corporate  office and  manufacturing  facility from its
controlling  stockholder under a long-term operating lease agreement.  The lease
requires a monthly payment of approximately  $5,735,  including applicable sales
taxes.  The Company is responsible for all utilities and  maintenance  expenses.
The  lease  expires  on  December  1,  2009  and  contains  a clause  that  upon
expiration,  the Company and the controlling  shareholder  shall renegotiate the
annual rental amount.

The  Company's  subsidiary,  IPE,  leases it's  manufacturing  facility  from an
unrelated third-party under a long-term operating lease agreement. This lease is
for a period of five (5) years and requires graduated monthly payments, changing
on the lease anniversary date, ranging from approximately $1,751 to $1,914, plus
the applicable  sales taxes.  The Company is  responsible  for all utilities and
maintenance expenses.  The lease expires on February 28, 2007 and may be renewed
for an additional five (5) year term at a rental rate of  approximately  $1,971,
plus applicable sales taxes for the first renewal year and 3.0% increase on each
succeeding   anniversary   date.   Total  rent  expense  under  this  lease  was
approximately  $20,752 and  $16,622,  respectively,  for each of the years ended
December 31, 2004 and 2003.

In May  2004,  the  Company  entered  into a  long-term  lease  agreement  for a
warehouse  facility  adjacent to the Company's  primary office and manufacturing
facility.  This lease is for a period of two (2) years and requires  payments of
approximately  $6,206 per month for the first 12 months and approximately $6,393
for  the  second  12  months,  plus  applicable  sales  taxes.  The  Company  is
responsible  for all utilities and maintenance  expenses.  This lease expires on
May 31, 2006.  Further,  the Company is  responsible  for any  incremental  real
estate  taxes and property  insurance  in excess of the amounts  incurred by the
landlord for the calendar year immediately preceding the execution of the lease.


                                       F-22
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004

Note M - Rental Commitments - Continued

Future minimum rental payments on the above leases are as follows:

                        Year ended
                        December 31,         Amount
                        ------------       ----------

                        2006               $  117,244
                        2007                   72,643
                        2008                   68,815
                        2007                   68,815
                                           ----------
                        Totals             $  327,517
                                           ==========

For the  respective  years ended December 31, 2005 and 2004, the Company paid an
aggregate of $158,947 and $131,804 in rent under these agreements.


Note N - Income Taxes

The components of income tax (benefit)  expense for the years ended December 31,
2005 and 2004, respectively, are as follows:

                                     Year ended        Year ended
                                    December 31,      December 31,
                                        2005              2004
                                    --------------  ----------------
       Federal:
         Current                          $     -           $    -
         Deferred                               -                -
                                          -------           ------
                                                -                -
                                          -------           ------
       State:
         Current                                -                -
         Deferred                               -                -
                                          -------           ------
                                                -                -
                                          -------           ------
         Total                            $     -           $    -
                                           ======           ======

As of December 31, 2005,  the Company has a net operating loss  carryforward  of
approximately  $12,000,000 to offset future taxable  income.  Subject to current
regulations,  components of this  carryforward will begin to expire in 2005. The
amount and availability of the net operating loss  carryforwards  may be subject
to  limitations  set forth by the  Internal  Revenue  Code.  Factors such as the
number of shares ultimately issued within a three year look-back period; whether
there is a deemed  more  than 50  percent  change  in  control;  the  applicable
long-term  tax  exempt  bond  rate;  continuity  of  historical  business;   and
subsequent  income of the  Company  all enter  into the  annual  computation  of
allowable annual utilization of the carryforwards.



                                       F-23
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note N - Income Taxes - Continued

The Company's income tax expense (benefit) for the years ended December 31, 2005
and 2004,  respectively,  differed from the statutory federal rate of 34 percent
as follows:

<TABLE>
<CAPTION>
                                                            Year ended        Year ended
                                                           December 31,     December 31,
                                                               2005              2004
                                                           --------------  ----------------
<S>                                                        <C>             <C>

Statutory rate applied to loss before income taxes         $   (2,062,400) $     (1,128,000)
Increase (decrease) in income taxes resulting from:
     State income taxes                                                 -                 -
     Non-deductible items
       Impairment of recoverability of carrying
         value of fixed assets                                    944,000                 -
       Imputed interest on derivative liability from
         warrants and convertible notes                            42,600                 -
       Compensation expense related to common
         stock issuances at less than "fair value"                 87,000           130,000
     Other, including reserve for deferred tax asset              989,000           998,000
                                                           --------------  ----------------
       Income tax expense                                  $            -  $              -
                                                           ==============  ================
</TABLE>

Temporary   differences,   consisting   primarily  of  the  net  operating  loss
carryforward and statutory differences in the depreciable lives for property and
equipment,  between the financial  statement  carrying  amounts and tax bases of
assets and  liabilities  give rise to deferred tax assets and  liabilities as of
December 31, 2005 and 2004, respectively:

                                              Year ended        Year ended
                                             December 31,       December 31,
                                                 2005              2004
                                             --------------  ----------------
     Deferred tax assets - long-term
       Net operating loss carryforwards      $    4,080,000  $      2,669,000
     Deferred tax liabilities - long-term
       Statutory depreciation differences          (525,000)         (690,000)
                                             --------------  ----------------
                                                  3,555,000         1,979,000
     Less valuation allowance                    (3,555,000)       (1,979,000)
                                             --------------  ----------------

       Net Deferred Tax Asset                $            -  $              -
                                             ==============  ================

During the years ended December 31, 2005 and 2004,  respectively,  the valuation
allowance increased (decreased) by approximately $1,576,000 and $(671,000).

                                       F-24
<PAGE>


                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


Note O - Revenue Concentrations

The Company sells to both commercial and governmental customers, in both
domestic and foreign markets. The following table shows the Company's gross
revenue composition:

                               Year ended                 Year ended
                               December 31, 2005       December 31, 2003
                               -----------------       -----------------
                              Amount    % of total    Amount    % of total
                           ----------   ----------   ---------- ----------
Domestic
   Commercial
     Customer A            $  222,272         6.85   $  190,390       5.86
     Others                   958,813        29.56    1,636,715      50.40
                           ----------   ----------   ---------- ----------
                            1,181,085        46.41    1,827,104      56.26
                           ----------   ----------   ---------- ----------
   Private Label              407,063        12.55           -           -
                           ----------   ----------   ---------- ----------
   Governmental
     Customer B               541,392        16.69      698,976      21.52
     Customer C               399,860        12.33            -          -
     Others                    44,963         1.39        8,905       0.28
                           ----------   ----------   ---------- ----------
                              986,215        30.41      707,881      21.80
                           ----------   ----------   ---------- ----------
Foreign
   Governmental
     Customer D               644,180        19.86      684,340      21.07
     Others                    25,090         0.77       28,043       6.23
                           ----------   ----------   ---------- ----------
                              669,270        20.63      712,383      21.94
                           ----------   ----------   ---------- ----------
     Totals                $3,243,633       100.00   $3,247,368     100.00
                           ==========   ==========   ========== ==========



                        (Signatures follow on next page)

                                       F-25
<PAGE>


                                   SIGNATURES

In accord with Section 13 or 15(d) of the  Securities  Act of 1933,  as amended,
the Company  caused  this report to be signed on its behalf by the  undersigned,
thereto duly authorized.

                            American Ammunition, Inc.

Dated: October 19, 2007         By:
 /s/ Andres F. Fernandez
       ------------------          -----------------------------------
                                    Andres F. Fernandez
                                    Chief Executive Officer,
                                    Chief Financial Officer and Director

In accordance with the Securities Exchange Act of 1934, as amended,  this report
has been signed below by the  following  persons on behalf of the Company and in
the capacities and on the date as indicated.


Dated: October 19, 2007          By: /s/ Andres F. Fernandez
       ------------------            -----------------------------------
                                     Andres F. Fernandez
                                     President, Chief Executive Officer,
                                     Chief Financial Officer and Director

Dated: October 19, 2007           By: /s/ J. A. Fernandez, Sr.
       ------------------           ------------------------------------
                                    J. A. Fernandez, Sr.
                                    Chairman, Director of Sales, and Director

Dated: October 19, 2007           By: /s/ Emilio D. Jara
       ------------------            ------------------------------
                                     Emilio D. Jara.
                                     Vice President - Operations,
                                     Corporate Secretary and Director

Dated: October 19, 2007           By: /s/ Maria A. Fernandez
       ------------------             ----------------------------------
                                      Maria A. Fernandez,
                                      Director









                                       53