UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-KSB


(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 2004

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

For the transition period from _______________ to ________________

Commission File No.: 000-32379

                            American Ammunition, Inc.
                       ---------------------------------
               (Name of small business registrant in its charter)



         California                                      91-2021594
-------------------------------                        -------------------------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                               Identification No.)

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


Registrant's telephone number: (305) 835-7400


Securities registered under Section 12(b) of the Exchange Act:

    Title of each class                                Name of each exchange
                                                       on which registered
         None
-----------------------------                     ------------------------------


Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $0.001 par value
                            ------------------------
                                (Title of class)


<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,  2004  were
$3,247,368.


The aggregate market value of voting common equity held by  non-affiliates as of
March 24, 2005 was approximately $5,271,187.


As of March 24, 2005,  there were  75,907,300  shares of Common Stock issued and
outstanding.


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







<PAGE>



                            American Ammunition, Inc.

                                Index to Contents

                                                                            Page
                                                                          Number

Part I

Item 1  Description of Business                                                4
Item 2  Description of Property                                               18
Item 3  Legal Proceedings                                                     18
Item 4  Submission of Matters to a Vote of Security Holders                   19

Part II

Item 5  Market for Company's Common Stock and Related Stockholders Matters    19
Item 6  Management's Discussion and Analysis or Plan of Operation             20
Item 7  Financial Statements                                                  25
Item 8  Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosures                            25
Item 8A Controls and Procedures                                               26

Part III

Item 9  Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                  26
Item 10 Executive Compensation                                                29
Item 11 Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters                                    30
Item 12 Certain Relationships and Related Transactions                        31
Item 13 Exhibits and Reports on 8-K                                           31
Item 14 Principal Accountant Fees and Services                                32

Signatures                                                                    33

Index to Financial Statments                                                 F-1


<PAGE>



                  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.



                                     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.  It  subsequently  changed its  corporate  name to FBI Fresh
Burgers  International  with a  business  plan of  marketing  the  concept  of a
national "fast food" restaurant chain to children and young adults,  with a menu
of fresh burgers, fries and sandwiches.

     This concept was unsuccessful and we had minimal operations until September
2001, when we acquired 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.

     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
sufficient to meet our developed  wholesale and governmental  market demands. We




                                       4
<PAGE>



are an approved Department of Defense  contractor.  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. As a result,  we continued  manufacturing our initial calibers
along with special  order  ammunition  for the  Department  of Defense.  Further
streamlining  of the  operations  resulted  in the  manufacture  of the  current
ammunition  product line: 9  millimeter,  .45  automatic,  .380  automatic,  .32
automatic,  .40 Smith and Wesson,  38 Special,  30 carbine,  223  Remington,  38
Super, .44 Special, 32 Smith and Wesson Long, 44 special and .44 Magnum. We have
also added .44 Magnum,  .308, .50 AE and .50 caliber  manufactured in Israel and
shipped to the Company for distribution  under the Company's brand name. 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 2004 and 2003, our sales were  approximately
78.06%  and  93.77% in  domestic  markets  and  approximately  21.94%  and 6.23%
internationally.  We 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  tolerances  of +/- .0005" 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
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.

     During 2004 and 2003, 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.




                                       5
<PAGE>



     During 2004, we acquired laser gauging  computer  equipment for the purpose
of  improving  and  automating   quality  control   processes.   This  equipment
automatically  tests and ejects  projectiles from the assembly line which do not
meet the specified tolerances. We believe that this equipment will assist in the
improvement  of  our  products  and  cut  labor  costs  associated  with  manual
inspection of product.

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

     However,  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. In essence, we eliminated 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,



                                       6
<PAGE>



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
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.




                                       7
<PAGE>



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  benefitted  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
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.

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.



                                       8
<PAGE>



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
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.




                                       9
<PAGE>



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  believes  that it is  feasible  to  increase  our
production  capacity  by  100%  to  150% in the  immediate  future  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.

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.




                                       10
<PAGE>



     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, 2006;  and *
License  No.   1-59-025-08-3D-69454  for  "08-Importer  of  Firearm  other  than
Destructive  Devices",  which license expires on April 1, 2006. 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  March  24,  2005,  we  employ  approximately  70  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.

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




                                       11
<PAGE>



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, 2004 and 2003, we had a net
loss of approximately $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, 2004
and 2003  reflect  an  accumulated  deficit  of  approximately  $19,989,875  and
$16,629,044,  since our inception, working capital of approximately $872,000 and
$2,028,000, and stockholders' equity of approximately $4,385,000 and $4,508,000.
Our auditor has not issued a going concern opinion on our financial  statements;
however, 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.  Short-term  assets and  investments  income will be sufficient to
meet our  operating  expenses  and  capital  expenditures  through  2005.  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.  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.




                                       12
<PAGE>



     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
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.



                                       13
<PAGE>



     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 January 5, 2005, we had 74,740,580 shares of common stock issued and
outstanding and convertible debentures outstanding that may be converted into an
estimated 21,430,661 shares of common stock at current market prices, and
outstanding warrants to purchase 2,666,350 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.

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 following is an example of the amount of shares of
our common stock that are issuable, upon conversion of our convertible
debentures (excluding accrued interest), based on market prices 25%, 50% and 75%
below the market price, as of January 5, 2005 of $0.16.

                                                Number             % of
 %Below       Price Per     With Discount      of Shares        Outstanding
  Market        Share          at 24%          Issuable            Stock
  ------        -----          ------          --------            -----

    25%         $.12           $.0912         29,462,048          28.27%
    50%         $.08           $.0608         45,524,822          37.85%
    75%         $.04           $.0304         93,713,145          55.63%

     As  illustrated,  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




                                       14
<PAGE>



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.

     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.




                                       15
<PAGE>



     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
January 5, 2005, $266,350 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 36.46%
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  January  5,  2005,  our  executive  officers  and  directors,  which
primarily includes the Fernandez family,  beneficially own approximately  36.46%
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



                                       16
<PAGE>



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.

     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 receive 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.



                                       17
<PAGE>



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,
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
            ------------           ----------
                2005                $ 166,974
                2006                  117,244
                2007                   72,643
                2008                   68,815
                2007                   68,815
                                    ---------
               Totals               $ 494,491
                                    =========

     For the respective years ended December 31, 2004 and 2003, the Company paid
an aggregate of $131,804 and $87,826 for rent under these agreements.


Item 3 - Legal Proceedings

     The Company is not a party to any pending  legal  proceedings,  and no such
proceedings are known to be contemplated.




                                       18
<PAGE>



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

     The Company has not  conducted  any  meetings  of  shareholders  during the
preceding quarter or periods subsequent thereto.



                                     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 under the symbol  "AAMI" and has been since October 23,
2001. Prior to that time, our common stock was approved for trading under symbol
"FBIB,"  although it never traded  under that  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 - 3/20/2005                 0.17                      0.09

     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 December 31, 2004, we had  approximately  178 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



                                       19
<PAGE>



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.

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



                                       20
<PAGE>



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.

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, 2004 compared to Year ended December 31, 2003

     During the year ended  December  31, 2004,  we  experienced  aggregate  net
revenues  of  approximately  $3,247,000,  with  approximately  $1,535,000  being
realized  during the 4th quarter,  as compared to  approximately  $1,985,000  in
total net revenues for the year ended December 31, 2003.

     We experienced costs of goods sold of approximately $4,621,000 for the year
ended  December 31, 2003 as compared to  approximately  $3,232,000  for the year
ended December 31, 2003.

     During 2004 and 2003, 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
during the first two quarters of 2004 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  $729,000 and $669,000,  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



                                       21
<PAGE>



capacity.  For the year  ended  December  31,  2004 and 2003,  respectively,  we
generated a negative gross profit of  approximately  $(1,373,298),  or (42.29%),
and  approximately  $(1,247,000),  or  (62.82%).  Based on orders  received  and
products  shipped  during the first  quarter of 2005 (through the filing date of
this  document) and our ongoing  conversations  with various  customers  that we
should be able to generate a positive gross profit in future periods..

     We experienced  nominal research and development  expenses of approximately
$11,000 and $4,000,  respectively,  during the years ended December 31, 2004 and
2003, principally related to the expansion of our product line.

     Other  general  and  administrative  expenses  increased  by  approximately
$440,000 from  approximately  $1,127,000 for the year ended December 31, 2003 as
compared to  approximately  $1,567,000 for the year ended December 31, 2004. The
most  significant   increases  relate  to  advertising  and  marketing  expenses
(approximately  $324,000),  office and  administrative  wages and  salaries  and
overall office overhead (approximately $116,000).

     During 2004 and 2003, respectively, we experienced charges to operations of
approximately  $382,000 and $883,000 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.  During 2003, we  experienced a charge of  approximately
$94,000 for the  amortization of the Beneficial  Conversion  Feature Discount on
our Preferred Stock. This charge results from the difference between the closing
quoted market price on our common stock and the  equivalent  converted  price of
our Mandatory  Convertible  Preferred Stock which was sold and converted  during
2003.

     We recognized a net loss of approximately $(3,318,000) and $(2,968,000) for
the respective years ended December 31, 2004 and 2003, respectively,  or $(0.05)
and $(0.05) per share.

Year ended December 31, 2003 compared to Year ended December 31,2002

     During the year ended  December  31, 2003,  we  experienced  aggregate  net
revenues of approximately $1,985,000, with approximately $769,000 being realized
during the 4th quarter,  as compared to  approximately  $1,409,000  for the year
ended December 31, 2002.

     We experienced costs of goods sold of approximately $3,232,000 for the year
ended  December 31, 2003 as compared to  approximately  $2,457,000  for the year
ended December 31, 2002. During 2003, we experienced  negative trends off of our
standard production costs for material and labor due to difficulties in training
new  employees  and adding new  products to our  catalog.  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  $669,000 and
$653,000,  respectively,  in the  above  cost of  goods  expense  totals.  These




                                       22
<PAGE>



depreciation levels are anticipated to remain fairly constant for future periods
as management does not anticipate any significant capital equipment acquisitions
in future periods.  Further,  the addition of the Industrial  Plating Enterprise
Co.  equipment  allows us to produce  certain  components  which were previously
outsourced to unrelated third parties.  For the year ended December 31, 2003 and
2002,  respectively,  we have generated a negative gross profit of approximately
$(1,247,000),  or (62.82%),  and  approximately  $(1,047,000),  or (74.31%).  We
anticipated that with the fulfillment of the various private labeling agreements
and government contracts, continued retail consumer demand for our product line,
lower  production  costs being  experienced  from internally  generated  plating
activities and adequate liquidity, we would be able to generate a positive gross
profit  in  future  periods.  Further,  based  on  production  cost  information
developed  during  the 4th  quarter of 2002 and  further  refined  during  2003,
management  has  developed  a new model for the  pricing of its  products to its
customers.  It is  anticipated  that this model will allow  management to better
manage expense levels, control labor costs and maximize revenue opportunities.

     We experienced  nominal research and development  expenses of approximately
$4,000 and $3,700,  respectively,  during the years ended  December 31, 2003 and
2002, principally related to the expansion of our product line.

     Other  general  and  administrative  expenses  increased  by  approximately
$282,000  from  approximately  $845,000 for the year ended  December 31, 2002 as
compared to  approximately  $1,127,000 for the year ended December 31, 2003. The
most significant increases relate to advertising and marketing expenses,  office
and administrative wages and salaries and overall office overhead.

     During 2003 and 2002, respectively, we experienced charges to operations of
approximately  $883,000 and $11,500 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.  During 2003, we  experienced a charge of  approximately
$94,000 for the  amortization of the Beneficial  Conversion  Feature Discount on
our Preferred Stock. This charge results from the difference between the closing
quoted market price on our common stock and the  equivalent  converted  price of
our Mandatory  Convertible  Preferred Stock which was sold and converted  during
2003.

     We recognized a net loss of approximately $(2,968,000) and $(1,883,000) for
the respective years ended December 31, 2003 and 2002, respectively,  or $(0.05)
and $(0.04) per share.

Liquidity

     As of December 31, 2004 and 2003,  respectively,  we had working capital of
approximately  $872,000 and $2,000,000.  Our working capital  position  improved
significantly at December 31, 2003 due to the volume of shipments during the 4th
quarter to our customers and increases in inventory to support the pending U. S.
Government contracts.  At December 31, 2004, our working capital declined due to
liabilities for customer  deposits received at year-end for orders which had not
been produced and shipped;  but, were  completed  during the quarter ended March
31,  2005 and  increased  trade  account  payable  levels for 4th  quarter  2004
production  on orders  which  were  shipped  under  our "net 60" terms  programs
related to our dealer direct sales efforts.



                                       23
<PAGE>



     We have used cash in operating  activities of approximately  $(649,000) and
$($2,918,000) during the years ended December 31, 2004 and 2003, respectively.

Capital Requirements

     During the years ended December 31, 2004 and 2003,  respectively,  we added
approximately  $717,000 and $289,000 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,  2004,  the  outstanding  balance  on the  convertible
debenture is approximately $266,365 and we have approximately 2,663,650 warrants
outstanding.

     The  debentures  bear  interest  at 8%,  mature on June 30,  2006,  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
number of shares into which the  debenture  may be  converted.  However,  in the
event that our market price is less than $.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,
2004,  the warrant is exercisable  into  2,663,650  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;




                                       24
<PAGE>



     *    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.

     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  $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.


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




                                       25
<PAGE>



Item 8A - Controls and Procedures

     As of the date of this filing,  an evaluation of the  effectiveness  of the
design and  operation of American  Ammunition,  Inc.'s  disclosure  controls and
procedures was carried out under the supervision and with the  participation  of
management, including our Chief Executive and Financial Officer. Based upon that
evaluation,  our  Chief  Executive  and  Financial  Officer  concluded  that the
Company's  disclosure controls and procedures are effective.  There have been no
significant  changes in our  internal  controls or in other  factors  that could
significantly affect internal controls subsequent to the date we carried out the
evaluation.



                                    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.   67   Chairman of the Board and Director of Sales
Andres F. Fernandez   38   President and Chief Executive Officer
Emilio D. Jara        39   Vice-President of Operations, Secretary and Director
Maria A. Fernandez    44   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., age 67, 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, age 38, 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  and has been a driving force behind our



                                       26
<PAGE>



company and our success in becoming a  vertically  integrated  manufacturer.  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,  age 39,  currently  serves as Vice  President of  Operations,
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.

     Maria A. Fernandez,  age 44, 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.



                                       27
<PAGE>



Code of Ethics

     We have  not  adopted  a code  of  ethics  that  applies  to our  principal
executive officer,  principal financial officer, principal accounting officer or
controller,  or persons performing similar functions. We have not adopted such a
code of  ethics  because  all of  management's  efforts  have been  directed  to
building the business of the company; at a later time, such a code of ethics may
be adopted by the Board of Directors.

Committees of the Board of Directors

     We  presently  do not  have an  audit  committee,  compensation  committee,
nominating  committee,  an executive committee of our board of directors,  stock
plan  committee or any other  committees.  However,  our board of directors will
establish various committees during the current fiscal year.

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  California  Corporations  Code  provides  for the  indemnification  of
directors,  officers,  employees and agents under the circumstances as set forth
in Section 317  thereof.  section 317 permits a  corporation  to  indemnify  its
agents,  typically directors and officers,  for expenses incurred or settlements
or judgments paid in connection with certain legal proceedings. Only those legal
proceedings  arising out of such persons'  actions as agents of the  corporation
may be grounds for indemnification.

     Whether indemnification may be paid in a particular case depends on whether
the agent wins,  loses or settles the suit and upon whether a third party or the
corporation  itself  is  the  plaintiff.  Section  317  provides  for  mandatory
indemnification,  no matter who the plaintiff is, when an agent is successful on
the merits of a suit.  In all other cases,  indemnification  is  permissive  and
sometimes requires approval of the court in which the suit is or was pending.

     If the  agent  loses or  settles  a suit with a  plaintiff  other  than the
Company or someone who did not  threaten or bring suit on our behalf,  the agent
may be indemnified for expenses incurred and settlements or judgments paid. That
indemnification  may be  authorized  upon a finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in our best interests,




                                       28
<PAGE>



and, in a criminal  proceeding,  only where the agent had no reasonable cause to
believe his or her conduct  was  unlawful.  If the agent loses or settles a suit
with us or a plaintiff who  threatened or brought suit on our behalf,  the agent
may be indemnified for expenses  actually and reasonably  incurred in connection
with the  defense or  settlement  of the  action.  Such  indemnification  may be
authorized  upon a finding that the agent acted in good faith and in a manner he
or she  believed  to be in our  best  interests  and the best  interests  of our
shareholders.  No  indemnification  is permitted where the agent breached his or
her duty to us,  however,  unless  the court in which the  proceeding  is or was
pending determines that the agent is fairly and reasonably entitled to indemnity
for certain  expenses.  No  indemnification  is permitted  where a settlement is
reached without court approval.

     Where permissive indemnification provisions control, indemnification may be
authorized by a majority vote of the disinterested  directors, by an independent
legal  counsel's  written  opinion,  by  our  shareholders  (the  person  to  be
indemnified  is excluded from voting his or her shares) or by the court in which
the proceeding is or was pending.

     Any  provision in a  California  corporation's  articles of  incorporation,
bylaws or shareholder or director  resolution  that  indemnifies its officers or
directors  may  prohibit  permissive,  but  not  mandatory,  indemnification  as
described above. Such a provision must otherwise be consistent with Section 317.
Nonetheless, a corporation has the power to purchase indemnity insurance for its
agents even for  situations  in which it could not  indemnify  them.  Insofar as
indemnification  for  liabilities  arising  under  the  Securities  Act  may  be
permitted to directors,  officers or persons controlling the Company pursuant to
the foregoing  provisions,  we have been informed that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable


Item 10 - Executive Compensation

     The following  summary  compensation  table sets forth the  aggregate  cash
compensation  paid or accrued by our company to each of our  executive  officers
and key employees for services rendered to our company during each of our fiscal
years  ended  December  31,  2000  through  December  31,  2004 and all plan and
non-plan  compensation  awarded  to,  earned  by or paid to  certain  designated
executive officers:

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

                                                           Long Term Compensation
                         Annual Compensation                       Awards            Payouts
(a)               (b)     (c)       (d)      (e)          (f)         (g)          (h)      (i)
                                             Other        Restricted  Securities   LTIP     All
Name and                                     Annual         Stock     Underlying   Pay-     Other
Principal         Year    Salary    Bonus    Compen-      Award(s)    Options/     outs     Compen-
Position (1)              ($)       ($)      sation ($)   ($)         SARs  (f)             sation ($)
----------------- ------  --------  -------- ------------ ----------  ------------ -------- ----------
<S>               <C>     <C>        <C>      <C>          <C>         <C>          <C>      <C>
J.A.              2000    $ 59,202   $0       $0           $0          $0           $0       $0
Fernandez, Sr.,   2001    $ 50,859   $0       $0           $0          $0           $0       $0
Chairman,         2002    $ 77,770   $0       $0           $0          $0           $0       $0



                                       29
<PAGE>



Director of       2003    $104,000   $0       $0           $0          $0           $0       $0
Sales             2004    $104,000   $0       $0           $0          $0           $0       $0

Andres F.         2000    $ 88,438   $0       $0           $0          $0           $0       $0
Fernandez,        2001    $ 74,290   $0       $0           $0          $0           $0       $0
President and     2002    $103,508   $0       $0           $0          $0           $0       $0
Chief Executive   2003    $132,600   $0       $0           $0          $0           $0       $0
Officer           2004    $132,600   $0       $0           $0          $0           $0       $0

Emilio D.         2000    $ 36,400   $0       $0           $0          $0           $0       $0
Jara, Vice-       2001    $ 42,500   $0       $0           $0          $0           $0       $0
President         2002    $ 43,000   $0       $0           $0          $0           $0       $0
Of                2003    $ 52,000   $0       $0           $0          $0           $0       $0
Operations,       2004    $ 52,000   $0       $0           $0          $0           $0       $0
Secretary
and
Director

Amelia            2000    $ 59,202   $0       $0           $0          $0           $0       $0
Fernandez,        2001    $ 59,923   $0       $0           $0          $0           $0       $0
Vice President    2002    $ 64,598   $0       $0           $0          $0           $0       $0
And               2003    $ 78,702   $50,000  $0           $0          $0           $0       $0
Director          2004    $ 78,702   $0       $0           $0          $0           $0       $0

Maria A.          2000    $0         $0       $0           $0          $0           $0       $0
Fernandez,        2001    $0         $0       $0           $0          $0           $0       $0
Director          2002    $0         $0       $0           $0          $0           $0       $0
                  2003    $0         $0       $0           $0          $0           $0       $0
                  2004    $0         $0       $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 March 24, 2005, 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.





                                       30
<PAGE>



                                                   Shares Beneficially Owned
                                                  ---------------------------
Name and Address of Beneficial Owner                 Number        Percent
------------------------------------------------  -----------    ------------

Andres F. Fernandez                                 8,485,365          11.18%
J. A. Fernandez, Sr.                               14,905,905          19.64%
Amelia C. Fernandez                                 4,281,900           5.64%
Maria A. Fernandez                                    260,000               *
Emilio D. Jara                                         54,250               *

Total common stock held by officers
     and directors as a group (4 people)           27,987,420          36.46%

*    Less than 1%

     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.  and  Amelia  Fernandez  are the  father  and  mother  of  Andres  and Maria
Fernandez.  The table above does not include the 384,500 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.  However,  the table does
include the shares  owned by Amelia  Fernandez,  who was an officer and director
during 2003.


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 and Reports on Form 8-K.

     (a) The exhibits  required to be filed  herewith by Item 601 of  Regulation
S-B, as described in the following index of exhibits, are incorporated herein by
reference, as follows:

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

31.1 *      Certification by Chief Executive Officer pursuant to 18 U.S.C. 1350.

32.1 *      Certification by Chief Financial Officer pursuant to 18 U.S.C. 1350.

*    Filed herewith



                                       31
<PAGE>



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.

Item 14 - Principal Accountant Fees and Services

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

                                           Year ended        Year ended
                                          December 31,      December 31,
                                             2004               2003
                                          -------------------------------

(1)      Audit fees                       $  28,193         $  29,193
(2)      Audit-related fees                       -                 -
(3)      Tax fees                             1,208             1,208
(4)      All other fees                           -                 -
                                          ---------         ---------

   Totals                                 $  29,401         $  29,401
                                          =========         =========

     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.

     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.




                                       32
<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: March   , 2005      By: /s/ Andres F. Fernandez
       --------------         --------------------------------
                              Andres F. Fernandez
                              President, 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: March   , 2005      By: /s/ Andres F. Fernandez
       --------------         --------------------------------
                              Andres F. Fernandez
                              President, Chief Executive Officer,
                              Chief Financial Officer and Director

Dated: March   , 2005      By: /s/ J.A. Fernandez, Sr.
       --------------         --------------------------------
                              J. A. Fernandez, Sr.
                              Chairman, Director of Sales,
                              and Director

Dated: March   , 2005      By: /s/ Emilio D. Jara
       --------------         --------------------------------
                              Emilio D. Jara.
                              Vice President - Operations,
                              Corporate Secretary and Director

Dated: March   , 2005      By: /s/ Maria A. Fernandez
       --------------         --------------------------------
                              Maria A. Fernandez,
                              Director





                                       33
<PAGE>



                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES

                                    CONTENTS


                                                                           Page

Report of Independent Certified Public Accountants                          F-2

Consolidated Financial Statements

Consolidated Balance Sheets
     as of December 31, 2004 and 2003                                       F-3

Consolidated Statement of Operations and Comprehensive Loss
     for the years ended December 31, 2004 and 2003                         F-5

Consolidated Statement of Changes in Stockholders' Equity
     for the years ended December 31, 2004 and 2003                         F-6

Consolidated Statement of Cash Flows
     for the years ended December 31, 2004 and 2003                         F-7

Notes to Consolidated Financial Statements                                  F-9











                                       F-1

<PAGE>



                        Letterhead of S. W. Hatfield, CPA

Report of Independent Registered Public Accounting Firm



Board of Directors and Stockholders
American Ammunition, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  American
Ammunition,   Inc.  (a  California   corporation)  and   Subsidiaries   (Florida
corporations)  as of December  31,  2004 and 2003 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,  2004 and 2003,
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, 2004 and 2003 and
the results of their  consolidated  operations and  consolidated  cash flows for
each of the two  years  ended  December  31,  2004 and  2003,  respectively,  in
conformity with accounting principles generally accepted in the United States of
America.


                                                             /s/ S.W. Hatfield
                                                             -------------------
                                                             S. W. HATFIELD, CPA
Dallas, Texas
March 11, 2005



                                       F-2

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2004 and 2003


                                                                December 31,    December 31,
                                                                    2004             2003
                                                                ----------------------------
<S>                                                             <C>             <C>
                                     ASSETS
Current Assets
   Cash on hand and in bank                                     $    805,465    $    505,671
   Accounts receivable - trade,
     net of allowance for doubtful accounts
      of $-0- and $-0-, respectively                                 639,444         520,835
   Inventory                                                         912,424       1,112,756
   Prepaid expenses                                                   58,847          40,388
                                                                -------------   ------------

     Total Current Assets                                          2,416,180       2,179,650
                                                                ------------    ------------


Property and Equipment - at cost or contributed value
   Manufacturing equipment                                         7,976,248       7,131,233
   Office furniture and fixtures                                      69,889          62,893
   Leasehold improvements                                            184,939         184,690
                                                                ------------    ------------
                                                                   8,231,076       7,378,816
   Accumulated depreciation                                       (4,801,695)     (4,066,390)
                                                                ------------    ------------

     Net Property and Equipment                                    3,429,381       3,312,426
                                                                ------------    ------------


Other Assets
   Patents, Trademarks and Noncompetition agreement,
     net of accumulated amortization of approximately $9,190         266,500               -
   Deposits and other                                                 83,660          77,860
                                                                ------------    ------------

     Total Other Assets                                              350,160          77,860
                                                                ------------    ------------

TOTAL ASSETS                                                    $  6,195,721    $  5,569,936
                                                                ============    ============
</TABLE>


                                  - Continued -



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

                                       F-3

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                           December 31, 2004 and 2003


                                                                December 31,    December 31,
                                                                    2004             2003
                                                                ----------------------------
<S>                                                             <C>             <C>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Current maturities of leases payable                         $          -    $      7,841
   Customer deposits                                                 440,906           4,100
   Accounts payable - trade                                          936,885         128,865
   Accrued salaries and wages                                        135,970               -
   Accrued interest payable                                           15,000               -
   Accrued dividends payable                                          15,899          11,020
                                                                ------------    ------------

     Total Liabilities                                             1,544,660         151,826
                                                                ------------    ------------


Commitments and Contingencies


Mandatory Convertible Debenture                                      266,365         391,365
                                                                ------------    ------------


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                            2,010             104
   Common stock - $0.001 par value.
     300,000,000 shares authorized.
     74,851,691 and 66,893,628 shares issued and outstanding          74,852          66,894
   Additional paid-in capital                                     24,472,709      21,588,791
   Accumulated deficit                                           (19,989,875)    (16,629,044)
                                                                ------------    ------------
                                                                   4,559,696       5,026,745
   Stock subscription receivable                                    (175,000)              -
                                                                ------------    ------------

   Total Stockholders' Equity                                      4,384,696       5,026,745
                                                                ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $  6,195,721    $  5,569,936
                                                                ============    ============
</TABLE>


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

                                       F-4

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                     Years ended December 31, 2004 and 2003


                                                                 Year ended      Year ended
                                                                December 31,    December 31,
                                                                    2004             2003
                                                                ----------------------------
<S>                                                             <C>             <C>

Revenues                                                        $  3,247,368    $  1,984,997
                                                                ------------    ------------

Cost of Sales
   Materials                                                       2,383,198       1,355,098
   Direct Labor                                                      836,386         868,004
   Other direct costs and expenses                                   671,787         340,346
   Depreciation                                                      729,295         668,574
                                                                ------------    ------------
     Total Cost of Sales                                           4,620,666       3,232,022
                                                                ------------    ------------

Gross Profit                                                      (1,373,298)     (1,247,025)
                                                                ------------    ------------

Operating Expenses
   Research and development expenses                                  11,457           4,038
   Marketing and promotion expenses                                  440,248         115,767
   Salaries, wages and related expenses                              365,633         399,710
   Other operating expenses                                          718,610         567,700
   Interest expense                                                   16,005          35,154
   Depreciation expense                                                6,009           4,516
   Amortization of intangibles                                         9,190               -
   Compensation expense related to common stock
     issuances at less than "fair value"                             381,902         882,291
                                                                ------------    ------------
     Total Operating Expenses                                      1,949,054       2,009,176
                                                                ------------    ------------

Loss from Operations                                              (3,322,352)     (3,256,201)

Other Income (Expense)
   Other income (expense)                                              4,279          63,382
   Gain on forgiveness of accounts payable                                 -         339,202
   Gain on sale of equipment                                               -           7,900
   Amortization of Beneficial Conversion
     Feature Discount on Preferred Stock                                   -         (93,678)
                                                                ------------    ------------
Loss before Income Taxes                                          (3,318,073)     (2,939,395)

Provision for Income Taxes                                                 -               -
                                                                ------------    ------------
Net Loss                                                          (3,318,073)     (2,939,395)

Other Comprehensive Income                                                 -               -
                                                                ------------    ------------
Comprehensive Loss                                                (3,318,073)     (2,939,395)

Preferred Stock Dividends                                            (42,758)        (28,931)
                                                                ------------    ------------
Net Loss available to Common Shareholders                       $ (3,360,831)   $ (2,968,326)
                                                                ============    ============

Loss per weighted-average share of common stock outstanding,
   computed on net loss - basic and fully diluted               $      (0.05)   $      (0.05)
                                                                ============    ============

Weighted-average number of common shares outstanding              71,814,490      61,202,839
                                                                ============    ============
</TABLE>

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

                                       F-5

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     Years ended December 31, 2004 and 2003

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

<S>                 <C>                      <C>    <C>     <C>        <C>      <C>          <C>            <C>
Balances at January 1, 2003                  41,000 $   41  55,328,166 $55,329  $16,728,123  $(13,660,718)  $3,122,775

Issuance of preferred stock for cash         91,700     92           -       -      458,408             -      458,500
   Less costs of raising capital                  -      -           -       -      (45,850)            -      (45,850)
Issuance of common stock for Cash                 -      -   4,552,183   4,552    1,179,630             -    1,184,182
   Conversion of debenture                        -      -   4,561,753   4,562    1,086,364             -    1,090,926
   Exercise of warrant for cash                   -      -   2,086,350   2,086    2,084,264             -    2,086,350
   Payment of preferred stock dividends           -      -      46,176      46       20,464             -       20,510
   Conversion of preferred stock            (29,000)   (29)    319,000     319         (290)            -            -
Costs of acquiring convertible debenture          -      -           -       -      (16,000)            -      (16,000)
Beneficial Conversion Discount
   Feature on preferred stock                     -      -           -       -       93,678             -       93,678
Dividends declared on Preferred Stock             -      -           -       -            -       (28,931)     (28,931)
Net loss for the year                             -      -           -       -            -    (2,939,395)  (2,939,395)
                                          --------- ------  ---------- -------   ----------  ------------   ----------

Balances at December 31, 2003                62,700    104  66,893,628  66,894   21,588,791   (16,629,044)   5,026,745

Issuance of preferred stock for cash      1,905,882  1,906           -       -      322,094             -      324,000
Issuance of common stock for Cash                 -      -   1,500,000   1,500    1,498,500             -    1,500,000
     Less subscription receivable                 -      -           -       -            -             -     (150,000)
   Conversion of debenture                        -      -   4,900,000   4,900      501,100             -      506,000
     Less subscription receivable                 -      -           -       -            -             -      (25,000)
   Payment of costs to acquire capital            -      -     300,000     300       59,700             -       60,000
     Less cost of capital                         -      -           -       -      (36,000)            -      (36,000)
   Acquisition of assets                          -      -   1,111,112   1,111      498,889             -      500,000
   Payment of preferred stock dividends           -      -     146,952     147       39,635             -       39,782
   Dividends declared on Preferred Stock          -      -           -       -            -       (42,758)     (42,758)
Net loss for the year                             -      -           -       -            -    (3,318,073)  (3,318,073)
                                          --------- ------  ---------- -------   ----------  ------------   ----------

Balances at December 31, 2004             2,009,582 $2,010  74,851,692 $74,852  $24,472,709  $(19,989,875)  $4,384,696
                                          ========= ======  ========== =======   ==========  ============   ==========

Stock subscription receivable at December 31, 2004                                                          $ (175,000)
                                                                                                            =========
</TABLE>



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

                                       F-6

<PAGE>



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


                                                                 Year ended      Year ended
                                                                December 31,    December 31,
                                                                    2004             2003
                                                                ----------------------------
<S>                                                             <C>             <C>

Cash flows from operating activities
   Net loss for the year                                        $ (3,318,073)   $ (2,939,395)
   Adjustments to reconcile net loss to net
     cash provided by operating activities
       Depreciation and amortization                                 744,494         673,090
       Bad debt expense                                               85,490           2,522
       Acquisition of inventory with common stock                     89,510               -
       Gain on forgiveness of accounts payable                             -        (339,202)
       Gain on sale of equipment                                           -          (7,900)
       Amortization of conversion discount on preferred stock              -          93,678
       Compensation expense related to common stock
         issuances at less than "fair value"                         381,902         882,291
       (Increase) Decrease in
         Accounts receivable                                        (204,099)       (492,069)
         Inventory                                                   200,332        (727,942)
         Prepaid expenses, deposits and other                        (24,258)        (20,997)
       Increase (Decrease) in
         Accounts payable and other accrued liabilities              808,023          53,157
         Accrued payroll payable                                     135,970         (18,709)
         Accrued interest payable                                     15,000               -
         Customer deposits                                           436,806         (76,853)
                                                                ------------    ------------
Net cash provided by (used in) operating activities                 (648,903)     (2,918,329)
                                                                ------------    ------------

Cash flows from investing activities
   Cash received on sale of equipment                                      -           7,900
   Purchase of property and equipment                               (717,462)       (288,891)
                                                                ------------    ------------
Net cash used in investing activities                               (717,462)       (280,991)
                                                                ------------    ------------

Cash flows from financing activities
   Principal paid on long-term debt                                        -        (450,000)
   Principal paid on long-term capital leases                         (7,841)         (9,507)
   Cash received on sale of Preferred Stock                          324,000         458,500
   Cash received on issuance of Mandatory Convertible Debenture    1,350,000         350,000
   Cash received on sale of common stock                                   -       3,260,532
   Cash paid to acquire capital                                            -         (61,850)
                                                                ------------    ------------
Net cash provided by financing activities                          1,666,159       3,547,675
                                                                ------------    ------------

INCREASE (DECREASE) IN CASH                                          299,794         348,355

Cash at beginning of year                                            505,671         157,316
                                                                ------------    ------------

Cash at end of year                                             $    805,465    $    505,671
                                                                ============    ============
</TABLE>

                                  - Continued -

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

                                       F-7

<PAGE>



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


                                                                 Year ended      Year ended
                                                                December 31,    December 31,
                                                                    2004             2003
                                                                ----------------------------
<S>                                                             <C>             <C>
Supplemental disclosure of interest
   and income taxes paid
     Interest paid for the period                               $      1,005    $     26,170
                                                                ============    ============
     Income taxes paid for the period                           $          -    $          -
                                                                ============    ============

Supplemental disclosure of non-cash
   investing and financing activities
     Conversion of debt into common stock                       $    125,000    $    208,635
                                                                ============    ============
     Payment of accrued dividends on preferred
       stock with common stock                                  $     37,878    $     30,511
                                                                ============    ============
     Acquisition of equipment and intangibles
       with common stock                                        $    410,490    $          -
                                                                ============    ============
</TABLE>
















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

                                       F-8

<PAGE>



                            AMERICAN AMMUNITION, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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.


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-9

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


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.

5.   Income Taxes

     The Company uses the asset and liability  method of  accounting  for income
     taxes.  At December 31, 2004 and 2003,  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-10

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note C - Summary of Significant Accounting Policies - Continued

5.   Income Taxes - continued

     As of December 31, 2004 and 2003,  the  deferred  tax asset  related to the
     Company's net  operating  loss  carryforward  is fully  reserved.  If these
     carryforwards are not utilized, they will begin 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, 2004 and 2003, 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 - 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.



                                      F-11

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note E - Inventory

As of  December  31,  2004  and  2003,  inventory  consisted  of  the  following
components:

                                    December 31,   December 31,
                                        2004           2003
                                    ---------------------------

         Raw materials              $  522,585     $   539,474
         Work in process               306,360         360,450
         Finished goods                 83,479         212,832
                                    ----------     -----------

         Totals                     $  912,424     $ 1,112,756
                                    ==========     ===========


Note F - Property and Equipment

Property and equipment consist of the following components:

                                      December 31,    December 31,    Estimated
                                          2004           2003        useful life
                                      ------------------------------------------

   Manufacturing equipment            $  7,745,112    $  7,131,233    3-10 years
   Office furniture and fixtures            69,889          62,893    3- 7 years
   Leasehold improvements                  184,939         184,690    8-20 years
                                      ------------    ------------
                                         7,999,940       7,378,816
   Accumulated depreciation             (4,762,074)     (4,066,390)
                                      ------------     -----------

   Net property and equipment         $  3,237,866    $  3,312,426
                                      ============    ============

Total  depreciation  expense  charged to operations for the years ended December
31, 2004 and 2003 was approximately $717,349 and $673,090, respectively.


Note G - Capital Leases Payable

Capital  leases  payable  consist of the  following  as of December 31, 2004 and
2003, respectively:

<TABLE>
<CAPTION>
                                                                December 31,    December 31,
                                                                    2004             2003
                                                                ----------------------------
<S>                                                             <C>             <C>

Three separate  capital leases payable to various  equipment
financing  companies.  Interest  ranging  between 11.37% and
14.05%.   Payable  in  aggregate  monthly   installments  of
approximately  $935,  including  interest.  Final maturities
occurred between September 2004 and December 2004.              $         -     $     7,841

     Less current maturities                                              -          (7,841)
                                                                -----------     -----------

     Long-term portion                                          $         -     $         -
                                                                ===========     ===========
</TABLE>


                                      F-12

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note H - 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, 2004, the outstanding balance on the convertible debenture is
approximately $266,365 and we have approximately 2,663,650 warrants outstanding.

The debentures bear interest at 8%, mature on June 30, 2006, 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 number of shares into
which the  debenture  may be  converted.  However,  in the event that our market
price is less than $.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,  2004,  the
warrant is  exercisable  into  2,663,650  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.

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.


                                      F-13

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note H - Convertible Debenture - continued

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.


Note I - Preferred Stock Transactions

Preferred  stock  consists of the  following  as of December  31, 2004 and 2003,
respectively:

                                         December 31, 2004  December 31, 2003
                                         ------------------ ------------------
                                         #  shares   value  #  shares   value
                                         --------- -------- --------- --------
Series A Cumulative
  Convertible Preferred Stock               12,000 $ 60,000    12,000 $ 60,000
Series B Cumulative
  Convertible Preferred Stock               91,700  458,500    91,700  458,500
Series C Convertible Preferred Stock     1,905,882  324,000         -        -
                                         --------- --------  -------- --------
                                         2,009,582 $842,500   103,700 $518,500
                                         ========= ========  ======== ========

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.

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.



                                      F-14

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note I - Preferred Stock Transactions - Continued

Series A Convertible Preferred Stock - continued

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.

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.

The 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.


                                      F-15

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions

In January 2003, the Company  issued an aggregate  937,568 shares of restricted,
unregistered  common stock for cash proceeds of  approximately  $324,182.  These
sales  were made at a price of either  $0.23 or $0.36  per  share,  which was in
excess of the discounted "fair value" of the Company's common stock based on the
quoted closing price of the Company's common stock on the date of the respective
transaction.  The proceeds of this transaction  were used for operating  working
capital.

In February 2003, the Company issued 384,615 shares of restricted,  unregistered
common stock for cash proceeds of approximately $100,000.  These sales were made
at a price of $0.26 per  share,  which was in  excess  of the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this  transaction  were used to reduce the  Company's  outstanding  long-term
debt.

In March 2003, the Company  issued  972,222  shares of restricted,  unregistered
common stock for cash proceeds of approximately $350,000.  These sales were made
at a price of $0.36 per  share,  which was in  excess  of the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this  transaction  were used to reduce the  Company's  outstanding  long-term
debt.

In March 2003,  the Company  issued an aggregate  966,608  shares of restricted,
unregistered  common  stock to the  Holder  of the  Company's  8.0%  Convertible
Debenture  upon notice of  conversion  of $35,000 of  outstanding  principal and
exercise of a portion of the outstanding  warrant to purchase  350,000 shares of
common stock.  This transaction was valued at $385,000,  or approximately  $0.40
per share,  which was in excess of the discounted  "fair value" of the Company's
common stock based on the quoted closing price of the Company's  common stock on
the date of the respective  transaction.  The cash proceeds of this  transaction
were used to provide working capital and support operations.

In May 2003, the Company issued 1,967 shares of restricted,  unregistered common
stock in payment of  approximately  $1,200 in accrued  dividends  payable on the
Company's  outstanding  Series A Preferred Stock for the quarter ended March 31,
2003.

During the period from July 1, 2003  through  September  30,  2003,  the Company
issued  an  aggregate   2,902,129   shares  of  common  stock,  in  15  separate
transactions,  in  exchange  for the  redemption  of  approximately  $93,500  in
outstanding  debenture  balance  and  approximately  $935,000  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 $317,539 during this time period.

In October 2003, in a separate transaction, the Company sold 2,200,000 shares of
restricted,  unregistered common stock to the Debenture Holder for cash proceeds
of approximately $400,000, or approximately $0.18 per share, which was in excess
of the discounted "fair value" of the Company's common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The cash proceeds of this transaction were used to provide working
capital and support operations.


                                      F-16

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions - Continued

In October  2003,  the Company  issued an aggregate  1,659,847  shares of common
stock,  in  3  separate   transactions,   in  exchange  for  the  redemption  of
approximately   $40,000  in  outstanding  debenture  balance  and  approximately
$400,000 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 $146,189 during this time period.

In October 2003,  the Company  issued an aggregate  37,866 shares of restricted,
unregistered  common  stock in  payment  of  approximately  $16,710  in  accrued
dividends payable on the Company's  outstanding  Series A and Series B Preferred
Stock for the quarters ended June 30, 2003 and September 30, 2003, collectively.

In January 2004, the Company  issued 38,038 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.

During the period  from  January 1, 2004  through  March 31,  2004,  the Company
issued  an  aggregate  2,400,000  shares of common  stock,  in two (2)  separate
transactions,  in  exchange  for the  redemption  of  approximately  $50,000  in
outstanding  debenture  balance  and  approximately  $500,000  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 $321,000 during this time period.

In May 2004, the Company issued 25,260 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.

During the period from April 1, 2004 through June 30, 2004,  the Company  issued
an  aggregate   3,000,000   shares  of  common  stock,  in  three  (3)  separate
transactions,  in  exchange  for the  redemption  of  approximately  $75,000  in
outstanding  debenture  balance  and  approximately  $750,000  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  $35,000 during this time period.  Additionally,  on
June 29, 2004, the Company issued an additional 1,000,000 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-17

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions - Continued

On May 26, 2004, the Company  issued 300,000 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 29,746 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  1,111,112  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 53,908 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.


Note L - 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-18

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note L - Rental Commitments - Continued

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

               Year ended
               December 31,     Amount
               ------------------------
               2005            $166,974
               2006             117,244
               2007              72,643
               2008              68,815
               2007              68,815
                               --------
               Totals          $494,491
                               ========

For the respective  years ended December 31, 2004, the Company paid an aggregate
of $131,804 and $87,826 for rent under these agreements.


Note M - Income Taxes

The components of income tax (benefit)  expense for the years ended December 31,
2004 and 2003, respectively, are as follows:

                                    Year ended     Year ended
                                    December 31,   December 31,
                                        2004           2003
                                    ---------------------------
       Federal:
         Current                    $         -    $        -
         Deferred                             -             -
                                    -----------    ----------
                                              -             -
                                    -----------    ----------
       State:
         Current                              -             -
         Deferred                             -             -
                                    -----------    ----------
                                              -             -
                                    -----------    ----------
         Total                      $         -    $        -
                                    ===========    ==========

As of December 31, 2004,  the Company has a net operating loss  carryforward  of
approximately  $7,850,000 to offset future  taxable  income.  Subject to current
regulations,  components of this  carryforward will begin to expire in 2003. 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.





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                                      F-19

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note M - Income Taxes - Continued

The Company's income tax expense (benefit) for the years ended December 31, 2004
and 2003, respectively, differed from the statutory federal rate of 34 percent
as follows:

                                                      Year ended    Year ended
                                                      December 31,  December 31,
                                                          2004           2003
                                                      --------------------------

Statutory rate applied to loss before income taxes    $(1,128,000)  $  (999,000)
Increase (decrease) in income taxes resulting from:
     State income taxes                                         -             -
     Other, including reserve for deferred tax asset    1,128,000       999,000
                                                      -----------   -----------

       Income tax expense                             $          -  $         -
                                                      ============  ===========

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, 2004 and 2003, respectively:

                                                      Year ended    Year ended
                                                      December 31,  December 31,
                                                          2004           2003
                                                      --------------------------
     Deferred tax assets - long-term
       Net operating loss carryforwards               $  2,669,000  $ 2,900,000
     Deferred tax liabilities - long-term
       Statutory depreciation differences                 (690,000)    (250,000)
                                                      ------------  -----------
                                                         1,979,000    2,650,000
     Less valuation allowance                           (1,979,000   (2,650,000)
                                                      ------------  -----------

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

During the years ended December 31, 2004 and 2003,  respectively,  the valuation
allowance increased (decreased) by approximately $(671,000)and $656,000.


Note N - 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, 2004           December 31, 2003
                           -----------------           -----------------
                           Amount   % of total         Amount   % of total
                          --------- ----------        --------- ----------
Domestic
   Commercial
     Customer A           $       -          -        $ 524,210      24.96
     Customer B                   -          -          463,423      22.07
     Customer C                   -          -          188,546       8.98
     Others               1,827,104      56,26          348,022      16.58
                          --------- ----------        --------- ----------
                          1,827,104      56,26        1,524,201      72.59
                          --------- ----------        --------- ----------



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                                      F-20

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note N - Revenue Concentrations - Continued

                              Year ended                  Year ended
                           December 31, 2004           December 31, 2003
                           -----------------           -----------------
                           Amount   % of total         Amount   % of total
                          --------- ----------        --------- ----------

   Governmental
     Customer D                   -          -          421,290      20.06
     Customer E             698,976      21.52                -          -
     Others                   8,905       0.28           23,663       1.12
                          --------- ----------        --------- ----------
                            707,881      21.80          444,953      21.18
                          --------- ----------        --------- ----------
Foreign
   Governmental
     Customer F             684,340      21.07                -          -
     Others                  28,043       0.87          130,710       6.23
                          --------- ----------        --------- ----------
                            712,383      21.94          130,710       6.23
                          --------- ----------        --------- ----------

     Totals              $3,247,368     100.00       $2,099,864     100.00
                          --------- ----------        --------- ----------


Note O - Selected Financial Data (Unaudited)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2004 and 2003, respectively.

<TABLE>
<CAPTION>
                              Quarter ended     Quarter ended   Quarter ended   Quarter ended   Year ended
                                March 31,          June 30,      September 30,   December 31,   December 31,
------------------------------------------------------------------------------------------------------------
<S>                            <C>               <C>             <C>             <C>            <C>
Calendar 2004
   Revenues - net              $   281,507       $   568,785     $   861,988     $ 1,535,088    $ 3,247,368
   Gross profit                $  (423,626)      $  (676,300)    $   377,181     $  (650,553)   $(1,373,298)
   Net earnings after
     provision for
     income taxes              $(1,188,358)      $(1,155,307)    $     9,552     $  (983,960)   $(3,318,073)
   Basic and fully diluted
     earnings per share        $     (0.02)      $     (0.02)    $      0.00     $     (0.01)   $     (0.05)
   Weighted average
     number of shares
     issued and outstanding     67,769,150        71,148,043      73,673,416      74,616,136     71,814,490

Calendar 2003
   Revenues - net              $   608,437       $   289,551     $   317,729     $   769,280    $ 1,984,997
   Gross profit                $   (66,668)      $  (463,653)    $  (462,483)    $  (254,221)   $(1,247,025)
   Net earnings after
     provision for
     income taxes              $  (300,355)      $(1,232,951)    $(1,200,981)    $  (205,108)   $(2,939,395)
   Basic and fully diluted
     earnings per share        $     (0.01)      $     (0.02)    $     (0.02)            nil    $     (0.05)
   Weighted average
     number of shares
     issued and outstanding     56,638,979        59,294,402      61,683,424      66,253,535     61,202,839
</TABLE>


                                      F-21