UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  FORM 10-QSB/A
                                 SECOND AMENDED


                [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                           THE SECURITIES ACT OF 1934

                  For the quarterly period ended June 30, 2005

  [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
       For the transition period from _______________ to _________________

                                    000-29743
                          ---------------------------
                            (Commission file number)

                        INTERNAL HYDRO INTERNATIONAL INC
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)





            Florida                                           88-0409143
--------------------------------------------------------------------------------
(State or other jurisdiction                   (IRS Employer Identification No.)
of incorporation or organization)


            607 W. MARTIN LUTHER KING Jr. Blvd., TAMPA, FLORIDA 33603
     ---------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                  813-231-7122
                         -----------------------------
                           (Issuer's telephone number)

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

There is a limited trading market for the registrant's  Common Stock. There were
42,991,217  shares of Common  Stock,  and  8,938,960  shares of preferred  stock
issued and outstanding as of June 30, 2005.

Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No

None

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

                                       1
<PAGE>


            INTERNAL HYDRO INTERNATIONAL INC.INDEX TO THE FORM 10-QSB
                     FOR THE SIX-MONTHS ENDED JUNE 30, 2005

                                TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION..................................................3

Item 1. Financial Statements...................................................3

Balance Sheet as of June 30, 2005 (unaudited)..................................3

Statements of Operations for the six months ended
   June 30, 2005 and 2004 (unaudited)..........................................4

Statements of Cash Flows for the six months ended
   June 30, 2005 and 2004 (unaudited)..........................................5

Statements of Stockholders' Deficit for
   the six months ended June 30, 2005 .........................................6



Notes to the Financial Statements........................................7 to 16

Item 2. Management's Discussion and Analysis and Plan of Operation............16

Item 3. Controls and Procedures...............................................27

PART II. OTHER INFORMATION....................................................27

Item 2. Changes in Securities.................................................28

Item 6. Exhibits and Reports on Form 8-K .....................................28

SIGNATURES....................................................................29


                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


                        INTERNAL HYDRO INTERNATIONAL INC
                         (A Development Stage Company)
                                  BALANCE SHEET
                                  -------------
                              As of June 30, 2005

                                     ASSETS
                                     ------

CURRENT ASSETS
      Cash and equivalents                                      $        62
                                                                -----------
                                                                         62
PROPERTY & EQUIPMENT
      Computers & Equipment,(net of accumulated depreciation)        12,366
                                                                -----------

OTHER ASSETS
      Accounts/loan receivable                                        7,000
      Investment - Langley Park                                      95,594
      Investment - Kinetic Energy                                   187,500
                                                                -----------
                                                                    290,094

                   Total Assets                                 $   302,522
                                                                ===========

                       LIABILITIES & STOCKHOLDERS' EQUITY
                       ----------------------------------
CURRENT LIABILITIES
      Accounts payable                                          $    99,570
      Accrued Liabilities                                            20,351
      Due to shareholders                                            84,700
      Notes Payable                                                  45,000
                                                                -----------
                                                                    249,621
OTHER LIABILITIES
      Debt under professional management (Note 4)                   906,879
                                                                -----------
                   Total Liabilities                              1,156,500
                                                                -----------

STOCKHOLDERS' EQUITY
      Preferred stock, $.001 par value, 10,000,000 shares
      authorized 8,897,960 shares issued and outstanding              8,898
      Common stock, $.001 par value, 75,000,000 shares
      authorized 47,294,939 shares issued and outstanding            47,295
      Additional paid-in capital                                  4,683,104
      Unrealized loss on investment                                (795,031)
      Accumulated deficit                                        (4,798,244)
                                                                -----------
                   Total Stockholders' Equity                      (853,978)
                                                                -----------

                   Total Liabilities & Stockholders' Equity     $   302,522
                                                                ===========

            See accompanying notes to unaudited financial statements



                                       3
<PAGE>


                        INTERNAL HYDRO INTERNATIONAL INC
                         (A Development Stage Company)
                             STATEMENT OF OPERATIONS
                             -----------------------
                           Quarter ended June 30, 2005
<TABLE>
<CAPTION>

                                               3 Months        3 Months        6 Months       6 Months         Date of
                                            ended June 30   ended June 30   ended June 30   ended June 30    Inception to
                                                 2005            2004            2005            2004       June 30, 2005
                                             ------------    ------------    ------------    ------------    ------------
<S>                                            <C>              <C>            <C>             <C>             <C>
NET SALES                                    $       --      $       --      $       --      $       --      $       --

COST OF SALES                                $       --      $       --      $       --      $       --      $       --
                                             ------------    ------------    ------------    ------------    ------------

           GROSS PROFIT                              --              --              --              --

SELLING, GENERAL & ADMINISTRATIVE EXPENSES   $    502,294    $    444,759    $  1,002,250    $    568,655    $  3,722,377
RESEARCH & DEVELOPMENT                             26,419          89,750          85,154         114,463         333,830
                                                                                                             ------------

           LOSS FROM OPERATIONS                  (528,713)       (534,509)     (1,087,404)       (683,118)     (4,056,207)
           LOSS ON SALE OF SECURITIES                --              --             --              --            697,237
           INTEREST EXPENSE                          --            25,713           --              --             44,800
                                             ------------    ------------    ------------    ------------    ------------

NET LOSS                                     $   (528,713)   $   (560,222)   $ (1,087,404)   $   (683,118)   $ (4,798,244)
                                             ============    ============    ============    ============    ============

BASIC NET LOSS PER COMMON SHARE              $      (0.01)   $      (0.36)   $      (0.03)   $      (0.43)
                                             ============    ============    ============    ============

DILUTED NET LOSS PER COMMON SHARE            $      (0.01)   $      (0.36)   $      (0.03)   $      (0.43)
                                             ============    ============    ============    ============

WEIGHTED AVERAGE OF COMMON
           SHARES OUTSTANDING                  44,174,424       1,575,763      34,016,070       1,575,763
                                             ============    ============    ============    ============
</TABLE>




            See accompanying notes to unaudited financial statements



                                       4
<PAGE>



                        INTERNAL HYDRO INTERNATIONAL INC
                         (A Development Stage Company)
                             STATEMENT OF CASH FLOWS
                             -----------------------
                  For the quarters ended June 30, 2005 and 2004
<TABLE>
<CAPTION>
                                                                                            Accumulated from
                                                                                           Date of Inception
                                                                                                  through
                                                                      2005           2004     June 30, 2005
                                                                  -----------  -------------  -------------
<S>                                                                 <C>          <C>             <C>
OPERATING ACTIVITIES
    Net Loss                                                      $(1,087,404)   $  (683,118)   $(4,798,244)
      Adjustments to reconcile net loss to cash
        used by operating activities:
        Depreciation expense                                            1,850           --            5,781
        Amortization of Debt discount                                  15,000         25,713         55,000
        Issuance of common stock for services performed               855,988        278,148      3,099,557
        Loss on sale of securites                                        --             --          697,237
        Changes in assets and liabilities
           Increase in accounts payable and accrued liabilities        78,991          7,909        119,921
                                                                  -----------  -------------  -------------

           Cash used by operating activities                         (135,575)      (371,348)      (820,748)
                                                                  -----------  -------------  -------------
INVESTING ACTIVITIES
      Purchase of fixed assets                                    $       (64)   $      --      $   (16,067)
      Cash on proceeds on sale of marketable securities                  --             --          193,388
      Employee advances                                                  --          (12,000)        (7,000)
                                                                  -----------  -------------  -------------

           Cash used by investing activities                              (64)       (12,000)       170,321
                                                                  -----------  -------------  -------------
FINANCING ACTIVITIES
      Proceeds from notes payable                                 $      --      $    60,000    $    60,000
      Proceeds from sale of Common stock                               32,750           --           30,250
      Proceeds from shareholder advances                               64,900        335,000        560,239
                                                                  -----------  -------------  -------------

           Cash provided by financing activities                       97,650        395,000        650,489
                                                                  -----------  -------------  -------------

INCREASE IN CASH AND CASH EQUIVILENTS                             $   (37,989)   $    11,652    $        62

CASH AND CASH EQUIVILENTS, beginning of year                           38,051           --             --
                                                                  -----------  -------------  -------------

CASH AND CASH EQUIVILENTS, end of year                            $        62    $    11,652    $        62
                                                                =============  =============  =============
Non-Cash Investing and Financing Activities:
Conversion of debt to common stock                                $    10,000    $      --      $      --
                                                                =============  =============  =============
Conversion of trade obligations to common stock                   $    32,700    $      --      $      --
                                                                =============  =============  =============
</TABLE>

            See accompanying notes to unaudited financial statements

                                       5
<PAGE>


                       INTERNAL HYDRO INTERNATIONAL, INC.
                          (A Development Stage Company)
                       STATEMENTS OF STOCKHOLDERS' DEFICIT
                     --------------------------------------
                     for the six months ended June 30, 2005
<TABLE>
<CAPTION>

                                                                           Preferred            Accumulated
                                             Common Stock                   Stock     Paid-in Comprehensive  Accumulated
                                           Shares    Amount       Shares    Amount    Capital      Loss        Deficit        Total
                                      -----------  --------  -----------  --------  ---------  ------------  -----------  ---------
<S>              <C> <C>               <C>           <C>      <C>           <C>     <C>            <C>        <C>          <C>
BALANCE DECEMBER 31, 2004              18,218,127    18,218   28,530,750    28,531  3,761,111      (771,362)  (3,710,840)  (674,342)

Shares issued for services              4,834,500     4,835         --        --      419,555          --           --      424,390

Conversion of preferred to
  common stock                         19,591,790    19,592  (19,591,790)  (19,592)

Debt converted to common stock
 March 2005 at $0.10                      372,000       372         --        --       40,548          --           --       40,920

cancellation of shares                    (25,000)      (25)        --        --       (2,725)         --           --       (2,750)

Shares issued for services              3,826,206     3,826         --        --      417,056          --           --      420,883

Debt converted to common stock in
 June 2005 at $0.10 per share              93,458        93         --        --       10,187          --           --       10,280

Conversion of preferred to
 common stock                              41,000        41      (41,000)      (41)       --           --           --        --

Shares issued for cash in May 2005,
  $0.05 per share                         160,000       160         --        --       17,440          --           --      177,600

Shares issued for cash in
 June 2005, $0.12                         182,858       183         --        --       19,932          --           --       20,114

Net Loss                                     --        --           --        --         --            --      1,087,404 (1,087,404)


Unrealized loss on marketable
 securities                                  --        --           --        --         --         (23,669)        --      (23,669)
Total Comprehensive Loss               (1,111,073)

 BALANCE JUNE 30, 2005                 47,294,939    47,295    8,897,960     8,898  4,683,104      (795,031)  (4,798,244)  (853,978)
                                      ===========  ========  ===========  ========  =========  ============  ===========  =========
</TABLE>
            See accompanying notes to unaudited financial statements

                                       6
<PAGE>


                       INTERNAL HYDRO INTERNATIONAL INC.
                         (A Development Stage Company)
    NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 2005.

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

The  accompanying   unaudited  financial  statements  have  been  prepared,   by
management,  in accordance with accounting  principles generally accepted in the
United States for interim  financial  information and the  instructions for Form
10-QSB  and  Regulation  S-B.  Accordingly,  they  do  not  include  all  of the
information and footnotes required by accounting  principles  generally accepted
in the United States for complete financial statements. All adjustments that, in
the opinion of management are necessary for a fair  presentation  of the results
of  operations  for the  interim  periods  have been made and are of a recurring
nature unless  otherwise  disclosed  herein.  The results of operations  for the
three months ended June 30, 2005 are not  necessarily  indicative of the results
that will be realized for the entire  fiscal year.  These  financial  statements
should be read in  conjunction  with the Company's  Annual Report on Form 10-KSB
for the year ended December 31, 2004.

Background and Nature of Business

INTERNAL  HYDRO  INTERNATIONAL  INC.,(formerly  Internal  Command  International
("ICI") was  incorporated  under the laws of the State of Florida on January 21,
2003 (the "Company").

On  January  2,  2004 the  Company  entered  into a merger  agreement  with Home
Services International, Inc. ("HSI"). HSI issued 27,500,000 shares of its Series
A Preferred stock. The Company is a development stage enterprise.  . The Company
intends to manufacture and distribute its  alternative  energy products that use
water  pressure  flow  to  generate   electricity.   In  connection   with  this
acquisition, the company was re-named INTERNAL HYDRO INTERNATIONAL INC.

As a result of the merger transaction with HSI, the former Company  stockholders
obtained control of HSI's voting stock. For financial accounting  purposes,  the
acquisition was a reverse acquisition of HSI by the Company,  under the purchase
method of accounting,  and was treated as a recapitalization with the Company as
the  acquirer.  Accordingly,  the  historical  financial  statements  have  been
restated after giving effect to the January 2, 2004, acquisition of the Company.
The  financial  statements  have been  prepared  to give  retroactive  effect to
January 21, 2003 (date of inception),  of the reverse  acquisition  completed on
January 2, 2004,  and represent the operations of the Company.  Consistent  with
reverse acquisition  accounting:  (i) all of the Company's assets,  liabilities,
and accumulated deficit, are reflected at their combined historical cost (as the
accounting  acquirer) and (ii) the  pre-existing  outstanding  shares of the HSI
(the accounting acquiree) are reflected at their net asset value as if issued on
January 21, 2003.


Basis of Presentation

The  Company  follows  the  accrual  basis  of  accounting  in  accordance  with
accounting principles generally accepted in the United States of America and has
adopted a year-end of December 31.

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


                                       7
<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - continued

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

Going Concern Uncertainty

The  accompanying  financial  statements  have been prepared in conformity  with
accounting principles generally accepted in the United States of America,  which
contemplate  continuation of the Company as a going concern. As reflected in the
accompanying  consolidated  financial statements,  the Company has had recurring
losses and negative cash flows from  operations,  and negative  working capital.
The Company has abandoned it's only operating business segment and is attempting
to raise  capital  seek  acquisition  targets and commence  operations  in a new
business segment. There are no assurances that the Company will be successful in
any of  these  endeavors.  These  factors  raise  substantial  doubt  about  the
Company's  ability  to  continue  as a going  concern.  Without  realization  of
additional  capital, it would be unlikely for the Company to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability  and  classification  of recorded asset  amounts,  or amounts and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue its existence.


Principles of Consolidation

The accompanying  consolidated  financial statements include the accounts of HSI
and its wholly owned subsidiary, ICI. All intercompany accounts and transactions
have been eliminated.


Use of Estimates

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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The  carrying  amount of cash,  accounts  payable,  notes  payable  and  accrued
liabilities, as applicable, approximates fair value due to the short term nature
of these items.


                                       8
<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - continued

Cash and Cash Equivalents

The Company  considers all highly  liquid  investments  purchased  with original
maturities of three months or less to be cash equivalents.

Concentration of Credit Risk

The Company  places its cash in what it believes to be  credit-worthy  financial
institutions.  However,  cash balances may exceed FDIC insured levels at various
times during the year. There were no bank balances  exceeding  insured limits at
June 30, 2005.

Revenue

There was no revenue generated in the quarter ended June 30, 2005.

Income Taxes

Income  taxes are  provided  for  based on the  liability  method of  accounting
pursuant to  Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 109,
"Accounting  for Income  Taxes."  Deferred  income taxes,  if any, are recorded,
using enacted tax rates expected to apply,  to reflect the tax  consequences  on
future years of differences  between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end.

Loss Per Share

The  Company  calculates  earnings  per share in  accordance  with SFAS No. 128,
"Earnings Per Share," which  requires  presentation  of basic earnings per share
("Basic EPS") and diluted earnings per share ("Diluted EPS"). The computation of
Basic EPS is computed by dividing loss available to common  stockholders  by the
weighted average number of outstanding common shares during the period.  Diluted
EPS gives effect to all dilutive  potential common shares outstanding during the
period. The computation of Diluted EPS does not assume  conversion,  exercise or
contingent  exercise of securities  that would have an  anti-dilutive  effect on
earnings.  As of  December  31,  2004,  there were no stock  options and 107,497
warrants outstanding.

Stock Based Compensation

In  1996,  SFAS  No.  123  "Accounting  for  Stock-Based  Compensation,"  became
effective for the Company.  SFAS No. 123, which  prescribes  the  recognition of
compensation  expense  based on the fair  value of  options  on the grant  date,
allows  companies to continue  applying APB 25 if certain pro forma  disclosures
are made assuming hypothetical fair value method, for which the Company uses the
Black-Scholes option-pricing model.

The Company  accounts for employee stock options in accordance  with  Accounting
Principles  Board  Opinion No. 25 ("APB 25"),  "Accounting  for Stock  Issued to
Employees." Under APB 25, the Company recognizes no compensation expense related
to employee  stock  options,  as no options are granted at a price below  market
price on the date of grant.

                                       9
<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - continued

For non-employee stock based compensation,  the Company recognizes an expense in
accordance with SFAS No. 123 and values the equity  securities based on the fair
value of the security on the date of grant. For stock-based  awards the value is
based on the  market  value  for the stock on the date of grant and if the stock
has  restrictions  as to  transferability  a discount  is  provided  for lack of
tradability.   Stock   option   awards  are  valued   using  the   Black-Scholes
option-pricing model.

Advertising

The  Company  expenses  advertising  costs  as  incurred.  The  Company  had  no
advertising expense in the quarter ended June 30, 2005.

Recently Issued Accounting Pronouncements

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure - an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based  Compensation,
to provide  alternative methods of transition for a voluntary change to the fair
value-based  method of accounting  for  stock-based  employee  compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require  prominent  disclosures in both interim and annual financial  statements
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on reported  results.  SFAS No. 148 is  effective  for
financial statements issued for fiscal years ending after December 15, 2002. The
adoption  of SFAS  No.  148 did not  have a  material  effect  on its  financial
position or results of operations.

In January 2003, the FASB issued FIN No. 46,  Consolidation of Variable Interest
Entities,  and amended the  Interpretation  in December  2003. FIN No. 46 states
that companies  that have exposure to the economic  risks and potential  rewards
from  another  entity's  assets  and  activities  have a  controlling  financial
interest  in a  variable  interest  entity and should  consolidate  the  entity,
despite  the  absence  of  clear  control  through  a  voting  equity  interest.
Disclosure  of  significant  variable  interest  entities  is  required  in  all
financial  statements  issued  after  January 31, 2003,  regardless  of when the
variable  interest  was  created.  The  adoption  of FIN No.  46 will not have a
material effect on its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150,  Certain  Financial  Instruments with
Characteristics  of Both  Liabilities  and  Equity.  SFAS  No.  150  established
standards for how a company clarifies and measures certain financial instruments
with  characteristics  of both liabilities and equity.  It requires a company to
classify such instruments as liabilities,  whereas they previously may have been
classified as equity.  SFAS No. 150 is effective  for all financial  instruments
entered into or modified  after May 31, 2003. The Company  anticipates  that the
adoption  of SFAS  No.  150 will not have a  material  effect  on its  financial
position or results of operations.

In  December  2004  the  FASB  issued  a  revised   Statement 123   (SFAS 123R),
"Accounting for Stock-Based  Compensation"  requiring public entities to measure
the cost of  employee  services  received  in  exchange  for an award of  equity
instruments based on grant date fair value. The cost will be recognized over the
period  during which an employee is required to provide  service in exchange for
the award - usually the vesting period.  The Company is evaluating the impact of
this new  pronouncement  and does not expect the effect of  implementation  will
have a significant impact on the Company's financial statements.

                                       10
<PAGE>

NOTE 2 - RELATED PARTY TRANSACTIONS

The Company borrows funds from officers and  stockholders  from time to time. As
at June 30, 2005, the balance of these loans was $84,700.  Currently,  there has
been no repayment  terms  specified  for the  shareholder  loans,  as such,  the
Company has classified the loans as a Current Liability.

The Company borrows funds from officers and  stockholders  from time to time. As
at June 30, 2005, there were no terms for the repayment of these loans.

During the three month period ended June 30, 2005, the Company received loans of
$16,200 from  significant  shareholders to cover operating  expenses and certain
accounts payable. Currently, there has been no repayment terms specified for the
shareholder  loans,  as such,  the Company has  classified the loan as a Current
Liability.

NOTE 3 - NOTE PAYABLE

The Note  Payable  is a 1 year Term,  due April 30,  2005.  The Note  carries an
interest  rate  payable of 12% per annum.  The Note is  Convertible  into common
stock at the  discretion of the Lender,  including  all accrued  interest at the
lesser of $7.50 per share or at a 30% discount to the three  lowest  closing bid
prices for the five days prior to the conversion  date. The Note also includes a
warrant to purchase 100,000 shares of common stock at a price of $5.00 per share
for a period of 5 years.

During the three month period ended June 30, 2005,  the Lender  exercised  their
right to convert a portion of the amount due to common  stock.  On May 19,  2005
the Lender converted $10,000 into common stock. The Company issued 93,458 common
shares to the Lender as compensation for this conversion.

The Company has valued the beneficial conversion feature of this Note Payable at
$60,000.  This  amount was charged as a discount  to the note and  amortized  to
interest expense over a one year period.

NOTE 4 - STOCKHOLDERS' DEFICIENCY

During the year ended December 31, 2003, HSI declared a 1 for 28.9 reverse stock
split.  The number of shares  presented in these  financial  statements has been
retroactively restated for all periods to reflect this reverse stock split.

During the year ended  December 31, 2004,  the Company  declared a 5 for 1 stock
split.  The number of shares  presented in these  financial  statements has been
retroactively restated for all periods to reflect this reverse stock split.

During the year ended December 31, 2002, the Company placed  2,813,180 shares of
its common stock in an escrow account. These shares are contingently issuable as
they  are to be  issued  to  creditors  as part of a plan to  negotiate  Company
obligations  through  an  intermediary.  The  Company  is  attempting  to settle
obligations  by  negotiating  with  creditors  to take  Company  common stock as
payment  for the  obligations.  During the year ended  December  31,  2002,  the
Company had not issued any of these shares to  creditors.  During the year ended
December 31, 2003,  the Company  negotiated a settlement in which 249,905 shares
of common stock were issued out of escrow to settle a creditor  obligation  that
had an original  balance of $65,000.  The settlement was recorded at the trading
value of the  shares on the date of  settlement.  That value was  $299,866.  The
result was an additional  expense of $234,866 charged to operations for the year
ended  December 31, 2003.  During the quarter June 30, 2005, the Company did not
issue any of these shares to creditors.

                                       11
<PAGE>

NOTE 4 - STOCKHOLDERS' DEFICIENCY - continued

On July 29, 2004, the Company entered into a Stock Purchase Agreement ("Purchase
Agreement"),  effective  October 7, 2004,  with  Langley  Park  Investments  Plc
("Langley"),  a corporation  organized under the laws of England and Wales which
is  admitted  to trade on the London  Stock  Exchange  ("LSE") as an  investment
trust.  Pursuant to the Purchase  Agreement,  the Company sold 2,375,000  shares
(post-split)  of its common  stock  ("Company  Stock")  to  Langley  for a total
purchase price of approximately $1,780,000.

Langley paid the purchase price by delivering 882,778 Ordinary Shares of Langley
("Langley  Shares")  to the  Company  with a value of one (1.00)  British  Pound
Sterling  (approximately  U.S.$1.80)  per share.  The Company issued the Company
Stock to Langley.  Both the Company Stock and the Langley  Shares will initially
be placed into escrow, including fifty percent (50%) of the Langley Shares to be
deposited  into  escrow  as  Downside  Price  Protection  (the  "Langley  Escrow
Shares").

The Company  intends to  liquidate  the Langley  Shares  released to it within a
reasonable  period of time  following  their listing on the LSE in order to fund
operations.  Although the parties have agreed upon a value of one (1.00) British
Pound Sterling (approximately  U.S.$1.80 per share) per Langley Share, there can
be no  assurances  that the  Company  can  liquidate  some or all of the Langley
Shares at that price.

On November 3, 2004 the Company sold 441,389 shares of Langley Park  Investment,
(London Exchange:  LPI) for $193,388. This was the first liquidation pursuant to
the Agreement.  These gross  proceeds  represented a loss of $697,237 based upon
the  difference  between the selling price on November 3, 2004 and the Company's
trading price on July 29, 2004.

The  balance of the 441,389  shares  owned by the Company are valued at December
31, 2004 at the market price of the Langley Park  Investments  Plc. as listed on
the London  Stock  Exchange  ("LSE")  with the  difference  being  carried as an
unrealized loss in the equity section of the Company's financial statements.

On  the  two  (2)  year  anniversary  of  the  Purchase   Agreement  ("Two  Year
Anniversary"),  the market value of the Company's  common stock will be compared
to the purchase price of the Company Stock under the Purchase  Agreement" Market
Value" is defined as the average of the ten (10) closing bid prices per share of
the  Company's  common  stock  during  the ten  (10)  trading  days  immediately
preceding the Two Year Anniversary of the Agreement.  If the Market Value of the
Company's  common stock on the Two Year  Anniversary  is the same or higher than
purchase price per share, then at that time, the Company will receive all of the
Langley Escrow Shares.  If the Market Value on the Two Year  Anniversary is less
than purchase price per share,  then for each percentage point decline in value,
the Company must sell a  corresponding  percentage of the Langley  Escrow Shares
back to Langley for nominal  consideration,  up to the maximum number of Langley
Escrow  Shares,  and the balance of the Langley  Escrow  Shares is released from
escrow to the Company.

Internal Hydro  International was approached with the investment by the Langley,
at a time  where the 2 year lock up of the  shares to be issued  was voted on by
the Board of Directors as being  acceptable for purposes of investment given the
stock price and discount  proposed by Langley.  Given that the  escrowed  shares
which  would be held by  Langley  of  IHDR's  shares  in the  fund,  these  were
accounted for in the analysis and date on December 31, 2004, as being  accounted
for as if they would  eventually be sold at the two year mark for the investment
holding period.  At the time of the investment and at the time of the accounting
determination,  it was  believed by the  Companies  management  that the Company


                                       12
<PAGE>

NOTE 4 - STOCKHOLDERS' DEFICIENCY - continued

would meet the criteria as set forth in the Langley  agreement which would allow
the sale of the remaining shares in the fund.


NOTE 5 - BUSINESS SEGMENTS

The Company operates in one business  segment,  the manufacture and marketing of
devices that produce  electrical energy from existing water,  steam, air and gas
flows.


NOTE 6 - COMMON AND PREFERRED STOCK


COMMON STOCK
The  Company's  articles  of  incorporation  authorize  the  issuance  of  up to
75,000,000 shares of common stock, with a par value of $.001.

PREFERRED STOCK
The  Company's  articles  of  incorporation  authorize  the  issuance  of  up to
10,000,000  shares of serial A convertible  preferred stock, with a par value of
$.001.  Series  A  convertible  stock  can be  exchanged  at the  option  of the
stockholder  into  shares of  common  stock at the rate of one share of series A
convertible preferred stock for one shares of common stock at any time after the
first  anniversary  of the original  date of issuance.  The series A convertible
preferred  stock shall rank,  as to dividends  and upon  liquidation  senior and
prior to the  Company's  common stock and to all other classes or class of stock
issued by the Company,  except as otherwise  approved by the affirmative vote or
consent  of the  holders of a  majority  of the  shares of series A  convertible
preferred  stock.  In  addition,  so long as any share of  series A  convertible
preferred stock shall be outstanding,  the holders of such convertible preferred
stock shall be entitled to receive out of any funds legally available,  when, as
and if declared by the Board of Directors of the Company, preferential dividends
at the rate of ten percent (10%) per annum,  payable upon the first  anniversary
date of the  original  issue date,  then  quarterly  with  payment to be made in
either cash or in the  issuance  of  additional  shares of series A  convertible
preferred stock. Such dividends shall be cumulative and begin to accrue from the
original  issue date,  whether or not declared and whether or not there shall be
net profits or net assets of the Company  legally  available  for the payment of
those  dividends.  To date,  no  dividend  has  been  declared  by the  Board of
Directors.  The series A  stockholders  shall be entitled to vote on all matters
requiring a shareholder vote of the Company. Each Series A shareholder of record
shall have one vote for each Series A stock share outstanding


The Company issued  3,826,206  shares of its Common Stock during the three month
period  ended June 30, 2005 for services  rendered to the Company.  The value of
these  services is recorded at $ 420,883  which was based upon the closing price
of the Company's shares at June 30, 2005.

The Company  issued  436,316  shares of its Common  Stock during the three month
period  ended June 30, 2005 for the  forgiveness  of debt to  shareholders.  The
value of these services is recorded at $ 40,250 for the three month period ended
June 30, 2005 which was based upon the cash value of the loans forgiven.

During the period April 1, 2005 to June 30, 2005  shareholders  converted 41,000
Preferred shares into the Company's Common shares on a 1 for 1 basis.

                                       13
<PAGE>

NOTE 7 - COMMITMENTS AND CONTINGENCIES


Prior to the merger of Internal  Command with Home Services,  the Company (HSVI)
had incurred  additional  deficits in cash flow from operating  activities.  The
Company  had  accrued   approximately   $906,879  in   obligations  to  vendors,
consultants and former employees. We are attempting to settle these obligations,
primarily  through the  issuance of common  stock.  Management  believes we will
ultimately settle these obligations for no more than amounts accrued at December
31, 2004. As a part of the Merger Agreement with INTERNAL COMMAND INTERNATIONAL,
INC.,  the then Chief  Executive  Officer of HSVI,  Jay Budd, had and did affirm
that the outstanding debts of HSVI have been properly  structured for management
of the debt  post-merger;  namely,  that the debt was in the  hands of  suitable
professional debt management team, including Fletcher & Associates, and Harry J.
Miller,  PLLC,  that there has been set aside as part of the issued common stock
for obligation and satisfaction of the debt, and that the incoming principals of
ICI will be held  harmless  for this  debt.  The  company in the summer of 2005,
released Harry Miller,  PLLC and Fletcher & Associates from their duties as debt
managers,  taking control of such matters  internally due to the amount of legal
expertise  held. To date,  the shares issued to secure these debts are unissued,
and held by both Harry Miller PLLC in trust,  and with the  company,  should the
need arise for settlement of any such debts, if communication and demand for the
same is made.  To date no such  verified  debt  demands  have been made,  so the
shares are still held in safekeeping. Any settlements will be valued at the fair
value of the stock at the time the  settlement is reached,  or some other amount
as negotiated.

For the year ended December 31, 2002, the Company placed 2,813,180 shares of its
common stock in an escrow  account.  These shares are  contingently  issuable as
they  are to be  issued  to  creditors  as part of a plan to  negotiate  Company
obligations  through  an  intermediary.  The  Company  is  attempting  to settle
obligations  by  negotiating  with  creditors  to take  Company  common stock as
payment  for the  obligations.  During the year ended  December  31,  2002,  the
Company had not issued any of these shares to  creditors.  During the year ended
December 31, 2003,  the Company  negotiated a settlement in which 249,905 shares
of common stock were issued out of escrow to settle a creditor  obligation  that
had an original  balance of $65,000.  The settlement was recorded at the trading
value of the  shares on the date of  settlement.  That value was  $299,866.  The
result was an additional  expense of $234,866 charged to operations for the year
ended  December 31, 2003.  During the quarter June 30, 2005, the Company did not
issued any of these escrow  shares to  creditors.  Management  believes that the
Company  will  ultimately  settle  these  obligations  for no more than  amounts
accrued at June 30, 2005.  However,  the Company has made  settlement  offers to
numerous  creditors.  These  offers are  represented  by a  specified  number of
shares.  Any  settlements  will be valued at the fair  value of the stock at the
time the settlement is reached.

The  Company  has been  advised  a  judgment  is  pending  from a  creditor  for
non-payment of a debt of approximately $43,000. This judgment was apparently out
of a law suit from  Phoenix  Arizona,  as a vendor  law suit  with the  previous
company HSVI.  Notably,  this suit was not disclosed to the management  upon the
reverse merger,  or within the merger  documents  presented to the management of
Internal  Command   International  upon  the  merger.  This  judgment  has  been
domesticated  to Florida,  and was noticed to the company,  however,  actions to
attempt to communicate  with this judgment holder for potential  settlement have
not been successful.  IHDR takes the position that it will attempt to settle the
judgment for the benefit of the company.


                                       14
<PAGE>

NOTE 8 - MERGER TRANSACTION

On January 2, 2004, the Company entered into a merger  transaction with HSI. The
Company  had net  assets  of  $385.  The net  deficit  of HSI was  approximately
$1,034,000 at January 2, 2004. As discussed in Note 1, the Company accounted for
this transaction under the purchase method of accounting,  and it was treated as
a recapitalization with the Company as the acquirer. HSI had office equipment of
approximately  $2,000,  accounts payable and accrued liabilities of $400,000 and
other liabilities of $636,000.

NOTE 9 - INVESTMENTS

During the year ended  December  31,  2004,  the  Company  entered  into a Stock
Purchase  Agreement to acquire  882,778 shares of Langley Park  Investments  Plc
("Langley"),  a corporation  organized under the laws of England and Wales which
is  admitted  to trade on the London  Stock  Exchange  ("LSE") as an  investment
trust.  Pursuant to the Purchase  Agreement,  the Company sold 2,375,000  shares
(post-split)  of its common  stock  ("Company  Stock")  to  Langley  for a total
purchase price of $1,781,250  based on the trading value of the Company's shares
delivered to Langley.  The Company sold one half of its Langley  holdings during
the year ended December 31, 2004.

The Company  currently  classifies  all investment  securities as  available-for
-sale. These securities are presented at their estimated fair value.  Unrealized
gains and losses on such securities,  net of the related income tax effect,  are
excluded  from  earnings and reported as a separate  component of  stockholders'
equity until  realized.  Realized  gains and losses are included in earnings and
are derived using the specific identification method for determining the cost of
securities sold.

  Investment in Langley securities consisted of the following at June 30, 2005:


                                            Gross Unrealized
                            ----------------------        Fair
                            Cost     Gains    Losses      Value
------------------------------------------------------------------
Equity securities        $ 890,625  $      -  ($795,031)    95,594

Proceeds  from  sales of equity  securities  were  $193,388  and gross  realized
(losses)  gains were  ($697,237)  for the year ended December 31, 2004. The fair
value at June 30, 2005 is  determined  based on the trading price of Langley and
translated to U.S. dollars at the exchange rate on June 30, 2005.

During the year ended December 31, 2004, the Company  invested in Kinetic Energy
Systems,  Inc.  ("Kinetic") by issuing  1,250,000 shares of its common stock for
approximately  20% of Kinetic.  The value of the  investment  was  determined to
$187,500 based on the trading price of the Company's common stock at the time of
the agreement.  The Company intends to jointly develop and market  complimentary
technologies with Kinetic.  The Company  classifies its investment in Kinetic as
available for sale and has carried its investment at cost.  Kinetic is a private
company and there is quoted  market price for its  securities.  The Company does
not believe that its  investment  in Kinetic is impaired at June 30,  2005.  The
Company owns 2,000,000 voting  preferred shares of Kinetic Energy Systems,  Inc.
Kinetic has 10,000,000  preferred  shares issued and  outstanding  and 1,000,000
common shares  outstanding.  The Company's  interest in Kinetic is approximately
18%. The Company exercises no management control and therefore,  the cost method
was used.

                                       15
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation.

The following discussion and analysis should be read in conjunction with the our
consolidated  financial  statements  and  related  footnotes  for the year ended
December 31, 2004 included in this Annual Report on Form 10-KSB.  The discussion
of results,  causes and trends  should not be construed to imply any  conclusion
that such results or trends will necessarily continue in the future.


GENERAL

Internal  Hydro  International,  Inc.  ("IHDR" or  "Company")  was  organized on
December 31, 1996 as Tel-Voice Communications,  Inc. as a Nevada Corporation. On
January 6, 2003, we changed our name to Home Services International, Inc. and on
January 13, 2004, the name was changed to Internal Hydro International, Inc. The
Company  was  re-domiciled  to Florida on  February  4, 2004.  We are a publicly
traded  company  listed on the OTC  Electronic  Bulletin  Board under the symbol
"IHDR". Our offices are located at 607 W. Martin Luther King, Jr. Blvd.,  Tampa,
Florida 33603. Our website is www.internalhydro.com.

IHDR is a development stage enterprise.  We intend to manufacture and distribute
alternative   energy   products  that  use  water   pressure  flow  to  generate
electricity.  IHDR  is  currently  finalizing  production  units  of the  Energy
Commander  version Four (EC IV) low impact hydro units.  We are also  finalizing
the development and prove out of the Energy Commander  version Five (EC V) super
efficient low impact hydro units.  The Energy Commander IV (EC IV) is a patented
technology,  utilizing wastewater,  fluid or gas flow from any source where flow
pressure  is  present  to create  electricity.  The  system  takes in the wasted
pressure flow,  where it goes through the heart of the system,  and into pistons
that  create  massive  mechanical  forces,  all of  which  is  transferred  to a
generator creating both electricity,  and optional air pressure,  both being for
direct  use or  storage.  The water or gas then  moves  out of the unit,  to its
original destination,  without added waste. The system is noiseless and emission
free.

IHDR has now entered  into the  production  and  fielding  phase of its business
plan, with an overseas  strategic partner.  IHDR is now centering  activities on
the final  production  plans,  and  production  of a 10 unit fielding of its new
energy  units,  the EC V. These units will be deployed  to  strategic  locations
around  the  country,  and in Europe for  direct  industrial  use and for use in
natural flows such as water pipelines, rivers, aquaducts, and dams.

Initial  production  of the units will be done in Europe with  Internal  Hydro's
joint  venture  partner,  Cm2.  Cm2's  production  facility is located in Terni,
Italy, about one hour north of Rome. The facility encompasses a large 19,000 sq.
meter area with a 7,000 sq. meter production warehouse. With on staff engineers,
marketing and production,  Cm2 is well positioned to handle the Energy Commander
(EC)  systems.  Cm2  manufactures  and  produces  large  industrial   electrical
components for utilities and industries,  including such items as  transformers,
MV  and  LV   electrical   switchboards,   auxiliaries   and  conduits  for  big
transformers, cooling ducts, conduit bars, motors and generators. Cm2 also works
in the area of hydro  technologies for  implementation  of systems to unutilized
water flows,  where the EC units will fill a large role.  Cm2's clients  include
Siemens,  Colgate  Palmolive  Europe,  Alitalia and every large Italian utility,
among others.  Cm2 has already arranged and dedicated  through their engineering
department a proper space in their  800,000 sq. foot  warehouse  for hosting the
final  development and the starting of the production line for the EC generator.
Cm2 has also reached an agreement with Politecnico,  one of the foremost Italian
universities,  for their  endorsement  of the  technology  under a transfer plan
which we think will assist Cm2 in obtaining EU grants and the contribution  from


                                       16
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

the Italian state and from the regional governments.  Cm2 is ISO 9001 certified,
and IQ NET certified for the  production,  maintenance  and  installation of all
electrical  systems,  as well as  maintaining  certifications  in the  same  for
quality control.  RINA (Italian Air and Shipping  Registry),  certifies that Cm2
works in  accordance  with ISO 9001  quality  regulations  in the  making of the
following products -- process -- services:  Planning,  production,  installation
and  assistance  of civil and  industrial  technological  systems for  electric,
electronic and mechanical sectors. We believe that additional manufacturing will
occur in the United States,  with other machining houses and manufacturers,  yet
to be selected and negotiated.

The patent for the base technology is held under a permanent assignment from the
inventor,  Rianey  Nelson.  Other  intellectual  property  patents  on  the  new
technology  will be generated into patent pending  status before  fielding.  All
parties to any  agreement  are bound by the  intellectual  and property  secrecy
agreements.  Additional patents will, in the opinion of management, be generated
from the improvements in the technology.

IHDR has several advantages over all other alternative energy sources available.
The patented Energy  Commander (EC) system  represents the first time in history
that a technology  has been created to use the  positive  displacement  of water
pressure to create mechanical force to create electricity. The advantages of the
EC are numerous.  Primarily,  the system will use 100% of the flow pressure into
the system,  unlike hydro units that are only 30% efficient at best. Second, the
EC units will not take up space;  an EC unit takes up 1/100 the space of a solar
array to gain the same  amount  of  electrical  output.  Third,  the price of EC
system  will be a fraction of the  competition.  Per Kw, the system cost will be
around $150.00 that is 1/10 the usual renewable energy goal. This means enormous
profit margins with the three  available  revenue  streams and more  competitive
market entry. The EC has no direct  competition.  Solar, wind, biomass and large
flow hydro-power  sources are much different than the IHI technology,  and these
alternative energy sources can co-exist.  The advantages that IHI has over these
sources are its cost,  its  flexibility  and its constant  availability.  In the
United States alone, IHDR estimates our technologies will surpass wind-generated
power within three years and exceed solar in four years.  Keep in mind that IHDR
is not  competing  with these  segments,  since our source of power is different
than solar, wind,  geothermal (although the system can use geothermal outlets as
power  sources),  or biomass.  The EC IV  technology  is related to  traditional
hydropower, only in the sense that it can use water flows; however, the flows of
water necessary for hydropower are enormous. Thousands of gallons per second are
required.  Our technology is low flow,  and much less  demanding than hydro.  EC
system optimizes and efficiently uses 100% of the flow.  Hydropower is much less
efficient.  IHDR will be a contributor  to the Renewable  Energy  segment of the
United States Economy. Our technology will help expand that portion of the pie.

The search and demand for  alternative  energy  sources is reaching  the highest
priority  possible,  with many  alternative  energy  initiatives  being proposed
domestically  and  internationally.  IHDR's EC  technology  saves  expenditures,
provides reliable electricity at a cheaper cost than current  alternatives,  and
does so with free flows of wasted water or gas flows.  The need for  alternative
energy is only as great as its reliability and value on a per  kilowatt-hour  of
electricity  basis. The common industry standard in the alternative energy field
is to attempt to beat the cost of  $1,500.00  per  kilowatt of energy  produced.
IHDR will set a new benchmark for that goal in the  alternative  energy industry
and we believe that the Energy Commander System beats that goal of $1,500.00 per
kilowatt of energy produced. The cost of units to provide electricity either for
direct  use or for  storage,  just as  solar  does in  battery  arrays,  will be


                                       17
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

significantly less costly than solar,  biomass,  or wind, by as much as fifty to
ninety  percent per unit cost.  Per kilowatt  cost for the EC is in the $150 per
kilowatt range.

The unique aspect of IHDR's technology is that our energy conversion technology,
the EC System, has no direct competitor. No other technology uses low flow fluid
or gas pressure for the creation of vast amounts of  mechanical  force to create
electricity.  No other  technology has utilized  positive  displacement  of flow
pressure to create electricity.  Solar power depends upon a clear day; wind upon
the  strength of nature at a given  point,  and hydro upon vast amounts of water
flow. EC uses small flows to create  mechanical  force up to a hundred times the
incoming pressure of natural or manmade flows.  These flows are wasted potential
energy  and are  free.  We  harness  it and make it work to  create  electricity
wherever needed.

In today's energy and renewable energy market, the positions of the players have
stagnated.  The renewable  energy market has hinged around the six per cent mark
for a number of years. IHDR is targeting  industries as a whole. We are not tied
to the notion  that our  technology  somehow  has to be seen in the same vein as
solar,  biomass,  or wind. This technology will simply fit where the opportunity
is present in the flows available in a given area, building,  or industrial use.
IHDR is targeting industries with high electric utility costs and access to flow
pressures of gas or fluid, which will run the EC. Wasted flows will give rise to
the target areas.  IHDR will target those who have the need to cut utility costs
in the sectors  identified  with special  emphasis on the  textile,  oil and gas
refining  and  drilling,  home  development,  agricultural,  poultry,  and other
industries, which have communicated the greatest interest in placement of units.
All of the  industries are ones that will either have access to natural flow, be
near man-made flow, which is wasted, or have internal wasted flow after the flow
is used.

IHDR's Energy Commander System will be used in the industrial areas of steel and
metals  manufacturing,  oil and gas  drilling,  oil and gas  refining,  chemical
plants  and  processing,   wood  processing,   paper  and  wood  pulp,   battery
manufacturing, all areas of agriculture and food processing, cement and material
processing,   gas  pipelines,  and  numerous  other  industrial  and  commercial
applications.  The EC technology will have many  applications in rural and third
world areas. In the United States alone,  there are over 70,000 dams that do not
produce  electricity,  but many are  capable  of doing so with no  environmental
impact.  The  technology  has numerous  applications  in third world areas where
ready access to natural flow exists,  and yet is unused.  Such flows as in these
areas  would not  support  conventional  hydropower  systems,  but will  support
constant 24 hour a day power from the EC.

EC will mean huge savings, and potentially,  even payback to municipal,  county,
state and federal  government  facilities.  Lowering or  excluding  power costs,
while giving back potential revenue to governmental entities utilizing the EC to
produce electricity in buildings, compounds, and governmental facilities. IHDR's
technology will have far reaching military aspects,  able to be used by the U.S.
military to help build nations the third world areas where power  projection can
be accomplished by the supplying of power to areas of need. EC will be used as a
power  source for  direct  power  supply  and for  back-up  power  sourcing  for
hospitals,  nursing  omes,  and other  uses where  back up power  generation  is
required.  The  potential  applications  for the EC will only be  limited by the
flows available where they are found.

                                       18
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

We have  prepared a business  model that will  market the EC V system  through a
distributor  network  around  the  world.  Numerous  municipalities,   counties,
manufacturing, textile, petroleum, residential development, and other industries
have entered into  agreements  and intents with the Company for  application  of
these  units.  We also intend to further its  business  plan by  acquisition  of
similar  technologies  and by execution of contracts for future units and rights
to distribution of the technology.

However; since inception,  we have suffered recurring losses from operations and
have been  dependent on existing  stockholders  and new investors to provide the
cash resources to sustain our operations. During the three months ended June 30,
2005,  we reported a loss of $528,713  while a loss of $560,222 was reported for
the three months ended June 30, 2004.

Our long-term  viability as a going concern is dependent on certain key factors,
as follows:

     -    Our ability to continue to obtain sources of outside financing.

     -    Our  ability to increase  profitability  and sustain a cash flow level
          that will ensure support for continuing operations.

ACQUSITIONS OF SIMILAR TECHNOLOGIES

Cm2 Agreement:
-------------

In February  2005,  IHDR entered into a large scale joint venture  agreement for
production,  distribution and sale of its Energy Commander units to the European
Union.   Under  the  performance   based   contract,   Cm2,  an  Italian  Energy
Manufacturing   and  Supply  Company,   will  manufacture  units  in  Italy  for
distribution,  sale,  and  lease  into  Europe.  Cm2  will  supply  engineering,
production, marketing, distribution, and service for the Energy Commander units.
Cm2  believes  they will build and place a minimum of between 300 and 600 thirty
Kw units in Europe in 2006. Under the agreement IHDR pays no significant capital
expenditure, however, it receives revenues in various forms.

Cm2 is a producer and supplier of electrical  systems for European utilities and
industrial  users. Cm2 is positioned to supply Internal Hydro's units for all of
the European  Union for years to come.  Cm2 will be producing  the units under a
revenue sharing and payment license from IHDR. Cm2 believes they will be able to
produce 100 units per week in full production.

Cm2 will  distribute,  and service the units  throughout  Europe through a joint
venture entity.  IHDR shall receive an up front sum of $2,000 to $3,000 per unit
produced  for Europe plus a large  portion of the revenue  stream from all units
placed in Europe,  including  electricity,  renewable energy credits,  and other
readily available credits. Energy credits in Italy are expected to be about 3 to
10 times the  projection of revenue for IHDR units placed in the U.S.  Under the
agreement,  Cm2 will be a  strategic  partner  for  delivery  of the EC units to
IHDR's  domestic US use for less than IHDR could produce the units in the United
States. Due to their extensive  experience in the European energy market,  Cm2's
ability to  produce,  sell,  and  maintain  the  units,  will give IHDR a strong
partner for the EU.

                                       19
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

KINETIC ENERGY
--------------

On July 8, 2004, we announced that we had entered into an agreement with Kinetic
Energy Systems,  Inc. ("Kinetic"),  a privately held Florida Corporation,  for a
strategic  partnership.  IHDR received 20% of the shares of the private  company
with access to license and assist in the  development of the technology  Kinetic
held for  underwater  and over water power  generation.  IHDR  issued  1,250,000
shares of treasury  stock for this  interest.  IHDR  agreed to help  develop the
technology and market it within its resources. Kinetic has several new hydro and
wind based  technologies,  all  patented or patent  pending at this time.  These
include the  Hydrokinetic  Generator;  Offshore Energy  Platform;  KESC Bowsprit
Generator;  and,  KESC  Tidal  Generator.  These  technologies  create  generate
electrical  power or hydrogen  using kinetic  energy from moving water and wind,
utilizing  wind and tides.  The  Hydrokinetic  Generator is at the prototype and
engineering  stage.  The  Offshore  Energy  Platform  is at  the  prototype  and
engineering  stage. The KESC Bowsprit Generator at the prototype and engineering
stage.  The  Bowsprit  is being  designed  for  prototyping  in the dual role of
hydrogen  production.  The  KESC  Tidal  Generator  is at  the  engineering  and
prototype  stage.  KESC is preparing to display the Bowsprit  technology for the
first time at the NERL conference.

To date this  relationship  still exists,  and IHDR will help market and develop
the Kinetic line of production, in Europe and the United States. This support of
Kinetic is tied to IHDR's  capital  ability to do so.  IHDR will help  introduce
Kinetic's products to European entities for development and marketing.

TRITON TECHNOLOGIES:
-------------------

In April 2005, IHDR entered into a future marketing and  distribution  agreement
with Triton Technologies of Reston Virginia. Through this agreement,  Triton has
the rights to market  the Energy  Commander  technology  . Under the  agreement,
Triton took on certain  responsibilities  for the capital  support of the Energy
Commander build out and engineering.  Through the third quarter of 2005,  Triton
had directly taken on the contractual obligations for payment to the engineering
firm APTEC for unit plans and production of the EC IV. IHDR was relieved of such
payments during the period that Triton fulfills its obligations to APTEC, and to
date has paid APTEC  approximately  $40,000 as  reported  to IHDR.  The  primary
purpose of the agreement will be for Triton to develop and implement a strategic
marketing  plan for  industry  awareness  and for sales of the Energy  Commander
under IHDR's control, once units are fielded and able to be displayed. Under the
agreement,  Triton will  receive a portion of the revenue flow from units placed
under its marketing and distribution work. As part of the agreement,  IHDR would
also  receive an equity  position  in Triton  based upon the future  position of
Triton's  public  company.  IHDR was informed by  management  of Triton in June,
2005, that they would be repositioning the assets of Triton,  and this agreement
for marketing and  licensing to a new private  entity in the near future,  which
IHDR did not object to. To date this contract has been fulfilled.

                                       20
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

ETIG
----

On November 3, 2004, we entered into agreement with El Tigre Development (ETIG),
a Florida Corporation, for the purchase of one hundred units of Energy Commander
IV units.  The purchase price of the one hundred units was $2,250,000,  with the
first ten units to cost $50,000 each. The agreement itself had a three year term
and called for the Company and ETIG to share in revenue generated from each unit
beyond the  purchase  price.  For the first ten  units,  revenue is 20% from any
source on the units.  Additional units include 50% revenue.  In exchange for the
initial  ten-unit  purchase,  we are granted rights for placement to ETIG in the
states of Washington,  North  Carolina,  Oregon and Utah.  Upon execution of the
first ten-unit purchase, two lines of credit will become effective. Each line of
credit shall be for  $5,000,000  to our  benefit.  The first line of credit will
entitle  ETIG to place  units in Idaho and Asia.  The second line of credit will
entitle ETIG to place units in South America and Scotland. These lines of credit
were  represented by ETIG to be from financial  houses and resources,  which did
not develop.  The lines of credit were stated to be available for the production
of units, at descending rates of pricing per Energy Commander Unit produced.

As of December  15,  2004,  we have not  received  the  initial  payment for the
ten-unit  order and ETIG,  which  had  renamed  itself  McGregor  Energy,  Inc.,
requested a thirty (30) day  extension for the payment of the initial ten units.
The extension was granted.  This contract was subsequently noticed by IHDR to be
in default,  with no answer being given by ETIG. We have  determined  that there
was no operable or available source of recourse due to the lack of any financial
resources or assets of ETIG, which became defunct in early 2005.

NEW IMPACT
----------

On November 2, 2004, IHDR and New Impact,  LLC, a private Arizona based Company,
entered into a contract for the purchase of energy units from IHDR,  with follow
on rights for  distribution and use of IHDR's  technology.  The initial phase of
the contract  calls for supplying ten units at a purchase  price of $500,000 for
use in New Impact's water treatment facilities and other areas in the Southwest.
This contract has not been funded to date; however, in March 2005, this contract
was absorbed by the later agreement with Triton Technologies of Reston Virginia,
to be the  marketing  and sales  arm of IHDR  when IHDR is in a unit  production
ability.  Even without this contract with New Impact not being funded,  this did
not materially set back IHDR, since other users and application  finders for the
technology were available, namely the contract and strategic agreement with Cm2,
as explained herein. Due to the ability of units to be contracted for and placed
by any using entity, the funding of such contracts is not seen as central to the
business  plan,  since such plan is made around units being  implemented  at the
user level, not through distributors such as New Impact.

LETTERS OF INTENT
-----------------

Throughout  the year, we have  released  news on a limited  number of letters of
intent from potential users of the production units when they are available.  To
date,  all such  potential  users and parties of interest  still want to acquire
units for use once production units of the new version of the unit is available.

                                       21
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

HISTORY OF COMPANY

Tel-Voice Communications,  Inc. ("Tel-Voice") was incorporated under the laws of
the State of Nevada  on  December  31,  1996 to engage in any  lawful  corporate
activity, including, but not limited to, selected mergers and acquisitions. From
1996-2000  Tel-Voice was a development stage company with no business  activity.
On June 30, 2000, Tel-Voice acquired Smartdotcom,  Inc. ("SDC") in a transaction
accounted  for as a reverse  merger.  The Company  retained  the name  Tel-Voice
Communications,  Inc.  SDC had  developed a  technology  that  provides  private
electronic networks for labor unions and integrated  communities,  both of which
include  subscribers of the unions and communities.  SDC intended to provide the
hardware,  software  and  technical  support  required to setup and maintain the
networks;  however,  SDC was never  able to grow the  Company  due to  liquidity
issues.

In December  2002,  we addressed  its liquidity  problems and  discontinued  the
operations of SDC and  determined  that it would abandon this business  plan. On
December  16,  2002,  we closed a stock  for debt  exchange  with its  creditors
effective on December 11, 2002 whereby all of its outstanding debt was converted
to  unregistered  common stock at a  conversion  rate of one (1) share of common
stock for each $0.45 of debt.  In  addition,  on January 10, 2003, a majority of
the  shareholders  approved a reverse split of the 28.9 shares of the old common
stock  for 1  share  of  new  common  stock  effective  January  13,  2003,  the
acquisition of a private  entity name Home  Services,  Inc. and a name change to
Home Services International, Inc.

Home Services  International,  Inc.  (HSVI) intended to act as a holding company
for service businesses related to the home building and home buying that want to
expand into  national  markets.  HSVI  intended to  acquire,  joint  venture and
develop such businesses.

However, HSVI was presented with a business plan for a unique alternative energy
technology by the management of Internal Command  International  (ICI) a Florida
based private  entity.  HSVI felt that the Energy  Commander  technology for low
impact hydro power  production  presented a unique  opportunity.  HSVI saw ICI's
technology as fulfilling a unique niche in the energy market.  Thus, HSVI sought
to acquire the  technology,  and related  expertise  through the reverse  merger
process.

On January 2, 2004,  Internal  Hydro entered into a merger  agreement  with Home
Services  International,  Inc.  ("HSVI").  HSVI issued  27,500,000 shares of its
Series A Preferred  stock to the  shareholders  of ICI. In connection  with this
acquisition,  the  company  was  re-named  Internal  Hydro  International,  Inc.
("IHDR") On February 4, 2004, the company was redomiciled to Florida.

As a result of the merger transaction with HSVI, the former Company stockholders
obtained control of HSVI's voting stock. For financial accounting purposes,  the
acquisition  was a reverse  acquisition  of HSVI,  under the purchase  method of
accounting,  and was  treated  as a  recapitalization  with the  Company  as the
acquirer.

Results of Operations
---------------------

Our first goal was the  perfection of the technology to prove the large scale of
the power potential of the Energy Commander (EC)  technology.  This entailed the
intricacy  of design  and  engineering  of a new style of unit on a much  larger
scale. It required the  acquisition of materials,  fabrication of machined parts


                                       22
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

never before made; the  manufacture  and design of a valve system so unique that
it would qualify as a new intellectual  asset; the assembly of the unit; and the
testing of the unit under pressure  simulation.  This work resulted in the final
production of a unit in late August,  2004 (the Energy  Commander IV - A Model).
The EC IV (A) was a four cylinder  unit,  designed for a four inch feed of water
at 65  p.s.i.  The EC IV (A) was shown to  produce  energy  via its 25  kilowatt
generator,  successfully  under  real  world  conditions.  With  the  successful
completion of the EC IV (A) the company proceeded to design a smaller sized unit
which would  produce  even more power.  The  planning  and design of the variant
model EC IV (B) has now begun.  The EC IV (B) will be an eight cylinder unit 50%
the size of the (A) model  producing  30  kilowatts  at 55  p.s.i.  In the third
Quarter 2005, IHDR chose to follow the new prototype  design for the EC V, which
is an  alternate  design  from the EC IV in line  system,  will be  smaller,  as
powerful, and easier to manufacture than the EC IV system. The new design of the
EC IV uses new parts,  a new  engineering  firm,  new plans and new equipment to
make it smaller and  standardized  for mass  production.  The EC V developmental
prototype,  is  showing  itself to be a fifth of the size of the EC IV,  for the
same power  output and is  projected  to be  displayed,  or fielded in the first
quarter 2005. The new EC V prototype is a twelve  cylinder radial system working
from the same 65 p.s.i.  flow.  From this system the cylinders  work on a common
cam or shaft which is a unique new  technology  in itself,  to then  produce the
mechanical  force or torque  to run a  generator.  The  inlet and  outlet of the
system works through a common shaft system around the device.

COMPARISON  OF THREE  MONTHS  ENDED JUNE 30, 2005 TO THREE MONTHS ENDED JUNE 30,
2004.

Revenue for the three months ended June 30, 2005 and 2004 was $-0-.

General and administrative  expenses for the three months ended June 30, 2005 of
$502,294 increased by $57,535 company to the general and administrative expenses
for the three months ended June 30, 2004 which were  $444,759.  In the last half
of 2004, the management of IHDR developed a plan for addressing  their liquidity
issues.  This  plan  included  minimizing  or  reducing  selling,   general  and
administrative expenses to the maximum extent possible.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2005 TO SIX MONTHS ENDED JUNE 30, 2004.

Revenue for the nine months ended June 30, 2005 and 2004 was $-0-.

General  and  administrative  expenses  for the six months  ended June 30,  2005
($1,002,250)  increased by $433,585.  This  increase was due to the repayment of
loans and the issuance of shares pursuant to a marketing agreement.

LIQUIDITY AND CAPITAL RESOURCES

Our  operating  activities  used cash in the amount of $135,575  for the quarter
ended June 30, 2005 related  primarily to stock  issuances to consultants and an
increase in accounts  payable  and  accrued  liabilities.  We intend to continue
development of the Energy  Commander  systems but will need  additional  private
placements,  debt financing or equity  investment in order to participate  fully
and at the  levels  intended.  There can be no  assurance  that any of the plans
developed will produce cash flows sufficient to ensure its long-term viability.

Prior to the merger of Internal  Command with Home Services,  the Company (HSVI)
had incurred  additional  deficits in cash flow from operating  activities.  The
Company  had  accrued   approximately   $343,000  in   obligations  to  vendors,
consultants and former employees. We are attempting to settle these obligations,


                                       23
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

primarily  through the  issuance of common  stock.  Management  believes we will
ultimately settle these obligations for no more than amounts accrued at December
31, 2004. As a part of the Merger Agreement with Internal Command International,
Inc.  (ICI),  the then Chief  Executive  Officer of HSVI,  Jay Budd, had and did
affirm that the  outstanding  debts of HSVI have been  properly  structured  for
management of the debt  post-merger;  namely,  that the debt was in the hands of
suitable professional debt management team, including Fletcher & Associates, and
Harry J.  Miller,  PLLC,  that  there has been set  aside as part of the  issued
common stock for obligation and  satisfaction of the debt, and that the incoming
principals of ICI will be held harmless for this debt. The company in the summer
of 2005, released Harry Miller, PLLC and Fletcher & Associates from their duties
as debt managers, taking control of such matters internally due to the amount of
legal  expertise  held.  To date,  the shares  issued to secure  these debts are
unissued,  and held by both Harry  Miller PLLC in trust,  and with the  company,
should the need arise for  settlement of any such debts,  if  communication  and
demand for the same is made.  To date no such  verified  debt  demands have been
made,  so the shares  are still held in  safekeeping.  Any  settlements  will be
valued at the fair value of the stock at the time the settlement is reached,  or
some other amount as negotiated.

The  Company  has  incurred  additional  deficits  in cash flow  from  operating
activities.  These  deficits  have  been  funded  from  loans  from  significant
shareholders.  The Company is in discussions with several capital  organizations
with a view to selling more common and preferred  shares as a means of financing
future  capital  needs.  The company  anticipates it will be successful in these
discussions,  however  there  can be no  assurances  that  the  Company  will be
successful in doing so.

OUTLOOK AND PLAN OF OPERATION

During the next  twelve  months,  IHDR's  technology  is ready to enter the full
production phase of its business plan, and  implementation of the new management
structure  for roll  out in the  global  energy  market.  With  the  contractual
arrangement  with Cm2, IHDR has now partnered  with a ready and able partner for
production,  and implementation of the Energy Commander systems.  Given the vast
experience and ongoing  operations of Cm2 in the energy  market,  IHDR will have
significant  production  ability for the EC units. IHDR forecasts that the final
stage units will be made with Cm2, and other domestic  resources for final stage
production  hopefully by the first quarter of 2006.  IHDR will implement the new
radial  system of low impact hydro with Cm2,  for  production  in the  remaining
portion of 2005,  and for  production  of the initial 10 units of the system for
fielding IHDR will also be  implementing  the portion of its business plan which
will call for new personnel to take over certain management  positions,  and the
creation of new positions in order to get ready for direct market  participation
in the  alternative  energy sector,  and for the expansion of the company beyond
the start up phase and into the global and domestic  alternative  energy market.
Included  in this  plan is the  implementation  of new  management  with  energy
experience,  and new board membership of three outside directors, and two inside
directors.  The  addition  of this new board  will also  allow us to create  new
boards  including  an audit  committee,  compensation  committee  and  corporate
governance  committee,  endeavoring  to fulfill the duties and  regulations  set
forth under the Sarbanes-Oxley regulations.

Fourth Quarter 2005:
--------------------
During  this time  frame,  we will  enter into  three  important  phases for the
production  mode and  fielding  of its energy  units,  set to occur in the first
quarter  2005.  First,  we will seek new capital  contribution  for carryover of


                                       24
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

operations  and  production  in Italy  with  Cm2.  This will be done in order to
fulfill basic financial  obligations  such as audit costs,  payroll,  travel and
engineering support for the Italian  operations,  and for final unit development
for  production  with Cm2.  Since we do not have  significant  production  costs
related to the energy unit  production  in Italy of the ten units,  the need for
capital has been kept to a minimum. Cm2 under its agreement pays for all related
costs of  engineering  and production of the unit, as well as some on site costs
for IHDR personnel.  Next is the final  production unit plan for the EC V, which
the board of directors  chose to be the radial system twelve cylinder unit. This
will be  accomplished  through Cm2 on site in Terni,  Italy at their  production
facility. Our personnel, and the prototype unit of the EC V, will be transported
on site for production of the final unit.  With the machining and parts assembly
and plans being completed, the final production value, first unit will be made.

During  this time  period,  we hope to also  identify  and  begin the  selection
process for the new board members to fill out the five member board of directors
as discussed  above. We hope to identify new CEO candidates with the appropriate
public market experience and in the energy or alternative energy market. We will
also be seeking a new CFO candidate with  experience in the energy  industry and
take on new  advisory  board  members with direct  experience  in the energy and
alternative energy area.

First Quarter 2006:
-------------------
During this time frame the final production of the first unit and additional ten
units under the preliminary  production plan should be completed at Terni Italy.
These  units will then be deployed  for us in Italy  under Cm2 at  predetermined
sites,  and to the United  States,  to be deployed at five  locations by IHDR at
predetermined  sites. The units will go under  certification  process by Italian
agency  authorities and in the US by private entities so that they are qualified
for tax and energy  credits.  During  this time period  with the  deployment  of
units,  we hope to also be  expanding  its  management  and  board  for  full on
production  business  plan  operations.  During  the month of January  2006,  we
anticipate  that we will  hold our  annual  meeting  at which  time the board of
directors will be selected,  and the committee  memberships  will be made.  IHDR
will,  with the concurrent  deployment of units,  seek to raise a capital amount
related to its  operations  for the next three  quarters of the year, to include
major  marketing,  certification,   governmental  relations,  and  further  unit
production.  Production  capacity and unit production for the first quarter from
Cm2 is expected to be 40 units by quarters end. One half of these should ship to
the United States for use, with the remaining  portion being used in Europe.  At
this point with the first units being fielded,  revenues should be realized from
each fielded unit, both in Italy and the United States. Additionally,  IHDR will
choose a suitable  production partner during this phase, as additionally  needed
will be pursued using traditional equity financing tools if subsequent  revenues
are not achievable through the course of unit fielding and contracting.

Second Quarter 2006:
-------------------
During this time frame,  we hope that the production  phase of the EC units will
be in full force from Italy, with contracts being sought for unit application in
both Europe and the United States.  At this point, the major marketing effort of
IHDR and Triton should result in future and immediate  contracts for units to be
supplied to industrial and natural flow users. The management team should be now
filled out to include separate offices of the CEO and President,  along with the
CFO, and a vice president of marketing.  The office in Rome should be staffed by
indigenous  personnel,  and should be able to now be a revenue producing section
with units being produced from Cm2, and placed into the European  energy market.


                                       25
<PAGE>

Item 2. Management's Discussion and Analysis and Plan of Operation - continued

At this point,  IHDR will seek  development of other  complimentary  and related
products  through  its  own  research  and  development  arm,  and  through  the
acquisition  of new  technologies.  During this time the main portion for action
will be the conduction and  integration of revenue  streams through the value of
electricity,  the sale of he renewable  energy  credits and the value of the tax
credits.  Significantly,  the  accounting of these matters will vary by not only
the national placement of the units, but by the very locality where it is placed
due to the value of electricity  rates which can vary vastly.  These  accounting
principles will be easier to bill and account for with the tracking system built
into the unit,  however,  the accreditation and certification  process will be a
major mergence into the accounting of IHDR.

Third Quarter 2006:
------------------
We will include continued rollout of the Energy Commander units into the market.
In Europe this will be more easily achieved than in the United States, where the
follow on production  will be conducted  through the strategic  partner found in
the first quarter 2006.

Financial Considerations for Operations:
---------------------------------------
Throughout  the next  quarterly  year, our plan of operation will be conditioned
upon  appropriate  funding,  which shall include the funding of  operations  for
production value,  first run units in Italy, and the build up of the company for
management  and board  membership.  The  management  has attempted to keep these
costs and capital  requirements at a minimum,  through the requirement of Cm2 to
take care of all monetary  obligations in unit production.  The rollout of units
in the United States will require capital expenditures of approximately  $20,000
per first five  units.  The  management  structure  and board  obligations  on a
monetary basis will require  approximately  $50,000 per month for the stature of
the  persons  aligned  for such  positions.  After  the first  quarter  of 2006,
operational  tempo  and  units  being  produced,  should  as  predicted  by  the
management,  be self-sustaining due to the large amount of income that each unit
can derive,  and thus the  financing to be gained upon units being ordered would
more than suffice for the companies operations and unit buildout.

Forward-looking statements

This report contains certain  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all
forward-looking  statements  involve risks and  uncertainty,  including  without
limitation,  the ability of us develop our  technology  and execute our business
plan.  Although  we  believe  the  assumptions  underlying  the  forward-looking
statements  contained  herein are reasonable,  any of the  assumptions  could be
inaccurate,  and therefore,  there can be no assurance that the  forward-looking
statements contained in the report will prove to be accurate.

Off Balance Sheet Arrangements.

The Company's  liquidity has not dependent upon off balance sheet  transactions.
For the  period  ended  June 30,  2005,  the  Company  did not engage in any off
balance sheet transactions.


                                       26
<PAGE>

Item 3. Controls and Procedures

The Company  maintains  disclosure  controls and procedures that are designed to
ensure that  information  required to be  disclosed  in our annual and  periodic
reports  filed with the SEC is  recorded,  processed,  summarized  and  reported
within the time periods specified in the SEC's rules and forms. These disclosure
controls and procedures are further  designed to ensure that such information is
accumulated and  communicated  to our management,  including our Chief Executive
Officer and Principal  Accounting  Officer,  to allow timely decisions regarding
required disclosure.

Based on the most recent  evaluation,  which was completed within 90 days of the
filing of this report,  our Chief  Executive  Officer and  Principal  Accounting
Officer  believes  that the Company's  disclosure  controls and  procedures  are
effective and there have been no significant  changes in the Company's  internal
controls  or in other  factors  that could  significantly  affect  the  internal
controls subsequent to the date of the most recent evaluation.


Craig A. Huffman, our Chief Executive Officer, and Alberto Pastrana,  our acting
Chief  Financial  Officer,  have  concluded  that our  disclosure  controls  and
procedures are appropriate and effective. They have evaluated these controls and
procedures  as of the end of the period  covered by this report on Form  10-QSB.
There were no significant  changes in our internal  controls or in other factors
that could  significantly  affect these controls subsequent to the date of their
evaluation,   including  any  corrective  actions  with  regard  to  significant
deficiencies and material weaknesses.


PART II. OTHER INFORMATION

Item 1. Legal Proceedings


A former  employee and director has  suggested he and several  shareholders  are
threatening  to sue  the  Company  over  breach  of  agreement  relating  to the
company's  refusal to forward certain share  certificates that are alleged to be
owed to them. We do not believe that losses are reasonably possible.  The former
shareholder has since indicated that no action will be forthcoming.

On October 14, 2004, the Clerk in the Circuit Court of the  Thirteenth  Judicial
Circuit of the State of Florida,  in and for  Hillsborough  County Circuit Civil
Division  (Case No.:  04-CA-009272)  sent a letter to the Company  notifying the
Company  that a  Foreign  Judgment  from the state of  Arizona  was  filed.  The
defendant in the case is  Tel-Voice  Communications,  Inc. and the  plaintiff is
Smartcom  Solutions,  Inc. The pending judgement if for non-payment of a debt of
approximately  $43,000.  This  judgment was  apparently  from a lawsuit filed in
Phoenix Arizona,  as a vendor law suit with the previous company HSVI.  Notably,
this suit was not disclosed to the management upon the reverse merger, or within
the  merger   documents   presented  to  the  management  of  Internal   Command
International upon the merger.

Currently,  the Company has no additional  information  and is in the process of
obtaining  details on the date proceedings  began and a description of the facts
underlying the proceedings.  The financial  statement will be amended to reflect
the $43,000 once confirmation is made of the amount and underlying facts.

As of the  date  hereof,  Internal  Hydro is not a party  to any  further  legal
proceedings, and none are known to be contemplated against Internal Hydro.


                                       27
<PAGE>

Item 2 - Changes in Securities


During our quarter ended June 30, 2005, we completed the following  transactions
in reliance upon exemptions from registration  under the Securities Act of 1933,
as amended (the "Act") as provided in Section  4(2)  thereof.  Each  certificate
issued  for  unregistered   securities  contained  a  legend  stating  that  the
securities  have  not  been  registered  under  the Act and  setting  forth  the
restrictions on the transferability and the sale of the securities.  None of the
transactions  involved  a public  offering.  We  believe  that each  person  had
knowledge and experience in financial and business matters which allowed them to
evaluate the merits and risks of our  securities We believe that each person was
knowledgeable about our operations and financial condition.

A total of 547,039  shares were issued to eight  employees and 3,212,500  shares
were issued to two outside consultants for a recognized  compensation expense of
$416,200.  A total of 502,983  shares were issued to eight  outside loans to the
company for a total loan value of $38,000.

During  the  period  January  1, 2005 to June 30,  2005  shareholders  converted
19,591,790 Preferred shares into the Company's Common shares on a 1 for 1 basis.



Item 6. Exhibits and Reports on Form 8-K


Exhibit  31.1  -    Certification  of Chief Executive  Officer of Internal Hydro
                    International, Inc. required by Rule 13a - 14(1) or Rule 15d
                    - 14(a) of the  Securities  Exchange Act of 1934, as adopted
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit  31.2  -    Certification  of Chief Financial  Officer of Internal Hydro
                    International, Inc. required by Rule 13a - 14(1) or Rule 15d
                    - 14(a) of the  Securities  Exchange Act of 1934, as adopted
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit  32.1  --   Certification  of Chief Executive  Officer of Internal Hydro
                    International,   Inc.   pursuant   to  Section  906  of  the
                    Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.

Exhibit  32.2  --   Certification  of Chief Financial  Officer of Internal Hydro
                    International,   Inc.   pursuant   to  Section  906  of  the
                    Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.




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                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Action of 1934,  as amended,  the  registrant  has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                        INTERNAL HYDRO INTERNATIONAL INC.


By:   /s/ CRAIG A. HUFFMAN
 ---------------------------
          Craig A. Huffman
          CHIEF EXECUTIVE OFFICER



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  Report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.




       Signature                   Title                            Date

    /s/ CRAIG A. HUFFMAN
--------------------------
        Craig A. Huffman, Chief Executive Officer     August 29, 2005

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