----

----

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549___________________**FORM 10-KSB**________________________________

ý**                                           ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
  

For the fiscal year ended December31, 2005

  

** ̈                             TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

  

For the transition period from         to

  

Commissionfile number: 0-50912  

**INTERNATIONALAMERICAN TECHNOLOGIES, INC.**(Exact Name Of RegistrantAs Specified In Its Charter)
Nevada88-0225318(State of Incorporation)(I.R.S. Employer    Identification No.)    601 Cien Street, Suite 235 Kemah, TX77565-3077(Address of Principal    Executive Offices)(ZIP Code)
 Registrant'sTelephone Number, Including Area Code: (281) 334-9479

**SecuritiesRegistered Pursuant to Section 12(g) of The Act: Common Stock, $0.0001**

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x No  ̈Indicate by check mark if disclosureof delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of the registrant's knowledge, in the definitive proxyor information statements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB.  ̈At December 31, 2005, the aggregate market value of the 3,823,720 common stock held by non-affiliates of theregistrant was approximately $2,485,418. At December 31, 2005, the registrant had20,135,000 shares of common stock outstanding. Issuer's revenues forits most recent fiscal year: $3,395,151.

Indicatewhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act). Yes   ̈ No x Indicate whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes  ̈ No x
****
 

**TABLE OF CONTENTS**
ItemDescription
Page

**PART I**
ITEM    1.
    
     DESCRIPTION OF BUSINESS
        3  
ITEM    2.
    
     DESCRIPTION OF PROPERTY
        15   
ITEM    3.
    
     LEGAL PROCEEDINGS
        15   
ITEM    4.
    
     SUBMISSION    OF MATTERS TO A VOTE OF SECURITY HOLDERS
        15   
     **PART II**

ITEM    5.
    
     MARKET    FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
        16  
ITEM 6.
    
  MANAGEMENT'S    DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
        16   
ITEM    7.
    
     FINANCIAL STATEMENTS
        18   
ITEM 8.
    
  CHANGES    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
        18   
ITEM    8.A
    
     CONTROLS AND PROCEDURES
        18   ITEM 8.B  OTHER INFORMATION18
     **PART III**

ITEM 9.
    
  DIRECTORS    AND EXECUTIVE OFFICERS OF THE REGISTRANT, COMPLIANCE WITH SECTION 16(A)
        19  
ITEM 10.
    
  EXECUTIVE COMPENSATION
        20   
ITEM 11.
    
  SECURITY    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
        20   
ITEM 12.
    
  CERTAIN RELATIONSHIPS    AND RELATED TRANSACTIONS
        20   
ITEM 13.
    
  EXHIBITS AND REPORTS    ON FORM 8-K
        20   
ITEM 14.
    
  PRINCIPAL ACCOUNTING FEES AND    SERVICES
        21   
 
****
**Cautionary Statement regarding Forward-LookingStatements**

This Annual Report on Form10-KSB of International American Technologies, Inc. (hereinafterthe "Company", the "Registrant" or "IMTG") includesforward-looking statements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. TheRegistrant has based these forward-looking statements on its current expectations andprojections about future events. These forward-looking statements are subject to known andunknown risks, uncertainties and assumptions about the Registrant that may cause itsactual results, levels of activity, performance or achievements to be materially differentfrom any future results, levels of activity, performance or achievements expressed orimplied by such forward-looking statements. In some cases, you can identifyforward-looking statements by terminology such as "may," "will,""should," "could," "would," "expect,""plan," "anticipate," "believe," "estimate,""continue," or the negative of such terms or other similar expressions. Factorsthat might cause or contribute to such a discrepancy include, but are not limited to,those described in this Annual Report on Form 10-KSB and in the Registrant's otherSecurities and Exchange Commission filings. Should one or more of these risks oruncertainties materialize, or should any of our assumptions prove incorrect, actualresults may vary in material respects from those projected in the forward-lookingstatements. For a more detailed discussion of the foregoing risks and uncertainties, see"Risk Factors".

**PART I**

**ITEM 1.DESCRIPTION OF BUSINESS**Back toTable of Contents

**International American Technologies, Inc.**

InternationalAmerican Technologies, Inc., a Nevada corporation, is publicly traded on the pink sheetsunder the symbol IMTG. The Company was incorporated on August 18, 1986 and in connectionwith a stock purchase agreement in between the Company and Hammonds Technical Services,Inc. effective on April 28, 2005, the Registrant changed its name from Unlimited CoatingsCorporation to International American Technologies, Inc. The Registrant is an 81.0% ownedsubsidiary of American International Industries, Inc., a public reporting company underthe Exchange Act with its shares subject to quotation on the OTCBB under the symbol AMIN.

**Description of****Hammonds****Business**

Some of the statements contained in this current reportof International American Technologies Inc., (hereinafter the "Company","IMTG", "We" or the "Registrant"  discuss futureexpectations, contain projections of our operations or financial condition or state otherforward-looking information. On February 28, 2005, the Registrant entered into a StockPurchase Agreement (the "Agreement") to acquire 51% of the capital stock ofHammonds Technical Services, Inc., a privately owned Texas corporation("Hammonds") in consideration for the Registrant or its parent, AmericanInternational Industries, Inc., providing: (i) $1,000,000 in cash to Hammonds for workingcapital; (ii) a secured revolving long-term line of credit in the amount of $2,000,000;and (iii) the Registrant's parent, American International Industries, Inc., issuing145,000 restricted shares of common stock to the Registrant in consideration for a$1,450,000 promissory note. These restricted shares were exchanged for two minority equityinterests in Hammonds owned by third parties, which minority interest were canceled.Pursuant to the Agreement, which closed on April 28, 2005, Hammonds became a subsidiary ofthe Registrant.

**General Background of Hammonds**

Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc.were separate entities and on February 28, 2005 Hammonds Fuel Additives was merged intoHammonds Technical Services. Hammonds manufactures engineered products and chemicals thatserve multiple segments of the fuels distribution, water treatment and utility vehicleindustries. Hammonds' products are marketed by a worldwide network of distributors,manufacturers representatives and original equipment manufacturers. Hammonds was foundedin 1982 by Carl Hammonds and provides the following diverse products and services: 

The treatment of municipal and industrial water is a growing industryin the U.S., as the demand for clean water grows. Hammonds' proprietary solid disinfectiontechnology provides a major alternative to gaseous chlorine used in every phase of watertreatment. Hammonds believes that the areas of drinking water, food processing andindustrial waste treatment present a significant growth potential for Hammonds' watertreatment technology. Hammonds distributed 1.2 million pounds of calcium hypochlorite formunicipal disinfection through its distribution network in 2005 and believes that it willdistribute 2.5 million pounds in 2006. 

Hammonds designs and manufactures fluid handling equipment. Hammondsfluid powered additive systems permit the use of a single battlefield fuel by supplyingboth distribution and tactical additive injectors to all branches of the United Statesmilitary. Hammonds intends to continue to provide additive injection systems to themilitary through sole source equipment long-term contracts. Hammonds manufactures truckmounted injectors with custom blending at the end of the hose for jet fuel and otherproducts such as diesel, LPGN (propane), home heating oil, and bio-diesel. In January2005, Hammonds began a long-term project to install dye injection systems in over eighthundred Canadian and U.S. stationary and truck mounted diesel delivery injectors and iscontinuing this project in 2006. 

Hammonds' fuel additive division produces and markets motor andaviation fuel additives, with Biobor® JF as its primary product, serving the aviation,stand-by power and marine fuel markets. Biobor® JF is one of only two biocides approvedfor use in aviation fuels, but it has also been tested and approved as a preservative formanufactured wood products such as engineered trusses, windows and sheet buildingmaterials. The expanding use of these manufactured wood products should provide a newexpanded market for Biobor® JF since products such as arsenic have been removed from thelist of approved wood preservatives. 

In March 2005, Hammonds started production of an entirely new type ofindustrial utility vehicle called Omni Directional Vehicle ("ODV"). Hammondsbelieves that ODV utility vehicle will establish a new standard for industrial utilityvehicles based on vehicle safety and performance. Hammonds believes that the patented newdesign can be utilized in connection with forklifts, freight terminal tractors, securityvehicles, industrial highway mowers and a full range of aviation ground handling vehicles.Hammonds has produced several prototypes of its new ODV product at its plant in Houston,Texas. Hammonds has entered into license agreements with manufacturers to produce a rangeof vehicles based on its ODV patented technology. In addition, Hammonds has receivedinitial stocking orders for ODVs from distributors which provide for six ODVs and adelivery schedule of a minimum of two ODVs per month for the next twelve months. The totalrevenues of the initial stocking orders and the scheduled delivery orders are estimated toat $2,500,000.
**Description of Hammonds Products and Services**
Water Treatment Technology Systems

Tableted Calcium Hypochlorite Systems: Manufactured by Hammonds underseveral United States and foreign patents, Hammonds industrial and municipal tabletsystems provide water disinfection for a wide range of potable and waste waterapplications. Hammonds pioneered engineered tablet systems and believes that it is wellestablished in the markets for solid chemical disinfection.

Granulated and Powder Blenders: This equipment, for which Hammonds hasseveral patents, is used to blend and inject a variety of hydroscopic materials intopressurized fluid lines. Hammonds believes that this equipment offers competitive featuresrelated to its packaging system, removal of environmental contamination, personnel safety,preservation of product quality and accurate feed rates. Hammonds' dry products blenderequipment can primarily be used in municipal and industrial waste water treatments, foodprocessing, refining and paper manufacture.

Hydrostatic Test Equipment: Hammonds manufactures a variety of test andservice equipment used in manufacturing and servicing pipelines, distribution systems andprocess equipment. This equipment is distributed through municipal water equipmentdistributors and the rental industry.

Hammonds also manufactures and markets a line of granulated and powderblenders under its U.S. patents, which equipment is used to blend and inject a varietyhydroscopic materials into pressurized fluid lines. Hammonds' dry products blenders areused in municipal and industrial waste water treatment, food processing, refining andpaper manufacture.

Fuel Handling Equipment Systems

Fluid Powered Injectors: Hammonds' injector systems are injection pumpsthat are driven and controlled by the flow of product. They utilize a fluid driven motorthat furnishes both power and control to the injector. Requiring no external power, theseinjectors provide accurate proportionate-to-flow injection of up to eight differentadditives, separately or simultaneously. With primary applications in fuel distribution,Hammonds' fluid powered injectors are chosen for aviation fuels for application in fuelsystem icing inhibitors, corrosion inhibitors, conductivity and thermal stabilityadditives.

"Smart" Electronic Injectors: This technology combines fluidpowered technology with electronic process controls for use in data analysis andperformance verification of Hammonds' fuel handling systems. Introduced to the aviationindustry by Hammonds, these innovative systems have given Hammonds a strong marketposition and Hammonds expects to maintain a competitive position in this growing market.

Hypodermic Pump: Hammonds believes that this new technology will play adominant role in a wide range of chemical metering applications. Hammonds believes thatthis is the first entirely new fluid handling technology introduced in over twenty-fiveyears. Its hypodermic pump is expected to contribute increasing revenues to Hammonds' lineof fluid handling products.

In-Tank Vehicle Additive System: The In-Tank system automaticallydispenses additives into vehicle tanks as they are filled with fuel. This system functionswithout power or controls while a variety of performance additives can be blended as thevehicle moves from fuel stop to fuel stop. Hammonds expects that higher energy costs andgrowing demand for alternative blended fuels will continue to increase demand forHammonds' proprietary technology.

LPGN and Natural Gas Blending: Hammonds has a line of injector systemsthat enable new chemicals to be added to ordinary LPGN and natural gas, which will replaceacetylene as fuel in manufacturing processes. Consumers of high volumes of natural gas oracetylene gas are the  target markets for this line of injector systems.

Fuel Polishing: Hammonds distributes fuel handling systems designed to"polish" contaminated fuel in various vehicle tanks. Offered for rent and forsale, these units are distributed to industrial fuel and marine equipment dealersthroughout the United States.

As a result of Hammonds' introduction of data acquisition and transaction data trails,Hammonds believes that its additive systems will continue to utilize the latest in solidstate controls. Hammonds has developed and has commenced production of the secondgeneration of injector systems and believes that these new additive systems should enableHammonds to maintain its competitive market position in this growing market into the nextdecade. 

Additives for General Fuels and Commercial Aviation Fuels

Additives are the only means by which the performance offuels can be enhanced. Higher levels of sophistication in aviation and ground basedequipment will continue to demand additives that can expand performance. Hammonds suppliesadditives for aviation, diesel, gasoline, LPGN and natural gas powered vehicles andequipment.

Biobor® JF Fuel Biocide: In 1991, Hammonds purchasedBiobor® JF, a fuel biocide approved for control of microbial growth in hydrocarbon fuels.Biobor® JF was developed by U.S. Borax in conjunction with major oil companies and theaviation industry as a means of controlling dangerous corrosion and contamination ofaviation fuel as a result of hydrocarbon utilizing micro organisms. For over forty years,Biobor® JF has enjoyed the unique status as the only biocide approved for use in aviationfuels. Currently, only two manufactures are approved and Biobor® JF has continued tocommand the majority of the aviation market. Also widely used in**diesel and heavyfuels of all grades, Biobor® JF is exclusively used by manufacturers such as Boeing,Dessault, Airbus, Lockheed, Cessna, Gulfstream, Learjet, General Dynamics, Pratt &Whitney, Rolls Royce, GE, Cummins,**General Motors, Ford, Caterpillar,DaimlerChrysler and John Deere.

Performance Additives: Hammonds sells performanceadditives including detergents, pourpoint depressants, cetane improvers, lubricity agentsand fuel system icing inhibitors. These products are purchased in bulk from manufacturerssuch as Shell and Union Carbide and are carefully selected to provide a well-roundedfamily of products that compliment the commercial and marine industry, aviation, railroadand off-road equipment market. All such products have trademarked names owned by Hammonds.

Fuel Quality Materials:****Hammonds offers fuel testkits and materials used in**quality control, filter media, water absorptionmaterials and related accessories utilized extensively by aviation, off-road, commercialtransportation, marine and railroad industries.
**Omni Directional Vehicles

Hammonds Omni Directional Vehicle (ODV) is based on around chassis that is driven by two individually powered wheels located at the center axisof the circle. Caster wheels either in the rear of the vehicle at a fixed point, or on atransport tool carriage that moves about the circumference of the chassis, balances thevehicle and allows it to move in any radial direction from a given point regardless of theposition of the "front" of the vehicle**.**Since it is possible to rotate afull****360 degrees without moving off its original position, it can change directionby simply rotating to the desired direction, and then begin moving forward or in reverse. 

Working in conjunction with the ODV's ability to moveprecisely in any direction, a radial hitch moves freely about the entire circumference ofthe vehicle. The radial hitch provides a connection point to which a wide range ofimplements and tools can be attached including tow bars for aircraft, plows and bucketsfor materials excavation, forks for materials handling and accessories such as rotarybroom, sweepers, vacuums and spreaders.

Hammonds believes that its newly-developed line of ODVshas created******an entirely new class of industrial vehicles presenting Hammondswith an opportunity to reshape the way multiple industries move equipment and materials.

The ODV utilizes the most current closed loophydrostatic technology. Integral dynamic and parking brakes, dual speed wheel motors anddigitally controlled pumps utilize sophisticated controls that offer engineering a widerange of options in delivering features to the customer. Electric power will play adominant role in future propulsion of industrial vehicles and Hammonds' ODVs are ideallysuited to electric power. With plans to provide munitions loaders for the Joint StrikeForce aircraft as well as current aircraft in the**U.S. inventory, Hammonds believesthat the sophistication level of its ODV will grow and enable it to meet the precisehandling requirements in multiple targeted industries.

**Markets Hammonds Operates In**

Water Treatment Market

*Demand for Clean Water.* It isestimated three percent of the world's water is fresh water, most of which is in the formof ice and snow. It is further estimated that approximately 0.6 percent of all the world'swater is used by humans for various purposes, including agricultural uses. Only some ofthis water can be used again, after purification treatment. About 70 percent of all freshwater is used for irrigation, and most of this cannot be recycled. In the U.S. about 30percent of all irrigation water is groundwater pumped from the High Plains aquifer.Approximately 20% of the fresh water goes to industrial uses, leaving only about 10% fordomestic drinking, cooking, and sanitation. 

Accordingly, the purification and treatmentof municipal drinking water and wastewater is a worldwide concern. The water treatmentmarket is highly fragmented, consisting of many companies involved in various capacities,including companies that design fully integrated systems for processing millions ofgallons of water for municipal, industrial, and commercial applications. Demand for watertreatment has continued to grow due to economic expansion, population growth, scarcity ofusable potable water, concerns about water quality and regulatory requirements. Drinkingwater, regardless of its source, may contain contaminants that can affect the health ofconsumers.

Although municipal agencies and waterutilities in the United States are required to provide drinking water which complies withthe U.S. Safe Drinking Water Act, the water supplied to homes and businesses frommunicipalities and utilities may contain high levels of bacteria, toxins and parasites, aswell as high levels of chlorine used to eliminate contaminants. The importance ofeffective water treatment is critical from a health concerns standpoint due to the factthat impure water can impair consumers' confidence in food products, and dischargeviolations can result in significant fines and penalties from regulatory agencies. 

*Existing Water Treatment Systems.*In a typical water treatment facility, the first step adds to the raw incoming water asubstance which causes tiny, sticky particles (called "floc") to form - theseattract dirt and other particles suspended in the water. This process of coagulationresults in the heavy particles of dirt and floc clumping together and falling to thebottom. These heavier particles form sediment which is siphoned off, leaving the clearerwater, which passes on to filtration. The most common filtration method is known as"slow sand" or sand-anthracite, in which the water flows into large shallow bedsand passes down through layers of sand, gravel and charcoal. The final process isdisinfection, which is intended to kill bacteria or other microorganisms left in the waterand leave a residual to keep the water safe through the delivery pipes to the customer.Chlorine is the most commonly employed disinfectant, although chloramine, ozone, andultraviolet (UV) are also used. Hammonds manufactures under several U.S. and foreignpatents tableted calcium hypochlorite systems which provide water disinfection for a widerange of potable and waste water applications. Today's trend in water treatmentfiltration, due to the higher demands for water and the reduction in clean or relativelyclean source waters, is to clarify and heavily filter all municipal water supplies. Thesmaller municipalities will also be required to meet the added water quality goals of thelarger systems and will require the infrastructure to do so. Smaller municipalitiesordinarily do not have the technical or financial resources required to design build andoperate systems that will meet the new water quality criteria. 

Fuel Handling Equipment Market

Hammonds manufactures a wide variety of fluid injectorsystems which are injection pumps that are driven and controlled by the flow of product.They utilize a fluid driven motor that furnishes both power and control to the injector.Requiring no external power, these injectors provide accurate proportionate-to-flowinjection of up to eight different additives, separately or simultaneously. With primaryapplications in fuel distribution, Hammonds' fluid powered injectors marketed to thegeneral aviation industry and the U.S. military for application in fuel system icinginhibitors, corrosion inhibitors, conductivity and thermal stability additives. Hammonds'fuel handling equipment provides this market with an advanced means of blendings additivesand chemicals. 

Fuel Additives Market

Fuel additives are the onlymeans by which the performance of fuels can be enhanced. Hammonds believes that higherlevels of demand by the aviation and ground based equipment industry will continue togrow, with increased levels of performance from fuel additives. Hammonds manufacturesand/or markets additives for aviation, diesel, gasoline, LPGN and natural gas poweredvehicles and equipment. Governments worldwide are legislating specifications regarding thefuel itself and engine design. Today's advanced fuel engines are far cleaner than theengines of prior decades. Unfortunately, even today's engines are not clean enough to meetcurrent stricter air pollution regulations. Diesel fuel engines can become ultra-clean.Meeting the environmental challenges will require extensive research on clean-fueltechnology. Research in this area is currently being sponsored by government agencies,major engine companies, truck and plane manufacturers, automobile makers, catalystproducers and, for fuels, oil refining companies and their technology suppliers. LargeFortune 500 companies, as well as small, emerging technology companies are investinghundreds of millions of dollars in research and development worldwide on clean-fueltechnologies. 

Hammonds manufactures its Biobor® JF fuel additive for sale to thegeneral and military aviation industries. Biobor® JF provides a means of controllingdangerous corrosion and contamination of aviation fuel as a result of hydrocarbonutilizing micro organisms. Biobor® JF is one of only two biocides approved for use inaviation fuels. Currently, only two manufactures are approved and Biobor® JF hascontinued to command the majority of the aviation market. Also widely used in**dieseland heavy fuels of all grades, Biobor® JF is used by manufacturers such as Boeing,Dessault, Airbus, Lockheed, Cessna, Gulfstream, Learjet, General Dynamics, Pratt &Whitney, Rolls Royce, GE, Cummins,**General Motors, Ford, Caterpillar,DaimlerChrysler and John Deere.

Hammonds also markets performance additives including detergents,pourpoint depressants, cetane improvers, lubricity agents and fuel system icinginhibitors. These products are purchased in bulk from manufacturers such as Shell andUnion Carbide and are carefully selected to provide a well rounded family of products thatcompliment the commercial and marine industry, aviation, railroad and off-road equipmentmarket. All such products have trademarked names owned by Hammonds.****Hammonds offersfuel test kits and materials used in**quality control, filter media, waterabsorption materials and related accessories utilized extensively by aviation, off-road,commercial transportation, marine and railroad industries.

**Industrial Utility Vehicle Market (ODV)**

Aviation: It is estimated that the aviation industrywill require approximately 100,000 ground support vehicles during the next five years.Hammonds believes that the aviation  industry is undergoing electrification andexpansion into regional jet service in addition to now facing a depleted and worn fleet asa result of world political and economical conditions over the past three years.
Fork lifts: This fundamental industrial tool represents the largestsegment of industrial vehicle demand with an annual production of of more than 160,000units during the past year. Hammonds believes that the technology and advanced engineeringfeatures of its ODV  represents an advance in the fork lift industry.

Utility Tractors: Skid steer utility vehicles used for earth and snowhandling compose an annual unit production of over 16,000 units. A large percentage ofthese tractors are used for snow management as well as general excavation and bulkmaterial handling, and the ODV is being marketed to this industry.

Freight Trailer "Mules": Modified tractors are used to movetrailers at major terminals as they are loaded for transport. Two major manufacturersdominate this market delivering approximately 3,000 units per year. Hammonds believes thatit will also be able to successfully compete for this market.

Security/Law Enforcement: National security has generated a uniqueopportunity for the ODV since it can provide high visibility and radial vision in a verylimited space. Requirements at airports, port, bridges and other high risk locations aredemanding now methods of patrol and observation.

Each of the  major classifications of equipment can be segmentedinto several categories. A fundamental****benefit of the ODV is the diversity of themarkets and industries it is capable of serving. In each segment of each majorclassification, Hammonds believes that there are distinct market boundaries providing abroad base of opportunity for the ODV product line. 

**Hammonds Business Strategy**

Since its inception, Hammonds strategy has been to grow as a providerof new technology.  Hammonds continues to expand its scope as a leader in serving thefuels, water treatment and utility vehicle industries. It also believes that it willexperience growth in sales of water treatment products, the addition of new pumping anddispensing technologies,  and expansion of fuel additive applications and production.With its development of the Omni Directional Vehicle in  addition to its otherproducts and services, Hammonds continues to experience revenue growth with an expandingline of products and services for multiple markets, sectors and industries.

Hammonds believes that future growth and profitability are attainablethrough careful management of corporate assets including:

• Diverse background in design, manufacturing and sales ofmaterials handling equipment;• Leadership in aviation fuels treatment for both commercial and military uses;• Strong marketing alliances with major industries and organizations including ArchChemical, CSX Railroad, Exxon/Mobil, BP Aviation, Chevron(Texaco), Tomco, KopCoat, U.S.Army, U.S. Air Force, Defense Energy Supply and Lockheed Martin;• Introduction and continued development of the ODV, providing significant growthpotential;• Continued development of an extensive network of distributors and originalequipment manufacturers;• Patented, proprietary technology in markets with high growth potential; • High profile visibility with broad based industries such as aviation, petroleumdistribution, water treatment and utility vehicles; and• Ability to secure additional debt or equity financing at terms and conditionssatisfactory to the Registrant.

**Competition**

The markets in which Hammonds operates are highlycompetitive. We compete in several of our products and services lines against manycompanies in fragmented, highly competitive markets and we have fewer resources than someof those companies. Our business competes in the areas of water treatment technology, fuelhandling equipment, fuel additives and industrial utility vehicles principally on thebasis of the following factors: product quality and specifications (water treatmenttechnology and fuel additives); customized design and technical qualifications (fuelhandling equipment and industrial utility vehicles); reputation, technical expertise andreliable service (fuel additives and fuel handling equipment). Competitive pressures andother factors could cause us additional difficulties in acquiring market share or couldresult in decreases in prices, either of which could have a material adverse effect on ourfinancial position and results of operations. 

Hammonds faces competition in the watertreatment technology market from competitors offering similar equipment. Hammondstechnology competes mainly against methodologies that continue to evolve as environmentaland economic issues force the water treatment industry to continuously seek new and moreeffective ways to purify a diminishing supply of usable water. Hammonds holds multiplepatents marketable in a variety of current and emerging disinfection methods includingsolid tablet, granular and liquid chlorine. Hammonds main competitors are PPG Industriesand Arch Chemical, both of which companies market a packaged water treatment system andhave far greater financial and other resources than the Registrant.

Among our competitors are some of the world's largestchemical and water treatment companies and major integrated companies that have their ownraw material resources and far greater financial resources. Hammonds will compete withnumerous well-established water treatment providers, fuel additive and chemical productscompanies, fuel handling equipment companies and industrial vehicle manufacturing andmarketing companies, many of which possess substantially greater experience, financial,marketing, personnel and other resources than Hammonds.  

Hammonds believes that it is one of the only fuel handling equipmentmanufacturers presently offering new proprietary designs. Other providers, Hammondsbelieves, sell new versions of systems based upon designs that were developed thirty andforty years ago. Price is a powerful incentive in this industry, however, and performancewith low installation costs will continue to drive customer demands. Hammonds believesthat Gammon Technical Services and Lubrizol are its main competitors in its fuel handlingequipment business. There are a number of small competitors that use non-proprietarytechnology. Hammonds' fuel handling products are focused on unique market segments.Hammonds believes that its injectors are most successful in markets where electrical powerand or metering equipment is not available. Hammonds has been a sole-source vendor for theUnited States Air Force and Army since 1985.

In the fuel additive market, Hammonds developed additiveblending, introducing a fluid powered system that has been widely accepted in military andgeneral aviation. The U.S. military has accepted the Hammonds' injectors as its "solesource" for rapid deployment combat and terminal pipeline injection. This hasprovided Hammonds with contracts for these products and it believes a competitiveadvantage compared to other equipment manufacturers that cannot meet the requiredspecifications.

Biobor®JF is a fuel biocide marketed to the aviation,off-road vehicle and stand-by power generation industries and is registered by the UnitedStates Environmental Protection Agency as a fuel biocide. (EPA 65217-1). Biobor®JF is oneof only two biocides approved for use in aviation jet fuel. Competition for the jet fuelmarket is limited to Kathon FP, a product of Rohm and Haas. Kathon FP is not approved foruse in some parts of the United States. Biobor®JF has no geographical limitations and isused throughout the world as a primary choice by operators of turbine fuel aircraft. Thereare a host of other manufacturers producing fuel biocides for diesel and other hydrocarbonbased fuels, with Angus Chemical being one of the largest. 

Hammonds' Biobor® JF fuel biocide is approved for controlof microbial growth in hydrocarbon fuels. The Biobor® JF product, a fuel additive, iswidely recognized as a standard for control of fuel-born microbial growth and has beenwidely accepted in the aviation, marine and power generation industries. Hammonds hasestablished a very competitive position with the Biobor® JF product, selling to suchmajor customers as Boeing, Dessault, Airbus, Lockheed, Cessna, Gulfstream, Lear Jet,General Dynamics, Pratt & Whitney, Rolls Royce, GE, Cummins, General Motors, Ford,Caterpillar, DaimlerChrysler and John Deere. Hammonds does not believe that any otherproduct is as accepted in the market as its Biobor® JR. While Biobor® JF is one of onlytwo biocides approved for use in aviation fuels, it has also been tested and approved as apreservative for manufactured wood products such as engineered trusses, windows and sheetbuilding materials. The expanding use of these manufactured wood products should provide anew expanded market for Biobor® JF since products such as arsenic have been removed fromthe list of approved wood preservatives. Hammonds believes that it enjoys strong marketposition in the aviation fuel additive market. Several other competitors have entered thismarket with limited success. There is considerable competition in the field of fuelbiocides.

The aviation industry has begun to move from engine driven to electricpowered equipment. Rechargeable battery powered vehicles promise more efficiency, lessmaintenance and cleaner air. A majority of new equipment in the aviation industry is basedon electric power. Airlines are eagerly seeking new products and ideas. Competition issignificant because much of the competitors' equipment is virtually similar. However,Hammonds believes that its ODV has better features and can move faster, safer, smootherand with easier use and operation. 

Many of our competitors have achieved significant national brand nameand product recognition and engage in extensive promotional programs. Moreover, certain ofour products and services use technology that is widely available. Accordingly, barriersto entry, apart from capital availability, may be low in certain product segments of ourbusiness, and the entrance of new competitors into the industry may reduce our ability tocapture improving profit margins in circumstances where capacity utilization in theindustry is increasing. Hammonds' ability to compete successfully will depend on oursuccess at penetrating each targeted market with our products and services, marketacceptance of its products and services, our ability to license and develop new andimproved products, and our ability to develop and maintain distribution networks. Therecan be no assurance that Hammonds will be able to compete successfully, that its productswill continue to meet with customer approval, that competitors will not develop and marketproducts that are similar or superior to our products or that Hammonds will be able tosuccessfully enhance its products or services.

**Production Facilities**

Hammonds' facilities are located on 10 acres of land in Houston, TX and include a104,000 square foot industrial manufacturing, production, warehousing and distributionplant that also serves as Hammonds' territorial sales office. The real property and plantare owned by the Company and leased to Hammonds at a monthly rental of $25,000. Thisfacility also has a subtenant that leases approximately 24,000 square feet at a monthlyrental of $8,000. In addition, Hammonds maintains an executive office facility in HarrisCounty, Houston, TX. The Houston, TX facility has sufficient production capacity to meetthe Company's anticipated needs for product for the foreseeable future. 
**Materials and Principal Suppliers**
Hammonds' additive systems are assembled using fabricated parts fromHammonds' facility and machined parts manufactured in our in-house machine shop. Lightsheet metal working equipment were added to our fabrication capacity in 2005. Hammondsperformance additives, including detergents, pourpoint depressants, cetane improver,lubricity agents and fuel systems icing inhibitors, are produced by Hammonds from productsthat are purchased in bulk from manufacturers such as Shell and Union Carbide.

The ODV utilizes three main propulsion components: wheel drives,hydrostatic pumps and the engine or electric motor that powers the system. A broad rangeof manufacturers offer equipment of this type making sourcing of primary componentsselective and competitive.

**Dependence on Major Customers**

Hammonds depends on several major customers, specifically the U.S. Army  and Air Force, the major customer for Hammonds fuel additive products. Hammondsother significant customers include Arch Chemical, CSX Railroad, Exxon/Mobil, BP Aviation,Chevron/Texaco, Tomco, KopCoat, Defense Energy Supply and Lockheed Martin. If any of thesemajor industrial or governmental agencies terminated its relationship with Hammonds,whether as the result of technological advances by competitors, or otherwise, the businessoperations and financial condition of the Registrant could be adversely effected.
**Patents, Trademarks And Licenses and Other Intellectual Property**
Hammonds' products are covered by various United States patents andpatents pending. At present, Hammonds owns three patents covering various fuel additiveblending applications. In addition, Hammonds owns six patents covering its water treatmenttechnology. Its new Omni Directional Vehicle is covered by five patents related to design.

**Employees**

As of December 31, 2005, Hammonds had 46 full time employeesincluding Carl Hammonds. No employees are covered by a collective bargaining agreement.Hammonds management considers relations with its employees to be satisfactory.

**Environmental Laws and Regulations**

Hammonds is required to comply with therules and regulations promulgated by the U.S. Environmental Protection Agency (EPA),pursuant to the Environmental Protection Act. The original EPA registration for Biobor®JF included extensive testing in order to establish any potential adverse effects onpersonnel or the environment. The use of certain chemicals and other substances is subjectto extensive and frequently changing federal, state, provincial and local laws andsubstantial regulation under these laws by governmental agencies, including the EPA, theOccupational Health and Safety Administration, various state agencies and county and localauthorities acting in conjunction with federal and state authorities. Among other things,these regulatory bodies impose requirements to control air, soil and water pollution, toprotect against occupational exposure to chemicals, including health and safety risks, andto require notification or reporting of the storage, use and release of certain hazardouschemicals and substances. Hammonds provides all required label warnings and instructionsfor the handling of its fuel additive products. Hammonds believes that it is insubstantial compliance with all laws and regulations governing its material businessoperations and has obtained all required licenses and permits for the operation of itsbusiness. There can be no assurance that Hammonds in the future will be able to complywith, or continue to comply with, all current or future government regulations in everyjurisdiction in which it will conduct its material business operations without substantialcost or interruption of its operations, or that any present or future federal, state,provincial or local environmental protection regulations may not restrict Hammonds'present and possible future activities. In the event that Hammonds is unable to complywith such requirements, Hammonds could be subject to substantial sanctions, includingrestrictions on its business operations, monetary liability and criminal sanctions, any ofwhich could have a material adverse effect upon Hammonds' business. However, Hammonds'believes that it is in full compliance with all present environmental rules andregulations and that it should be able to remain in compliance in the future.

**Risk Factors**

Investing in our common stock will provide an investor with an equityownership interest. Shareholders will be subject to risks inherent in our business. Theperformance of our shares will reflect the performance of our business relative to, amongother things, general economic and industry conditions, market conditions and competition.The value of the investment may increase or decrease and could result in a loss. Aninvestor should carefully consider the following factors as well as other informationcontained in this annual report on Form 10-KSB. 
*This annual report on Form 10-KSB also contains forward-lookingstatements that involve risks and uncertainties. Our actual results could differmaterially from those anticipated in the forward-looking statements as a result of manyfactors, including the risk factors described below and the other factors describedelsewhere in this Form 10-KSB.*
RISK FACTORS RELATED TO OUR BUSINESS

Dependence Upon Affiliate for FundingThe Registrant completed the acquisition of 51% of Hammonds on April 28, 2005. In order tosuccessfully grow Hammonds business and meet Hammonds plans to increase its market sharefor its products and services, the Registrant has been and continues to be dependent uponthe funding from its parent, American International Industries, Inc. (OTCBB:AMIN) and theparent's ability to secure and maintain its existing $2,000,000 revolving credit line forHammonds. We presently estimate that Hammonds will need approximately $1,500,000 inadditional financing in order to complete development of  Hammonds' ODV and expandHammonds products and services in water treatment technology systems, fuel handlingequipment systems, additives for general fuels and commercial aviation fuels. TheRegistrant believes that additional debt and/or equity financing will be available atterms and conditions acceptable to the Registrant. However, there can be no assurance thatunforeseen events, such as the length of time necessary to generate market acceptance ofthe ODVs,  any unexpected material increased development costs, and the generaleconomy in the markets where Hammonds operates, may result in an inability to securenecessary additional financing at satisfactory terms and conditions, if at all. 
**We may experience adverse impacts on our results of operationsas a result of adopting new accounting standards or interpretations.Our implementation of and compliance with changes in accounting rules, including newaccounting rules and interpretations, could adversely affect our operating results orcause unanticipated fluctuations in our operating results in future periods. For example,we are required by the Sarbanes-Oxley Act of 2002 to file annual reports and quarterlyreports disclosing the effectiveness of our internal controls and procedures. Although webelieve our internal controls are operating effectively, and we have committed internalresources to ensure compliance, we cannot guarantee that we will not have any materialweaknesses as reported by our auditors and such determination could materially adverselyaffect our business or significantly increase our costs in order to establish effectivecontrols and procedures. 

CompetitionWhile we believe that we are competitive and have an established presence in our watertreatment technology systems, fuel handling equipment systems, additives for general fuelsand commercial aviation fuels business sectors, we may facesignificant competition in our efforts to market and sell our new ODV. Further we couldface competition from our customers, if they determine to produce and use the products wepresently sell in our water treatment technology systems, fuel handling equipmentsystems, additives for general fuels and commercial aviation fuelsbusiness sectors. Many of our customers arewell-established and possess far greater financial, technical, human and other resourcesthan does the Registrant.

We will compete against many companies in fragmented,highly competitive markets and we have fewer resources than some of those companies. Ourbusiness sectors compete principally on the basis of the following factors: productquality and specifications (water treatment technology and fuel additives); customizeddesign and technical qualifications (fuel handling equipment and industrial utilityvehicles); and reputation, technical expertise and reliable service (fuel additives andfuel handling equipment). Competitive pressures, including those described above, andother factors could cause us additional difficulties in acquiring and maintaining marketshare or could result in decreases in prices, either of which could have a materialadverse effect on our financial position and results of operations. From time to time, theintensity of competition results in price discounting in a particular industry or region.Such price discounting puts pressure on margins and can negatively impact our ability togenerate an operating profit. 
**Development efforts for our new ODV product line are dependentupon factors outside of our control, and upon successful completion of development andmarket acceptanceWe have devoted significant financial and other resources to the development of ournew Omni Directional Vehicle (ODV). We are dependent upon the ability of the third partymanufacturers and subcontractors of the ODV components and complete units and for them toto successfully complete manufacturing of the units in a timely manner, with the featuresthat are required, in order for us to be able to commercially exploit our development.Hammonds believes that the patented new design can be utilized in connection withforklifts, freight terminal tractors, security vehicles, industrial highways mowers and afull range of aviation ground handling vehicles. Hammonds has produced several prototypesof its ODV products at its plant in Houston, TX and has entered into license agreementswith several major manufacturers to produce a range of vehicles based on its ODV patentedtechnology. While Hammonds has been successful in generating initial stocking orders for 6ODVs and has new scheduled delivery orders for 2 ODVs per month for the next 12 months,there can be no assurance that Hammonds will be able to successfully manufacture and sella sufficient number of ODV units to generate significant revenues and profits.

In each of the target markets for Hammonds' ODV wewill  face competition from older and more established companies and will bedependent on gaining market approval for our new ODV technology. We must compete for thepresent market for traditional forklifts, freight terminal tractors, security vehicles,industrial highway mowers and a full range of aviation ground handling vehicles and gainmarket acceptance for our uniquely designed ODV. If we are successful in generating demandfor our ODV, we will be dependent upon third party manufacturers to produce on a timelybasis necessary ODV components with the quality and quantity that will be required.  

We rely heavily on commodities in the manufacturing ofour equipment and price fluctuations can have a material and adverse affect on the coststructure of our businessWe are exposed to fluctuations in market prices for various commodities in the productionof our fuel additive and water treatment products. The rising price of steel also can havean impact on the cost of production of our ODVs. At this time, we are unable to predictthe potential impact of future increases in commodity costs on the cost of our products,or our ability, if any, to increase the selling price of our products to cover such costs.We have not established arrangements to hedge commodity prices and, where possible, tolimit near-term exposure to fluctuations in raw material prices. As a result, the cost tomanufacture our products may rise at a time when we are unable to increase the sellingprice of such products. 

Our business is subject to environmental regulations;failure to comply could result in substantial penaltiesWe are regulated by various national and local environmental laws governing our use ofsubstances and control of emissions in all our operations. Compliance with these lawscould have a material impact on our capital expenditures, earnings, or competitiveposition. Our failure or inability to comply with the applicable laws and regulationscould result in monetary or other penalties, resulting in unanticipated expenditures orrestrictions on our ability to operate.

We are dependent on third-party distributors for our ODVsales, which could reduce our ability to gain marketplace acceptanceWe have begun efforts to build the Hammonds ODV brand through direct sales and throughdistribution networks and major supply agreements with other companies. Severaldistributors have elected to carry initial stocking inventories of our ODV and some havescheduled for delivery ODVs on a monthly basis. We are dependent upon our distributors'success in generating customer orders for the stocking inventory they have purchased, incontinued scheduled orders for future shipment, as we as increasing development of ourthird party distribution network. In addition, distributors may elect to make special ODVorders with specific components and features based upon their various customers'requirements.  This could result in continued adjustment to inventories based ontheir assessments of future needs. Such adjustments can impact our results eitherpositively or negatively. 

A disruption or termination of our relationships withcertain suppliers could have a material adverse effect on our operationsCertain of the components included in our products, including our fuel handling equipment,our fluid injector systems and our new ODV equipment, are obtained from a limited numberof suppliers. Disruption or termination of supplier relationships could have a materialadverse effect on our operations. We believe that alternative sources could be obtained,if necessary, but the inability in a timely manner to obtain sufficient quantities ofnecessary components or the need to develop alternative sources, if and as required in thefuture, could result in delays or reductions in product shipments which in turn could havean adverse effect on our operating results and customer relationships. 
**Actual results could differ from theestimates and assumptions that we use to prepare our financial statementsTo prepare financial statements in conformity with generally accepted accountingprinciples, management is required to make estimates and assumptions, as of the date ofthe financial statements, which affect the reported values of assets, liabilities,revenues and expenses and disclosures of contingent assets and liabilities. Areasrequiring significant estimates by our management include:

- contract costs and profits and revenue recognition;- provisions for uncollectible receivables and recoveries of costs from subcontractors,vendors and others;- provisions for income taxes and related valuation allowances;- recoverability of other intangibles and related estimated lives;- accruals for estimated liabilities;- timing of the introduction of new products and services and market acceptance of thesame
**We are subject to the risks associated with being a governmentcontractor****We are a provider of products and services to governmental agencies, includingmunicipal water agencies, waste treatment, and our fuel additive and injector services forthe U.S. military. We are therefore exposed to risks associated with governmentcontracting, including reductions in government spending, canceled or delayedappropriations specific to our contracts or projects, heightened competition and modifiedor terminated contracts. Legislatures typically appropriate funds for a given program on ayear-by-year basis, even though contract performance may take more than one year and arenot always guaranteed. As a result, at the beginning of a contract or project, the relatedcontract or project may be only partially funded, and additional funding is normallycommitted only as appropriations are made in each subsequent year. These appropriations,and the timing of payment of appropriated amounts, may be influenced by, among otherthings, the state of the economy, competing priorities, curtailments in the use ofgovernment contracting firms, budget constraints, the timing and amount of tax receiptsand the overall level of government expenditures.

Our dependence on major customers could adversely affect usHammonds has been dependent upon its ability to market its products and services tomajor industrial and governmental agencies such as Arch Chemical, CSX Railroad,Exxon/Mobil, BP Aviation, Chevron/Texaco, Tomco, KopCoat, U.S. Army, U.S. Air Force,Defense Energy Supply and Lockheed Martin. If any of these major industrial orgovernmental agencies terminated its relationship with Hammonds, whether as the result oftechnological advances by competitors, or otherwise, the business operations and financialcondition of the Registrant could be adversely effected.

Our failure to attract and retain qualified personnel, including keyofficers, could have an adverse effect on usOur ability to attract and retain qualified engineers, and other professionalpersonnel in accordance with our needs is an important factor in determining our futuresuccess. The market for these professionals is competitive, and there can be no assurancethat we will be successful in our efforts to attract and retain needed professionals. Inaddition, our ability to be successful depends in part on our ability to attract andretain skilled laborers in our manufacturing and service business. Demand for theseworkers can be high at times and the supply can be extremely limited at times. Our successis also highly dependent upon the continued services of our key officer, Carl Hammonds andthe loss of Mr. Hammonds could adversely effect us. At present we have no "key"man insurance on the life of Mr. Hammonds.

Risks inherent in establishing a new marketThere can be no assurance that we will be successful in marketing our ODV, which is anew technology aimed at a highly competitive industry for industrial utilityvehicles.  The market for new products can be very difficult to establish. There arecompetitors with long-established products, accepted technology and superior financialresources for marketing such products. If the market for our ODV product line takes longerto develop than anticipated, this would have an adverse affect on revenues and potentialprofitability. While we believe the ODV represents an important innovation in industrialutility vehicles, we cannot ensure our targeted customers will purchase a significantnumber of units or that we will be able to establish a nationwide and internationalnetwork of distributors. If the market develops more slowly than anticipated we mayrequire additional financing in addition to the presently estimated $1,500,000, and noassurances can be made that additional funding will be available at acceptable terms andconditions.

We may need additional capital to fund our negative cashflow from operations through debt or equityBased upon our present available cash and credit line, we require additional fundingthrough debt and/or equity financing to cover our costs of operations and the costs ofcompleting development of the ODV line. We expect to fund our general operations andmarketing activities for fiscal 2006 with the funding provided or arranged for us by ourcorporate parent, American International Industries or through the sale of equity.However, unexpected expenses or increases in costs may arise. There is no assurance we canraise the additional capital in a timely manner as and if needed. As additional funds arerequired it may be expected that we sell additional securities or seek increased creditlines or new debt financing, but there can be no assurance that such financing will be atterms satisfactory to us. 

Potential risks associated with rapid technologicalchangesRapid technological changes could adversely affect our business. The market for ourproducts and technology in particular is characterized by rapid changes. Evolving industrystandards and changing customer needs gives rise to a very competitive marketplace for newtechnology. If we are unable to meet or stay ahead of new technologies being developed andto changes in industry standards, our business could be adversely affected. 

Changes in technology, competitively imposed processstandards and regulatory requirements influence the demand for many of our products andservices. To grow and remain competitive, we need to anticipate changes in technologicaland regulatory standards. We need to continue to introduce new and enhanced products on atimely basis. We may not achieve these goals and some of our products may become obsolete.New products often face lack of market acceptance, development delays or operationalfailure. Stricter governmental regulations also may affect acceptance of new products. Ourvarious patents may not provide substantial protection from competition or be ofcommercial benefit to us. We may not be able to enforce our rights under trademarks orpatents against third parties. Some international jurisdictions may not protect thesekinds of rights to the same extent that they are protected under U.S. law. If a thirdparty successfully challenges our trademarks or patents, it may affect our competitive andfinancial position. 

Environmental factors and changes in laws and regulations couldincrease our costs and liabilities and affect the demand for our products and services.In addition to the environmental risks described above relating to our water treatmentbusiness and other operations, we are subject to environmental laws and regulations,including those concerning:- emissions into the air;- discharges into waterways;- soil and water pollution;- occupational health and safety.

Environmental laws and regulations generally impose limitations andstandards for regulated materials and require us to obtain a permit and comply withvarious other requirementsThe improper characterization, handling, or disposal of regulated materials or any otherfailure to comply with federal, state and local environmental laws and regulations orassociated environmental permits may result in the assessment of administrative, civil,and criminal penalties, the imposition of investigatory or remedial obligations, or theissuance of injunctions that could restrict or prevent our ability to perform. 

The environmental health and safety laws and regulations to which weare subject are constantly changing, and it is impossible to predict the effect of anyfuture changes to these laws and regulations on us. We do not yet know the full extent, ifany, of environmental liabilities associated with many of our contracts or projects. Wecannot assure that our operations will continue to comply with future laws and regulationswill not significantly adversely affect us. 

The level of enforcement of these laws and regulations also affects thedemand for many of our services. Proposed changes in regulations and the perception thatenforcement of current environmental laws has been reduced has decreased the demand forsome services, as customers have anticipated and adjusted to the potential changes. Futurechanges could result in increased or decreased demand for some of our services. Theultimate impact of the proposed changes will depend upon a number of factors, includingthe overall strength of the economy and customers' views on the cost-effectiveness ofremedies available under the changed regulations. If proposed or enacted changesmaterially reduce demand for our environmental services, our results of operations couldbe adversely affected.

Dependent upon our ability to manage our growth.Hammonds anticipates continued rapid growth in the future, based upon in 2005 sales andnew orders, especially if its marketing efforts for its new ODV are successful. In suchevent we will require effective management and increased financial and other resources.This growth, if achieved, will place significant strains on the Company's financial,managerial and other resources. Failure to effectively manage growth could have amaterially adverse effect on the Company's business and results of operations. 

Limited patent and proprietary information protectionHammonds believes that its patents for its various products and systems, including thenew ODV, and the proprietary processes used in production of its products and equipmentsystems, does not infringe on the patents and proprietary rights of others. In the eventthat Hammonds' products infringe the patent or proprietary rights of others, we may berequired to modify our process or obtain a license. There can be no assurance that wewould be able to do so in a timely manner, upon acceptable terms and conditions or at all.The failure to do so would have a material adverse effect on the Company's business. Inaddition, there can be no assurance that the Company will have the financial or otherresources necessary to prosecute or defend a patent infringement or proprietary rightsaction. Moreover, if any of the Company's products infringe patents or proprietary rightsof others, the Company could, under certain circumstances, become liable for damages,which could have a material adverse effect on the Company. Hammonds relies on its ownpatents and proprietary know-how and confidential information and employs various methodsto protect the processes, concepts, ideas and documentation associated with itsproprietary rights. However, such patents and methods may not afford complete protectionand there can be no assurance that others will not independently develop such processes,concepts, ideas and documentation or otherwise challenge the Company's patents. Althoughthe Company requires all of its employees to sign non-disclosure, non-competition andinventions agreements, there can be no assurance that such agreements will be enforceableor will provide meaningful protection to the Company. There can be no assurance that theCompany will be able to adequately protect its patents and trade secrets or that othercompanies will not acquire information that the Company considers proprietary. Moreover,there can be no assurance that other companies will not independently develop know-howcomparable to or superior to that of the Company. 

RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK
**Market prices of our equity securities can fluctuatesignificantlyThe market prices of our common stock may change significantly in response to variousfactors and events beyond our control, including the following: - the other risk factors described in this Form 10-KSB;- changing demand for our products and services and ability to develop and generatesufficient revenues;- any delay in our ability to generate operating revenue or net income;- general conditions in markets we operate in;- general conditions in the securities markets;- issuance of a significant number of shares, whether for compensation under employeestock options, conversion of debt, potential acquisitions, additional financing orotherwise.

There is only a limited trading market for our common stockOur common stock is subject to quotation on the pink sheets. There has only been limitedtrading activity in our common stock. There can be no assurance that a more active tradingmarket will commence in our securities as a result of theincreasing operations of Hammonds. Further, in theevent that an active trading market commences, there can be no assurance as to the levelof any market price of our shares of common stock, whether any trading market will provideliquidity to investors, or whether any trading market will be sustained.

State Blue Sky Registration; Potential Limitations on Resale of our SecuritiesThe class of common stock registered under the Exchange Act has not been registered forresale under the Act or the "blue sky" laws of any state. The holders of suchshares and persons who desire to purchase them in any trading market that might develop inthe future, should be aware that there may be significant state blue-sky law restrictionsupon the ability of investors to resell our securities. Accordingly, investors shouldconsider the secondary market for the Company's securities to be a limited one. 

It is the intention of the management toseek coverage and publication of information regarding the Company in an acceptedpublication which permits a manual exemption. This manual exemption permits a security tobe distributed in a particular state without being registered if the Company issuing thesecurity has a listing for that security in a securities manual recognized by the state.However, it is not enough for the security to be listed in a recognized manual. Thelisting entry must contain (1) the names of issuers, officers, and directors, (2) anissuer's balance sheet, and (3) a profit and loss statement for either the fiscal yearpreceding the balance sheet or for the most recent fiscal year of operations. Furthermore,the manual exemption is a nonissuer exemption restricted to secondary tradingtransactions, making it unavailable for issuers selling newly issued securities.

Most of the accepted manualsare those published in Standard and Poor's, Moody's Investor Service, Fitch's InvestmentService, and Best's Insurance Reports, and many states expressly recognize these manuals.A smaller number of states declare that they "recognize securities manuals" butdo not specify the recognized manuals. The following states do not have any provisions andtherefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois,Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont and Wisconsin. 

Dividends UnlikelyWe do not expect to pay dividends for the foreseeable future. The payment of dividends, ifany, will be contingent upon our future revenues and earnings, capital requirements andgeneral financial condition. The payment of any dividends will be within the discretion ofour board of directors. It is our intention to retain all earningsfor use in the business operations ofHammonds and accordingly, we do not anticipate thatthe Company will declare any dividends in the foreseeable future. 

Possible Issuance of Additional SecuritiesOur Articles of Incorporation authorize the issuance of 195,000,000 shares of commonstock, par value $0.0001 and 5,000,000 shares of preferred stock, par value $0.0001. At December 31, 2005, we had 20,135,000 shares of common stock issued and no preferred sharesissued. We may issue additional shares of common stock in connectionwith any future acquisitions of operating businesses or assets or to raise additionalfunding. To the extent that additional shares ofcommon stock are issued, our shareholders would experience dilution of their respectiveownership interests in the Company. The issuance of additional shares of common stock mayadversely affect the market price of our common stock and could impair our ability toraise capital through the sale of our equity securities.

Compliance with Penny Stock RulesOur securities will initially be considered a "penny stock" as defined in theExchange Act and the rules thereunder, since the price of our shares of common stock isless than $5. Unless our common stock is otherwise excluded from the definition of"penny stock," the penny stock rules apply with respect to that particularsecurity. The penny stock rules require a broker-dealer prior to a transaction in pennystock not otherwise exempt from the rules, to deliver a standardized risk disclosuredocument prepared by the SEC that provides information about penny stocks and the natureand level of risks in the penny stock market. The broker-dealer also must provide thecustomer with current bid and offer quotations for the penny stock, the compensation ofthe broker-dealer and its sales person in the transaction, and monthly account statementsshowing the market value of each penny stock held in the customer's account. In addition,the penny stock rules require that the broker-dealer, not otherwise exempt from suchrules, must make a special written determination that the penny stock is suitable for thepurchaser and receive the purchaser's written agreement to the transaction. Thesedisclosure rules have the effect of reducing the level of trading activity in thesecondary market for a stock that becomes subject to the penny stock rules. So long as thecommon stock is subject to the penny stock rules, it may become more difficult to sellsuch securities. Such requirements, if applicable, could additionally limit the level oftrading activity for our common stock and could make it more difficult for investors tosell our common stock. 

Shares eligible for future saleAs of December 31, 2005, the Registrant had 20,135,000 shares of common stock issued andoutstanding, 16,446,280 shares are "restricted" as that term is defined underthe Securities Act, and in the future may be sold in compliance with Rule 144 under theSecurities Act. Rule 144 generally provides that a person holding restricted securitiesfor a period of one year may sell every three months in brokerage transactions and/ormarket-maker transactions an amount equal to the greater of one (1%) percent of (a) theCompany's issued and outstanding Common Stock or (b) the average weekly trading volume ofthe Common Stock during the four calendar weeks prior to such sale. Rule 144 also permits,under certain circumstances, the sale of shares without any quantity limitation by aperson who has not been an affiliate of the Company during the three months preceding thesale and who has satisfied a two-year holding period. However, all of the currentshareholders of the Company owning 5% or more of the issued and outstanding Common Stockare subject to Rule 144 limitations on selling.

**ITEM 2. DESCRIPTION OF PROPERTIES**Back to Table of Contents

The Registrant'scorporate office is located at the offices of American International Industries, Inc., 601Cien Street, Suite 235, Kemah, TX 77565, which space is  provided to us on arent-free basis. These facilities consist of approximately 1,300 square feet of executiveoffice space and are leased by American International Industries from an unaffiliatedthird party. The Registrant believes that the office facilities are sufficient for theforeseeable future and this arrangement will remain until we find a new businessopportunity or consummate a business combination.

Hammonds' facilities are located on 10 acres of land inHouston, TX and include a 80,000 square foot industrial manufacturing, production,warehousing and distribution plant that also serves as Hammonds' territorial sales office.The real property and plant are owned by the Company and leased to Hammonds at a monthlyrental of $25,000. This facility also has a subtenant that leases approximately 24,000square feet at a monthly rental of $8,000. In addition, Hammonds maintains an executiveoffice facility in Harris County, Houston, TX. The Houston, TX facility has sufficientproduction capacity to meet the Company's anticipated needs for product for theforeseeable future.

**ITEM 3. LEGALPROCEEDING**Back to Table ofContents

The Registrant's officers and directors are not aware of anythreatened or pending litigation to which the Registrant is a party or which any of itsproperty is the subject and which would have any material, adverse effect on theRegistrant.

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS**Back to Table of Contents

During the year ended December 31, 2005, no matters weresubmitted to a vote of our security holders.

**PART II**

**ITEM 5.MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTER**Back to Table of Contents

**MarketInformation**

Our common stock iscurrently quoted on the Pink Sheets under the symbol IMTG. There has only been limited trading activity during the past two years. Thefollowing table shows the high and low bid prices for the Company's common stock duringthe last two fiscal years as reported by the Pink Sheets. These prices reflectinter-dealer quotations without adjustments for retail markup, markdown or commission, anddo not necessarily represent actual transactions. The quotes below reflect a twenty forone stock recapitalization adopted August 3, 2004. Quotation of theCompany's securities on the Pink Sheets limits the liquidity and price of the Company'scommon stock more than if the Company's shares of common stock were listed on The NASDAQStock Market or a national exchange. 

**Fiscal 2006**

**Fiscal 2005**

**Fiscal 2004**

**High**

**Low**

**High**

**Low**

**High**

**Low**

First    Quarter ended March 31

$

0.60

$

0.35

$

0.28

$

0.23

$

0.05

 

$

0.05

Second Quarter ended June 30

$

---

$

---

$

0.46

$

0.20

$

0.05

 

$

0.03

Third Quarter ended September 30

$

---

$

---

$

0.85

$

0.35

$

0.05

$

0.02

Fourth Quarter ended December 31
$
---
$
---

$

0.65

$

0.31

$

0.06

$

0.02

As of December 31,2005, our shares of common stock were held by approximately 60 stockholders of record. Thetransfer agent of our common stock is Colonial Stock Transfer, Salt Lake City, UT. 

**Dividends**

Holders of commonstock are entitled to dividends when, as, and if declared by the Board of Directors, outof funds legally available therefore. We have never declared cash dividends on its commonstock and our Board of Directors does not anticipate paying cash dividends in theforeseeable future as it intends to retain future earnings to finance the growth of ourbusinesses. There are no restrictions in our articles of incorporation or bylaws thatrestrict us from declaring dividends.

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

No equitycompensation plan or agreements under which our common stock is authorized for issuancehas been adopted during the fiscal year ended December 31, 2005.

**Sale of UnregisteredSecurities**

Duringfiscal year ended December 31, 2005, the Registrant issued 100,000 restricted shares toits president and CFO for compensation valued at $3,000, 25,000 restricted shares toRebekah Laird-Ruthstrom for services provided valued at $750 and 10,000 restricted sharesto a consultant valued at $300. The Company believes that the issuances of theserestricted shares was exempt from registration pursuant to Section 4(2) of the Act asprivately negotiated, isolated, non-recurring transactions not involving any publicsolicitation. Appropriate restrictive legends are affixed to the stock certificates issuedin such transactions.

**ITEM 6.MANAGEMENT'S DISCUSSION AND RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS**Back to Table of Contents

The following discussion should be read in conjunction with ourfinancial statements and the related notes appearing elsewhere in this annual report. Thefollowing discussion contains forward-looking statements reflecting our plans, estimatesand beliefs. Our actual results could differ materially from those discussed in theforward-looking statements. Factors that could cause or contribute to such differencesinclude, but are not limited to those discussed below and elsewhere in this report,particularly in the section entitled "Risk Factors" beginning on page 10 of thisannual report.

General

The Registrant acquired 51% of its operating subsidiary, HammondsTechnical Services, Inc. Prior to the acquisition of its operating subsidiary, theRegistrant was a non-operating company. As a result, the financial statement of theRegistrant for its fiscal years ended December 31, 2005 and 2004 are not comparable. 

Revenues

Gross revenues for the year ended December 31, 2005 were $3,395,151generated by Hammonds. During fiscal 2005, Hammonds’ production facility in Houston,TX was forced to close for approximately two weeks related to Hurricane Katrina. Inaddition, Hammonds’ production operations were halted for two weeks in connectionwith Hammonds’ move from a leased facility to a facility owned by theRegistrant’s parent. The two stoppages reduced Hammonds revenues from thoseanticipated. Hammond's new 80,000 square foot facility has enabled it to increaseproduction which should result in increased sales revenues during 2006, specifically fromits new line of ODVs which were introduced during the fourth quarter of 2005, and theincrease in water purification systems and injector business. We had inventories of$1,004,657 at December 31, 2005, consisting primarily of parts and materials inexpectation of increasing demand for our products including Hammonds’ ODV line during2006.

Cost of Sales 

Costs of sales for the year ended December 31, 2005 was $2,396,950 or70.6% of revenues. Costs of sales are anticipated to increase during 2006 related toanticipated increased costs of manufacturing including manufacturing components and directand indirect labor costs for the production of Hammonds’ new line of ODVs, injectorsystems and water purification systems.

General and administrative expenses

In 2005, general, selling and administrative expenses totaled$2,104,473 or 61.98% of revenues. The selling, general and administrative expensesprimarily consist of sales and marketing expenses, research and development costs andengineering expenses. General and administrative expenses are expected to increase in 2006principally due to additional expenditures related to additional personnel requirements.We expect our operating expenses to marginally decrease as a percentage of revenues withincreasing sales in 2006.

Operating Loss

Our operating loss was $1,194,852 in 2005. Our operating loss wasmainly attributable to slower than anticipated growth in sales, in part caused byHammonds’ two work stoppages and the later than anticipated introduction of the newODV line. We expect that our operating loss will decrease with the anticipated growth inrevenues and reduced expenses associated with research and development as a percentage ofrevenues.

Net Loss

Our net loss applicable to common shareholders was $1,194,652 in 2005.

Liquidity and Capital Resources

Our current asset were $1,937,150 at December 31, 2005, consistingmainly of inventories and accounts receivable, which we expect are fully collectible. Inconnection with the acquisition of Hammonds, we acquired patents and trademarks valued at$2,536,263 as of December 31, 2005. Our total assets at December 31, 2005 were $5,749,767compared to $832,142 at December 31, 2004, which increase reflects the acquisition ofHammonds.

We had current liabilities of $3,747,754 at December 31, 2005,consisting principally of current portion of long-term debt, accounts payable and accruedexpenses. At December 31, 2005, we had long-term liabilities of $2,346,788 consisting of anote payable to our parent in the amount of $1,843,588 and deferred tax liability totaling$503,200.

During 2005, we had a negative cash flow from operations of $1,419,197mainly due to our net loss of $1,194,652, an increase in accounts receivable andinventories of $515,747, offset by depreciation of property and equipment, andamortization of patents and trademarks of $318,078.

We funded our cash used in operating activities through proceeds fromour line of credit in the amount of $2,131,605 and through borrowings from our parent. Wemade payments of $570,223 on short-term borrowings during 2005.

We used cash for investing activities of $1,078,709 in 2005. Cash wasused to purchase property and equipment in the amount of $119,801. We received $998,300 inshort-term borrowings from related parties which funds were used by Hammonds for workingcapital.

There are no limitations in the Company's articles of incorporation onthe Company's ability to borrow funds or raise funds through the issuance of restrictedcommon stock. The Company's resources together with the resources of its corporate parenthave facilitated it ability to secure its revolving line of credit and the Companybelieves that it has the ability to borrow funds and/or raise capital through the sale ofrestricted stock. To the extent that additional debt financing is utilized, any borrowingwill subject us to various risks traditionally associated with indebtedness, including therisks of interest rate fluctuations and insufficiency of cash flow to pay principal andinterest. 

Off-Balance Sheet ArrangementsAs of December 31, 2005 we did not have any off-balance sheet arrangements as defined inItem 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.

Contractual Obligations and CommitmentsAs of December 31, 2005, we have a lease with our parent for the property and thesubsidiary owes the parent a management fee (see note 10).

Critical Accounting PoliciesOur significant accounting policies are described in the notes to our financial statementsfor the year ended December 31, 2005, and are included elsewhere in this registrationstatement.

**ITEM7. FINANCIAL STATEMENTS**Backto Table of Contents

The Registrant's audited financial statements for thefiscal years ended December 31, 2005 and December 31, 2004 are attached to this annualreport.

Financial Statements

**ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE**Back toTable of Contents

Not Applicable.

**ITEM8A. CONTROLS AND PROCEDURES**Back to Table of Contents
*Evaluation of disclosure controls and procedures. In connectionwith the audit of the Company’s financial statements for the year ended December 31,2005, the Company's president/chief financial officer conducted an evaluation regardingthe effectiveness of the Company's disclosure controls and procedures (as defined in Rules13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controlsand procedures and discussions with our independent accountants, our president/chieffinancial officer concluded that our disclosure controls and procedures were ineffectiveas of December 31, 2005. The president/chief financial officer determined that the Companydid not maintain effective controls over the financial reporting process due to aninsufficient complement of personnel with an appropriate level of accounting knowledge,experience and training in the application of generally accepted accounting principlescommensurate with its financial reporting requirements and the complexity of thecompany’s operations and transactions, specifically at the Company’s operatingsubsidiary, Hammonds Technical Services, Inc. The Company did not maintain effectivecontrols to ensue there was adequate analysis, documentation, reconciliation and review ofaccounting records and supporting data and monitoring and oversight of the work performedby completeness of the consolidated financial statements in accordance with generallyaccepted accounting principles. Specifically, the Company did not have effective controlsdesigned and in place over the consolidation of the financial statements of the Hammondssubsidiary, the reconciliation of inter-company accounts, certain prepaid expenses,accrued liabilities and general and administrative expense. In light of the above, theCompany has determined to restate its financial statements for the periods ended June 30and September 30, 2005.*Changes in internal controls. Subsequent to December31, 2005, the period covered by this annual report, the company made changes in ourinternal control over financial reporting in order to improve such internal controls overfinancial reporting. Specifically, the Company has taken the following steps to addressthe specific deficiencies in internal disclosure controls and procedures: (i) theCompany’s operating subsidiary has hired a full time controller who has been directedto implement procedures to correct the noted deficiencies; (ii) the Company has hired aqualified consultant with accounting and auditing experiences to perform an internal auditfunction; and the Company’s parent has hired a full time CFO to oversee financial andaccounting transactions to include the financial reporting and disclosure.

**ITEM 8B. OTHER INFORMATION**Back to Table of Contents

 

Not Applicable.

**PART III**

**ITEM9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, COMPLIANCE WITH SECTION 16(A)**Back to Table of Contents

At present, we have one officer and two directors. Wemay elect one or more additional directors and appoint additional officers in connectionwith our intent to pursue new business opportunities or entering into a businesscombination. Our directors are elected to serve until the next annual meeting ofshareholders and until their respective successors will have been elected and will havequalified. The following table sets forth the name, age and position held with respect toour present directors and executive officers:
**Name****Age****Positions**Gary D. Woerz58President and CFO
Gary D. Woerz, President, Chief Financial Officer and adirector of the Registrant, serves also as Chief Financial Officer of AmericanInternational Industries, Inc. From 2000 to 2002, Mr. Woerz served as Chief FinancialOfficer of Phymetrics, Inc., which was a subsidiary of High Voltage Engineering (HVE).Phymetrics was a multi-divisional manufacturing and laboratory service company. From 1998to 2000, Mr. Woerz served as Chief Financial Officer of Virtual Founders LLC, San Jose,CA, whose business involved investment banking and management consulting services todevelopment stage high technology companies. 

Code of Ethics The Registrant has adopted a Code of Ethics that are designed to deter wrongdoing and topromote honest and ethical conduct, full, fair, accurate, timely and understandabledisclosure in the Registrant's SEC reports and other public communications. The Code ofEthics promotes compliance with applicable governmental laws, rules and regulations. 
**Section 16(a) ComplianceSection 16(a) of the Securities and Exchange Act of 1934 requires the Registrant'sdirectors and executive officers, and persons who own beneficially more than ten percent(10%) of the Registrant's Common Stock, to file reports of ownership and changes ofownership with the Securities and Exchange Commission. Copies of all filed reports arerequired to be furnished to the Registrant pursuant to Section 16(a). Based solely on thereports received by the Registrant and on written representations from reporting persons,the Registrant was informed that its officers and directors and ten percent (10%)shareholders have not filed reports required to be filed under Section 16(a).

**ITEM 10.EXECUTIVE COMPENSATION**Back toTable of Contents

The following table contains the executive compensationto the Registrant's executive officer for the periods set forth below. No executivecompensation was paid during the fiscal years 2004, 2003 and 2002.

**Summary Compensation Table**            
**Long    Term**        
**Annual    Compensation**
**Compensation    Awards**                    **Other****Restricted****Securities**            **Annual****Stock****Underlying****All Other**      
**Salary**
**Bonus****Compensation****Award(s)****Options****Compensation**  **Name and    Principal Position**  
**Year**
**($)**
**($)**
**($)**
**($)**
**($)**
**($)**  Gary D. Woerz, President and CFO (1)2005 --- --- --- 3,000--- --- 2004 --- --- --- --- --- --- 2003 --- --- --- --- --- ---   (2) Mr. Woerz received no compensation from the    Registrant for serving as President and CFO.
The Company has no employment agreement with any of itsofficers and directors. 

**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**Back to Table of Contents

The following tablesets forth information regarding the beneficial ownership of our common stock as ofDecember 31, 2005. The information in this table provides the ownership information for:each person known by us to be the beneficial owner of more than 5% of our common stock;each of our directors; each of our executive officers; and our executive officers anddirectors as a group.

Beneficialownership has been determined in accordance with the rules and regulations of the SEC andincludes voting or investment power with respect to the shares. Unless otherwiseindicated, the persons named in the table below have sole voting and investment power withrespect to the number of shares indicated as beneficially owned by them.
**Name of Beneficial Owner**** ****Common Stock Beneficially Owned (1)**** ****Percentage of Common Stock  Owned (1)**American    International Industries, Inc.16,311,28081.00%601 Cien Street,    Suite 235Kemah, TX 77565  Gary D. Woerz, President and CFO100,0000.00%601 Cien Street,    Suite 235Kemah, TX 77565  Daniel Dror,    Chairman00.00%601 Cien Street,    235Kemah, TX 77565  Directors and    Officers (2 person)100,0000.00%
(1) Applicablepercentage ownership is based on 20,135,000 shares of common stock outstanding as ofDecember 31, 2005. Beneficial ownership is determined in accordance with the rules of theSecurities and Exchange Commission and generally includes voting or investment power withrespect to securities. Shares of common stock that are currently exercisable orexercisable within 60 days of December 31, 2005 are deemed to be beneficially owned by theperson holding such securities for the purpose of computing the percentage of ownership ofsuch person, but are not treated as outstanding for the purpose of computing thepercentage ownership of any other person.

**ITEM 12. CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**Back to Table of Contents

During the last two fiscal years, to theknowledge of the Registrant, there was no person who had or has a direct or indirectmaterial interest in any transaction or proposed transaction to which the Registrant wasor is a party. Transactions in this context relate to any transactionwhich exceeds $60,000.

**ITEM13. EXHIBITS AND REPORTS ON FORM 8-K**Back to Table of Contents

(a) The following documents are filed as exhibits tothis report on Form 10-KSB or incorporated by reference herein. Any document incorporatedby reference is identified by a parenthetical reference to the SEC filing that includedsuch document.
**Exhibit    No.****Description**3(i)Articles of    Incorporation, as amended, attached to the Registrant's Form 10-SB/12g filed on August 24,    2004.3(i)1Certificate of Amendment to the    Articles of Incorporation, attached to the Registrant's Form 8-K filed on March 10, 2005. 3(ii)Bylaws, attached to the    Registrant's Form 10-SB/12g filed on August 24, 2004.17Letter on director resignation,    attached to the Registrant's Form 8-K filed on December 29, 2004.10.1Stock Purchase Agreement between    Registrant and Hammonds Technical Services, Inc., attached to the Registrant's Form 8-K    filed on March 10, 200531.1Certification of    President CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley    Act of 2002, filed herewith.32.1Certification of    President and CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the    Sarbanes-Oxley Act of 2002, filed herewith.
(b) Reports on Form 8-K Filed During the Last Quarter of the FiscalYear Covered by this Report:

The Registrant did not file a Form 8-K during the last quarter of thefiscal year covered by this Annual Report.

**ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES**Back to Table of Contents

Independent PublicAccountantsThe Registrant's Board of Directors has appointed Thomas Ledger & Co., L.L.P.  Our financial statements for the fiscal year ended December 31, 2004 were audited by R.E.Bassie & Co. 

 

Principal Accounting FeesThe following table presents the fees for professional audit services rendered by ThomasLedger & Co., L.L.P. and R.E. Bassie & Co. for the audit of the Registrant'sannual financial statements for the years ended December 30, 2005 and 2004, and feesbilled for other services rendered by Thomas Ledger & Co., L.L.P. and R.E. Bassie& Co. during those years. 

  

**Year Ended ****December 31,  2005****December 31, 2004**
Audit fees (1)$ 100,000   $ 4,500
Audit-related fees (2)  --     --
Tax fees (3)  --     --
All other fees  --     --(1)    Audit fees consist of audit and review services, consents and review of documents filed    with the SEC. (2)    Audit-related fees consist of assistance and discussion concerning financial accounting    and reporting standards and other accounting issues. (3)    Tax fees consist of preparation of federal and state tax returns, review of quarterly    estimated tax payments, and consultation concerning tax compliance issues. 
 

**SIGNATURES**

Pursuant to the requirements of the Securities ExchangeAct of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the date indicated.

/s/ GARY D. WOERZ       PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR*   Dated: April 28, 2006*

**FinancialStatements**Back to Table of Contents
Report of Independent Registered Public Accounting Firm23Report of    Independent Registered Public Accounting Firm24Financial Statements:   Balance Sheets -    December 31, 2005 and 200425   Statement    of Operations - Years ended December 31, 2005 and 200426   Statement of Stockholders' Equity    (Deficit) - Years ended December 31, 2005 and 200427   Statement    of Cash Flows - Years ended December 31, 2005 and 200428Notes    to Consolidated Financial Statements29
 

REPORT OF    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBack to Table of Contents
To the ShareholdersInternational American Technologies, Inc. and SubsidiaryHouston, Texas

We have audited the accompanying consolidated balance sheet ofInternational American Technologies, Inc. and Subsidiary as of December 31, 2005 and therelated consolidated statements of operations, changes in stockholders’ deficit, andcash flows for the year ended December 31, 2005. These consolidated financial statementsare the responsibility of the Company’s management. Our responsibility is to expressan opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards require that we planand perform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall consolidatedfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects the financial position of International AmericanTechnologies, Inc. and Subsidiary as of December 31, 2005, and the consolidated results oftheir operations and their cash flows for the year ended December 31, 2005 in conformitywith accounting principles generally accepted in the United States of America. 

/s/ Thomas Leger & Co., L.L.P.Thomas Leger & Co., L.L.P.

April 17, 2006Houston, Texas
**R. E. Bassie & Co.*****Certified Public Accountants***    
6671 Southwest Freeway, Suite 550
Houston, Texas 77074
Tel: (713) 272-8500 Fax: (713)    272-8515
E-Mail: Rebassie@aol.com
REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBack to Table of Contents
The Board of Directors and StockholdersInternational American Technologies, Inc.:

We have audited the balance sheet of International AmericanTechnologies, Inc. (formerly Unlimited Coating Corporation) as of December 31, 2004, andthe related statements of operations, stockholders' equity and cash flows for the yearended December 31, 2004. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of International AmericanTechnologies, Inc. as of December 31, 2004, and the results of its operations and its cashflows for the year ended December 31, 2004, in conformity with accounting principlesgenerally accepted in the United States of America.

/s/ R. E. Bassie & Co.Houston, Texas

March 15, 2005
**INTERNATIONAL    AMERICAN TECHNOLOGIES, INC.**Consolidated Balance SheetsBack to Table of ContentsDecember    31, 2005 and 2004     **2005****2004**
AssetsCurrent assets:
      Cash$61,875
$99   Certificate of    deposits-300,000   Accounts    receivable, net of     allowance of    doubtful accounts of $123,925 at December, 2005829,294-   Current portion of    notes receivable27,43525,585   Inventories1,004,65788,712   Prepaid expenses13,889-        Total current assets1,937,150414,396   Long-term notes receivable390,510417,746Property and equipment, net829,049-Patents and trademarks, net of   accumulated amortization    of $446,305 at December 31, 20052,536,263-Other assets56,995-          Total assets$5,749,767$832,142
Liabilities    and Stockholders' Equity (Deficit)  Current liabilities:   Accounts payable    and accrued expenses$1,442,849$15   Short-term note    payable173,300-   Current    installments of long-term debt2,131,605-        Total current liabilities3,747,75415  Due to American International    Industries, Inc.1,843,588-Deferred tax liability503,200-        Total liabilities6,094,54215  Stockholders' equity (deficit):   Preferred stock,    $0.0001par value.     Authorized    5,000,000 shares: none issued   Common stock,    $0.0001 par value. Authorized 195,000,000 shares:         20,135,000 shares issued and outstanding at December 31, 2005 and        20,000,000 shares issued and outstanding at December 31, 20042,0142,000   Additional paid-in    capital969,378951,642   Accumulated    deficit(1,316,167)(121,515)     Total    stockholders' equity (deficit)(344,775)832,127        Total liabilities and stockholders' equity (deficit)$5,749,767
$832,142  See accompanying    notes to consolidated financial statements.**INTERNATIONAL AMERICAN TECHNOLOGIES, INC.**Consolidated Statements of OperationsBack to Table of ContentsYears ended December 31, 2005 and 2004      **  ****2005**
**2004**Revenues $3,395,151
$
-Costs and expenses:    Cost of sales 2,396,950
-   Selling, general    and administrative 2,104,473
30,968        Total operating expenses 4,501,42330,968   Operating loss(1,106,272)(30,968)   Other income (expenses):    Interest income 18,23723,975   Interest expense(106,617)-     Total    other income (expenses)(88,380)23,975        Net    loss before income tax(1,194,652)(6,993)Provision for income tax--        Net loss applicable to common shareholders $(1,194,652)
$(6,993)  Net loss per    common share - basic and diluted$(0.06)$(0.00)   Weighted    average common shares - basic and diluted20,111,00020,000,000   See accompanying    notes to consolidated financial statements**AMERICAN INTERNATIONAL TECHNOLOGIES, INC.**Consolidated Statements of    Stockholders' Equity (Deficit) Back    to Table of ContentsFor the years ended December 31, 2005 and 2004**    ****Additional****Total****Common Stock****paid-in**
**Accumulated****stockholders'**
**shares**
**amount****capital**
**deficit****equity**Balance,    December 31, 200320,000,000
$2,000
$951,642
$(114,522)
$839,120   Net loss---(6,993)(6,993)Balance,    December 31, 200420,000,0002,000951,642(121,515)832,127  Issuance of common stock    for services135,0001417,736-17,750   Net loss---(1,194,652)(1,194,652)Balance,    December 31, 200520,135,000
$2,014
$969,378
$(1,316,167)
$(344,775)  
See    accompanying notes to consolidated financial statements**INTERNATIONAL AMERICAN TECHNOLOGIES, INC.**Consolidated Statements of Cash FlowsBack to Table of ContentsYears ended December 31, 2005 and 2004  **  **
**2005**
**2004**Cash flows from operating    activities:    Net loss
$(1,194,652)
$(6,993)   Adjustments to    reconcile net loss     to net    cash used in operating activities:           Depreciation and amortization of property and equipment117,517-          Amortization of patents and trademarks200,561-          Issuance of common stock for services17,750-          (Increase) decrease of operating assets, net of acquisitions:              Accounts receivable (319,928)-             Inventories (195,819)-             Prepaid expenses15,772-             Patents and trademarks(12,337)-             Other assets(38,310)-          Increase (decrease) in operating liabilities:             Accounts payable and accrued expenses(9,751)15                Net cash used in operating activities (1,419,197)(6,978)  Cash flows from investing    activities:    Purchase of    property and equipment(119,801)-   Redemption    (purchase) of certificate of deposit300,000(300,000)   Proceeds from    payments on long-term notes receivable25,58621,935   Amount due from    affiliates(342,700)281,600   Purchase of stock    in majority-owned subsidiary(998,300)-   Cash acquired in    acquisition of majority-owned subsidiary56,506-               Net cash provided by (used in) investing activities 
(1,078,709)
3,535   Cash flows from financing    activities:    Proceeds from    long-term borrowing2,131,605-   Proceeds from    borrowings from related parties998,300   Repayment of    short-term borrowing(570,223)-               Net cash provided by financing activities 
2,559,682
-                 Net increase (decrease) in cash 61,776(3,443)Cash at beginning of year
99
3,542Cash at end    of year
$
61,875
$
99   Supplemental schedule of cash    flow information:   Interest paid$106,617$-   Taxes paid$-$-  Non-cash investing and    financing transactions:   Issuance of note    payable and assumption of liabilities     for    acquisition of subsidiary
$
1,457,400
$
-  Non-cash portion of assets and    liabilities received in the acquisition of   a majority-owned    subsidiary (see Note 1):        Current assets$437,639        Property and equipment, net826,765        Patents and trademarks, net2,724,487     Other    non-current assets70,085        Current liabilities(2,098,376)        Deferred tax credit(503,200)  $1,457,400See accompanying    notes to consolidated financial statements**INTERNATIONAL AMERICAN TECHNOLOGIES, INC.Notes to Consolidated Financial StatementsBack to Table of ContentsDecember 31, 2005 and 2004
**(1) Summary of Significant Accounting Policies
**Organization, Ownership and Business

International American Technologies, Inc., f/k/a Unlimited CoatingsCorporation, (the Company), was a public shell company with no operations in 2004. In2005, the Company acquired, through its parent company, 51% of the capital stock ofHammonds Technical Services, Inc. The Company is 81.6% owned subsidiary of AmericanInternational Industries, Inc. (AIII).
**Principles of Consolidation

The 2005 consolidated financial statements include the accounts of theCompany and its majority-owned subsidiary: Hammond Technical Services, Inc. Allsignificant intercompany transactions and balances have been eliminated in consolidation.

**Cash and Cash-Equivalents**

The Company considers cash and cash-equivalents to include cash on handand demand deposits with banks with an original maturity of three months or less.
**Accounts Receivable

Accounts receivable consist primarily of trade receivables, net of avaluation allowance for doubtful accounts.

**Allowance for Doubtful Accounts**

The Company extends credit to customers and other parties in the normalcourse of business. The Company regularly reviews outstanding receivables and provides forestimated losses through an allowance for doubtful accounts. In evaluating the level ofestablished reserves, the Company makes judgments regarding its customers' ability to makerequired payments, economic events and other factors. As the financial condition of theseparties change, circumstances develop or additional information becomes available,adjustments to the allowance for doubtful accounts may be required. In the event theCompany was to determine that a customer may not be able to make required payments, theCompany would increase the allowance through a charge to income in the period in whichthat determination is made.
**Inventories

Inventories are valued at the lower-of-cost or market on a first-in,first-out basis. The Company assesses the realizability of its inventories based uponspecific usage and future utility. A change to results of operations is taken when factorsthat would result in a need for a reduction in its valuation, such as excess or obsoleteinventory, are noted.
**Property, Plant, Equipment, Depreciation, Amortization and Long LivedAssets

Long-lived assets include:

Property, Plant and equipment – These assets are recorded atoriginal cost and increased by the cost of any significant improvements after purchase. Wedepreciate the cost evenly over the assets’ estimated useful lives. Upon retirementor sale, the cost of the assets disposed of and the related accumulated depreciation areremoved from the accounts, with any resultant gain or loss being recognized as a componentof other income or expense.

Identifiable intangible assets – These assets are recorded atoriginal cost, intangible assets with finite lives are amortized evenly over theirestimated useful lives.

At least annually, we review all long-lived assets for impairment. Whennecessary, we record changes for impairments of long-lived assets for the amount by whichthe present value of future cash flows, or some other fair value measure, is less than thecarrying value of these assets.

During April, 2005 the Company acquired Hammonds Technical Services,Inc. for a purchase price of approximately $2,455,700. Long- Lived assets totaling$2,958,900 were recognized as a result of the acquisition. The operations of HammondsTechnical Services are included in the consolidated statements of operations from date ofacquisition.

The following table contains a summary of the tangible and of theintangible assets acquired:
**Acquired Assets****Amount****Life**Machinery & Equipment$408,1622-10 yearsPatents1,621,5005-17 livesTrade Marks465,19910 yearsSole Source Contract464,0397 years$2,958,900**Revenue Recognition

The Company recognizes revenue at the time of shipment of product toits customers or completion of services provided.
**Income Taxes

The Company is a taxable entity and recognizes deferred tax assets andliabilities for the future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities and theirrespective tax basis. Deferred tax assets and liabilities are measured using enacted taxrates expected to be in effect when the temporary differences reverse. The effect on thedeferred tax assets and liabilities of a change in tax rates is recognized in income inthe year that includes the enactment date of the rate change. A valuation allowance isused to reduce deferred tax assets to the amount that is more likely than not to berealized.
**Earnings (Loss) Per Share

The basic net earnings (loss) per common share is computed by dividingthe net earnings (loss) by the weighted average number of shares outstanding during aperiod. Diluted net earnings (loss) per common share is computed by dividing the netearnings (loss), adjusted on an as if converted basis, by the weighted average number ofcommon shares outstanding plus potential dilutive securities. 
**Management's Estimates and Assumptions

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of the financial statements, and the reported amounts of revenuesand expenses. Actual results could differ from these estimates.
**Fair Value of Financial Instruments

The Company estimates the fair value of its financial instruments usingavailable market information and appropriate valuation methodologies. However,considerable judgment is required in interpreting market data to develop the estimates offair value. Accordingly, the Company estimates of fair value are not necessarilyindicative of the amounts that the Company could realize in a current market exchange. Theuse of different market assumption and/or estimation methodologies may have a materialeffect on the estimated fair value amounts. The interest rates payable by the Company onits notes payable approximate market rates. The Company believes that the fair value ofits financial instruments comprising accounts receivable, notes receivable, accountspayable, and notes payable approximate their carrying amounts.
**New Standards Implemented

In May 2005, the Financial Accounting Standards Board (*"FASB"*)issued Statement of Financial Accounting Standard (*"SFAS"*) No. 154, *AccountingChanges and Error Corrections*. SFAS No. 154 replaces Accounting Principles BoardOpinion No. 20, *Accounting Changes*, and SFAS No. 3, *Reporting Accounting Changesin Internal Financial Statements*, and changes the requirements for the accounting forand reporting of a change in accounting principle. SFAS No. 154 requires retrospectiveapplication of changes in accounting principle to prior periods’ financialstatements, unless it is impracticable to determine either the period-specific effects orthe cumulative effect of the change. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005. We willadopt SFAS No. 154 on January 1, 2006. Any impact on the Company’s consolidatedresults of operations and earnings per share will be dependent on the amount of anyaccounting changes or corrections of errors whenever recognized.

In December 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 153. This statement addresses themeasurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, *"Accountingfor Nonmonetary Transactions,"* is based on the principle that exchanges ofnonmonetary assets should be measured based on the fair value of the assets exchanged.

The guidance in that opinion; however, included certain exceptions tothat principle. This statement amends Opinion 29 to eliminate the exception fornonmonetary exchanges of similar productive assets and replaces it with a generalexception for exchanges of nonmonetary assets that do not have commercial substance. Anonmonetary exchange has commercial substance if the future cash flows of the entity areexpected to change significantly as a result of the exchange. This statement is effectivefor financial statements for fiscal years beginning after June 15, 2005. Earlierapplication is permitted for nonmonetary asset exchanges incurred during fiscal yearsbeginning after the date of this statement is issued. Management believes the adoption ofthis statement will have no impact on the financial statements of the Company.

In December 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 152, which amends FASB statement No. 66, *"Accountingfor Sales of Real Estate,"* to reference the financial accounting and reportingguidance for real estate time-sharing transactions that is provided in AICPA Statement ofPosition (SOP) 04-2, *"Accounting for Real Estate Time-Sharing Transactions."*This statement also amends FASB Statement No. 67, *"Accounting for Costs andInitial Rental Operations of Real Estate Projects,"* to state that the guidancefor (a) incidental operations and (b) costs incurred to sell real estate projects does notapply to real estate time-sharing transactions. The accounting for those operations andcosts is subject to the guidance in SOP 04-2. This statement is effective for financialstatements for fiscal years beginning after June 15, 2005. Management believes theadoption of this statement will have no impact on the financial statements of the Company.

In November 2004, the Financial Accounting Standards Board (FASB)issued Statement of Financial Accounting Standards No. 151, *"Inventory Costs—an amendment of ARB No. 43, Chapter 4."* This statement amends the guidance in ARBNo. 43, Chapter 4, *"Inventory Pricing,"* to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs, and wasted material(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that *"under somecircumstances, items such as idle facility expense, excessive spoilage, double freight,and rehandling costs may be so abnormal as to require treatment as current periodcharges."* This statement requires that those items be recognized ascurrent-period charges regardless of whether they meet the criterion of *"soabnormal."* In addition, this statement requires that allocation of fixedproduction overheads to the costs of conversion be based on the normal capacity of theproduction facilities. This statement is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. Management does not believe the adoption ofthis statement will have any immediate material impact on the Company.
**(2) Acquisition of Hammonds Technical Services, Inc.

Effective April 28, 2005, the Company entered into a Stock PurchaseAgreement ("the Agreement") to acquire a 51% interest in the capital stock ofHammonds Technical Services, Inc., a privately owned Texas corporation("Hammonds") in consideration for the Company or its parent, AmericanInternational Industries, Inc., providing: (i) $998,300 in cash to Hammonds for workingcapital; (ii) a secured revolving long-term line of credit in the amount of $2,000,000;and (iii) the parent issuing 145,000 restricted shares of common stock to the Company inconsideration for a $1,450,000 promissory note. These shares were exchanged for twominority equity interests in Hammonds owned by third parties. The total purchase price toacquire the 51% in Hammonds was $2,455,700 representing cash payments of $825,000, 145,000shares of AIII’s restricted common stock valued at $1,450,000 and the assumption of anote payable to one of the former shareholders in the amount of $173,300 and liabilitiesin excess of assets in the amount of $7,400.

Prior to the acquisition, Hammonds was two separate legal entities,Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. (collectively *"Hammonds"*)manufacturers engineered products and chemicals that serve multiple segments of the fuelsdistribution, water treatment and utility vehicle industries. Hammonds products aremarketed by a worldwide network of distributors, manufacturers representatives andoriginal equipment manufacturers. On February 28, 2005, Hammond Fuels Additives, Inc. wasmerged into Hammonds Technical Services, Inc.

As required by SFAS No. 141, the Company has recorded the acquisitionusing the purchase method of accounting with the purchase price allocated to the acquiredassets and liabilities based on their respective estimated fair values at the acquisitiondate. The purchase price of $2,455,700 had been allocated at follows:
Current assets$1,435,939Property and equipment, net826,765Patents and trademarks, net of    amortization2,724,487Other non-current assets70,085Current liabilities(2,098,376)Deferred tax credits(503,200)$2,455,700
Revenues and expenses are included in the Company’s statement ofoperations from May 1, 2005 through December 31, 2005.

The following unaudited pro forma data summarizes the results ofoperations of the Company for the years ended December 31, 2005 and 2004 as if theacquisition had been completed on January 1, 2004. The pro forma data gives effect to theactual operating results prior to acquisition. The pro forma results do not purport to beindicative of the results that would have actually been achieved if the acquisition hadoccurred on January 1, 2004 or may be achieved in the future.

**December 31, 2005**
**December 31, 2004**Revenues
$4,558,174
$4,681,316Net income (loss)(1,505,316)(520,812)Basic net earnings (loss) per share(0.07)(0.03)**(3) Inventory**
Inventory at December 31, 2005 consisted of the following:

**2005**
Finished goods
$
134,240
Work in process
25,696
Parts and    materials
1,148,305
1,308,241
Less:    Obsolescence reserve
(303,584)
$
1,004,657**(4) Property and Equipment**
A summary of property and equipment and related accumulateddepreciation and amortization are as follows:

**2005**
Office furniture and    equipment
$
404,643
Machinery and equipment
1,417,041
Transportation equipment
191,151
Leasehold improvements
95,240
Total property and    equipment
2,108,075
Less: Accumulated    depreciation and amortization
(1,279,026)
Net property and equipment
$
829,049**(5) Intangible Assets

Intangible assets at December 31, 2005 consisted of the following:

**2005**
Patents
$
2,053,330Trademarks465,199Sole Source Contract464,0392,982,568
Less accumulated    amortization
(446,305)
$
2,536,623**(6) Long-term Debt**
Long-term debt consisted of the following:

**December    31**
**2005**
**2004**
Note payable to a bank,    interest due monthly at prime plus 2%, principal payment due December 17, 2006, secured by    assets of the Company's subsidiary
$
2,000,000
$
-
Note payable, with interest    at 10.75%, interest payments due quarterly, with the principal balance due on December 10,    2006
71,588
-
Other notes with various    terms
47,837
-
2,131,605
-
Less current portion
(2,131,605)
-
$-
$
-
Principal repayment provisions of long-term debt are as follows atDecember 31, 2005:

2006
$
2,131,605
Total
$
2,131,605**(7) Concentration of Credit Risk**
Financial instruments that potentially subject the Companies to creditrisk are primarily accounts receivable – trade and notes receivable. The Companygrants credit to customers throughout the United States. Generally, the Companies do notrequire collateral or other security to support customer receivables.
**(8)    Income Taxes**
The following table set forth a reconciliation of the statutory of federal income taxfor the year December 31, 2005 and 2004. The loss before taxes was $1,194,456 in 2005 and$6,993 in 2004.

**December 31****2005****2004**Income tax benefit    computed at statutory rate for$(406,182)$(2,378)Permanent differences -    non deductible expenses84,600-Increase in valuation allowance321,5822,378Tax benefit$-$-
The Company will not file a consolidated income tax return.

Deferred Income Taxes

The tax effects of the temporary differences between financial statement income andtaxable income are recognized a deferred tax asset and liability as of December 31,2005 isset below.

**December 31****2005****2004**Deferred tax assets:$$   Net operating loss - current    period362,88241,300   Total    deferred tax asset362,88241,300   Valuation allowance(362,882)(41,300)   Net    deferred asset$-$-  
**December 31****2005****2004**Deferred tax    liability:$$   Fixed    asset temporary difference138,775-   Intangible asset temporary    difference364,425-   Net    deferred tax liability$503,200$-
The Company's parent has various net operating loss carryforwards in excess of$13,000,000 which expire in 2026. The loss is limited under Internal Revenue Code Section382.
**(9) Segment Information**
The Company has two reportable segments and corporate overhead:Hammonds was two separate reportable segments, Hammonds Technical Services, Inc. andHammonds Fuel Additives, Inc. (collectively *"Hammonds"*) manufacturersengineered products and chemicals that serve multiple segments of the fuels distribution,water treatment and utility vehicle industries. Hammonds products are marketed by aworldwide network of distributors, manufacturers representatives and original equipmentmanufacturers. The corporate overhead includes the Company's investment holdings includingfinancing current operations and expansion of its current holdings as well as evaluatingthe feasibility of entering into additional businesses.

The accounting policies of the segments are the same as those describedin the summary of significant accounting policies. The Company evaluates performancesbased on profit or loss from operations before income taxes, not including nonrecurringgains and losses and foreign exchange gains and losses.

The Company's reportable segments are strategic business units thatoffer different technology and marketing strategies.

The Company's areas of operations are principally in the United States.No single foreign country or geographic area is significant to the consolidated financialstatements.

Consolidated revenues, operating income/(losses), and identifiableassets were as follows:

**December    31**
**2005**
**2004**
Revenues:
Hammonds Technical Services
2,583,887
-
Hammonds Fuel Additives
811,264
-
Corporate
-
-
$
3,395,151
$
-
Income (loss) from    operations:
Hammonds Technical Services
(1,076,259)
-
Hammonds Fuel Additives
(10,888)
-
Corporate
(19,125)
(6,993)
$
(1,106,272)
$
(6,993)
Identifiable assets:
Hammonds Technical Services
2,193,207
-
Hammonds Fuel Additives
3,138,302
-
Corporate
418,258
832,142
$
5,749,767
$
832,142
**(10) Commitments**
The Company leases office space under a noncancellable operating leasewhich expires in September 2010. Future minimum lease payments under the operating leaseare as follows:
**Year****December 31,****Amount**2006$307,2002007307,2002008307,2002009307,2002010230,400$1,459,200
Lease expenses for the years ended December 2005 and 2004, were $40,000and $0, respectively. The Company is obligated to pay a management fee to its parent inthe amount of $10,000 monthly. 

**(11) Related Party Transactions and Economic Dependence**

The Company has been and continues to be dependent upon the funding fromits parent, American International Industries, Inc. At December 31, 2005, the Company owedthe parent $1,843,588.

 **********************************************