UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C. 20549


___________________




FORM
10-KSB/A


________________________________




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




For the
fiscal year ended December 31, 2005




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




For the
transition period from         
to




Commission
file number: 0-50912




INTERNATIONAL
AMERICAN TECHNOLOGIES, INC.




(Exact
Name Of Registrant As Specified In Its Charter)




Nevada
            88-0225318(State
      of Incorporation)
            (I.R.S.
      Employer Identification No.)601 Cien Street, Suite 235 Kemah,
      TX
            77565-3077(Address
      of Principal Executive Offices)
            (ZIP
      Code)




Registrant's Telephone Number,
Including Area Code: (281) 334-9479




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






Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment 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 the registrant was approximately $2,485,418. At December
31, 2005, the registrant had 20,135,000 shares of common stock outstanding.
Issuer's revenues for its most recent fiscal year: $3,395,151.




Indicate
whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes   ̈ No x




Indicate
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes  ̈ No x





EXPLANATORY
NOTE
  In
response to a letter from the SEC in connection with the review of the Company’s
Form 10-QSB for Fiscal Quarter Ended September 30, 2006, the Company has
reexamined the footnote disclosures.  As a result of our
reexamination, we have restated footnotes (1) Summary of Significant Accounting
Policies and (2) Acquisition of Hammonds Technical Services, Inc. for the year
ended December 31, 2005.







TABLE OF CONTENTS




Item
            
            Description
            
            PagePART
      IITEM
      1.
            
            DDESCRIPTION OF
      BUSINESS
            
            
            3ITEM
      2.
            
            DESCRIPTION OF
PROPERTY
            
            
            17ITEM
      3.
            
            LEGAL
      PROCEEDINGS
            
            
            17ITEM
      4.
            
            SUBMISSION OF MATTERS
      TO A VOTE OF SECURITY HOLDERS
            
            
            17PART
      IIITEM
      5.
            
            MARKET FOR
      REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS
            
            
            18ITEM
      6.
            
            MANAGEMENT'S DISCUSSION AND
      ANALYSIS AND PLAN OF OPERATION
            
            
            18ITEM
      7.
            
            FINANCIAL
      STATEMENTS
            
            
            21ITEM
      8.
            
            CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            
            
            21ITEM
      8.A
            
            CONTROLS AND
      PROCEDURES
            
            
            21ITEM
      8.B
            
            OTHER
      INFORMATION
            
            
            21PART
      IIIITEM
      9.
            
            DIRECTORS AND EXECUTIVE
      OFFICERS OF THE REGISTRANT, COMPLIANCE WITH SECTION
      16(A)
            
            
            23ITEM
      10.
            
            EXECUTIVE
      COMPENSATION
            
            
            24ITEM
      11.
            
            SECURITY OWNERSHIP OF
      CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            
            
            24ITEM
      12.
            
            CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS
            
            
            25ITEM
      13.
            
            EXHIBITS AND REPORTS ON
      FORM 8-K
            
            
            25ITEM
      14.
            
            PRINCIPAL ACCOUNTING FEES
      AND SERVICES
            
            
            25













Cautionary
Statement regarding Forward-Looking Statements






This
Annual Report on Form 10-KSB/A of International American Technologies, Inc.
(hereinafter the "Company", the "Registrant" or "IMTG") includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Registrant has based these forward-looking statements on its current
expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about the Registrant that may cause its actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-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. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those
described in this Annual Report on Form 10-KSB/A and in the Registrant's other
Securities and Exchange Commission filings. Should one or more of these risks or
uncertainties materialize, or should any of our assumptions prove incorrect,
actual results may vary in material respects from those projected in the
forward-looking statements. For a more detailed discussion of the foregoing
risks and uncertainties, see "Risk Factors".






PART
I






ITEM 1. DESCRIPTION OF BUSINESSBack to
Table of Contents






International
American Technologies, Inc.






International
American Technologies, Inc., a Nevada corporation, is publicly traded on the
pink sheets under the symbol IMTG. The Company was incorporated on August 18,
1986 and in connection with 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 Coatings Corporation to International
American Technologies, Inc. The Registrant is an 81.0% owned subsidiary of
American International Industries, Inc., a public reporting company under the
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 report of International American
Technologies Inc., (hereinafter the "Company", "IMTG", "We" or the
"Registrant"  discuss future expectations, contain projections of our
operations or financial condition or state other forward-looking information. On
February 28, 2005, the Registrant entered into a Stock Purchase Agreement (the
"Agreement") to acquire 51% of the capital stock of Hammonds Technical Services,
Inc., a privately owned Texas corporation ("Hammonds") in consideration for the
Registrant or its parent, American International Industries, Inc., providing:
(i) 998,300 in cash to Hammonds for working capital; (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., issuing 145,000 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 equity
interests 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 of the Registrant.






General
Background of Hammonds






Hammonds
Technical Services, Inc. and Hammonds Fuel Additives, Inc. were separate private
company's and, in connection with the acquisition by IMTG, Hammonds Fuel
Additives was merged into Hammonds Technical Services on February 28, 2005.
Hammonds manufactures engineered products and chemicals that serve multiple
segments of the fuels distribution, water treatment and utility vehicle
industries. Hammonds' products are marketed by a worldwide network of
distributors, manufacturers representatives and original equipment
manufacturers. Hammonds was founded in 1982 by Carl Hammonds and provides the
following diverse products and services:






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






Hammonds
designs and manufactures fluid handling equipment. Hammonds fluid powered
additive systems permit the use of a single battlefield fuel by supplying both
distribution and tactical additive injectors to all branches of the United
States military. Hammonds intends to continue to provide additive injection
systems to the military through sole source equipment contracts. Hammonds
manufactures truck mounted injectors with custom blending at the end of the hose
for jet fuel and other products such as diesel, LPGN (propane), home heating
oil, and bio-diesel. In January 2005, Hammonds began a long-term project to
install dye injection systems in over eight hundred Canadian and U.S. stationary
and truck mounted diesel delivery injectors and is continuing this project in
2006.






Hammonds'
fuel additive division produces and markets motor and aviation 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 approved for use in
aviation fuels, but it has also been tested and approved as a preservative for
manufactured wood products such as engineered trusses, windows and sheet
building materials. The expanding use of these manufactured wood products should
provide a new expanded market for Biobor® JF since products such as arsenic have
been removed from the list of approved wood preservatives.






In March
2005, Hammonds started production of an entirely new type of industrial utility
vehicle called Omni Directional Vehicle ("ODV"). Hammonds believes that ODV
utility vehicle will establish a new standard for industrial utility vehicles
based on vehicle safety and performance. Hammonds believes that the patented new
design can be utilized in connection with forklifts, freight terminal tractors,
security vehicles, 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 range of vehicles based on its ODV
patented technology. In addition, Hammonds has received initial stocking orders
for ODVs from distributors which provide for six ODVs and a delivery schedule of
a minimum of two ODVs per month for the next twelve months. The total revenues
of the initial stocking orders and the scheduled delivery orders are estimated
at $2,500,000. Subsequent to the year ended December 31, 2005, Hammonds 
received orders for: its new line of ODVs; water purification products; and fuel
additives and injectors. These orders, which exceed $3,000,000, are scheduled to
be delivered during the last quarter of 2006 and the first quarter of
2007.






Description
of Hammonds Products and Services






Water Treatment Technology
Systems






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






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






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






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






Fuel Handling Equipment
Systems






Fluid
Powered Injectors: Hammonds' injector systems 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-flow injection of up to
eight different additives, separately or simultaneously. With primary
applications in fuel distribution, Hammonds' fluid powered injectors are chosen
for aviation fuels for application in fuel system icing inhibitors, corrosion
inhibitors, conductivity and thermal stability additives.






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






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






In-Tank
Vehicle Additive System: The In-Tank system automatically dispenses additives
into vehicle tanks as they are filled with fuel. This system functions without
power or controls while a variety of performance additives can be blended as the
vehicle moves from fuel stop to fuel stop. Hammonds expects that higher energy
costs and growing demand for alternative blended fuels will continue to increase
demand for Hammonds' proprietary technology.






LPGN and
Natural Gas Blending: Hammonds has a line of injector systems that enable new
chemicals to be added to ordinary LPGN and natural gas, which will replace
acetylene as fuel in manufacturing processes. Consumers of high volumes of
natural gas or acetylene 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 for sale, these
units are distributed to industrial fuel and marine equipment dealers throughout
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 solid state controls. Hammonds has developed and has commenced
production of the second generation of injector systems and believes that these
new additive systems should enable Hammonds to maintain its competitive market
position in this growing market into the next decade.






Additives for General Fuels
and Commercial Aviation Fuels






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






Biobor®
JF Fuel Biocide: In 1991, Hammonds purchased Biobor® 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 the aviation industry
as a means of controlling dangerous corrosion and contamination of aviation 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
aviation fuels. Currently, only two manufactures are approved and Biobor® JF has
continued to command the majority of the aviation market. Also widely used
indiesel and
heavy fuels 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 performance additives including detergents, pourpoint
depressants, cetane improvers, lubricity agents and fuel system icing
inhibitors. These products are purchased in bulk from manufacturers such as
Shell and Union Carbide and are carefully selected to provide a well-rounded
family of products that compliment the commercial and marine industry, aviation,
railroad and off-road equipment market. All such products have trademarked names
owned by Hammonds.






Fuel
Quality Materials:Hammonds offers fuel
test kits and materials used inquality control, filter
media, water absorption materials and related accessories utilized extensively
by aviation, off-road, commercial transportation, marine and railroad
industries.






Omni Directional
Vehicles






Hammonds
Omni Directional Vehicle (ODV) is based on a round chassis that is driven by two
individually powered wheels located at the center axis of the circle. Caster
wheels either in the rear of the vehicle at a fixed point, or on a transport
tool carriage that moves about the circumference of the chassis, balances the
vehicle and allows it to move in any radial direction from a given point
regardless of the position of the "front" of the vehicle.Since it is possible to
rotate a full360
degrees without moving off its original position, it can change direction by
simply rotating to the desired direction, and then begin moving forward or in
reverse.






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






Hammonds
believes that its newly-developed line of ODVs has createdan
entirely new class of industrial vehicles presenting Hammonds with an
opportunity to reshape the way multiple industries move equipment and
materials.






The ODV
utilizes the most current closed loop hydrostatic technology. Integral dynamic
and parking brakes, dual speed wheel motors and digitally controlled pumps
utilize sophisticated controls that offer engineering a wide range of options in
delivering features to the customer. Electric power will play a dominant role in
future propulsion of industrial vehicles and Hammonds' ODVs are ideally suited
to electric power. With plans to provide munitions loaders for the Joint Strike
Force aircraft as well as current aircraft in theU.S. inventory,
Hammonds believes that the sophistication level of its ODV will grow and enable
it to meet the precise handling requirements in multiple targeted
industries.






Markets
Hammonds Operates In






Water Treatment
Market






Demand for Clean Water. It is
estimated three percent of the world's water is fresh water, most of which is in
the form of ice and snow. It is further estimated that approximately 0.6 percent
of all the world's water is used by humans for various purposes, including
agricultural uses. Only some of this water can be used again, after purification
treatment. About 70 percent of all fresh water is used for irrigation, and most
of this cannot be recycled. In the U.S. about 30 percent 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% for domestic
drinking, cooking, and sanitation.






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






Although
municipal agencies and water utilities in the United States are required to
provide drinking water which complies with the U.S. Safe Drinking Water Act, the
water supplied to homes and businesses from municipalities and utilities may
contain high levels of bacteria, toxins and parasites, as well as high levels of
chlorine used to eliminate contaminants. The importance of effective water
treatment is critical from a health concerns standpoint due to the fact that
impure water can impair consumers' confidence in food products, and discharge
violations 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 a substance which causes tiny, sticky particles (called
"floc") to form - these attract dirt and other particles suspended in the water.
This process of coagulation results in the heavy particles of dirt and floc
clumping together and falling to the bottom. These heavier particles form
sediment which is siphoned off, leaving the clearer water, 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 beds and passes
down through layers of sand, gravel and charcoal. The final process is
disinfection, which is intended to kill bacteria or other microorganisms left in
the water and 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, and ultraviolet (UV) are also used. Hammonds manufactures
under several U.S. and foreign patents tableted calcium hypochlorite systems
which provide water disinfection for a wide range of potable and waste water
applications. Today's trend in water treatment filtration, due to the higher
demands for water and the reduction in clean or relatively clean source waters,
is to clarify and heavily filter all municipal water supplies. The smaller
municipalities will also be required to meet the added water quality goals of
the larger systems and will require the infrastructure to do so. Smaller
municipalities ordinarily do not have the technical or financial resources
required to design build and operate systems that will meet the new water
quality criteria.






Fuel Handling Equipment
Market






Hammonds
manufactures a wide variety of fluid injector systems 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-flow injection
of up to eight different additives, separately or simultaneously. With primary
applications in fuel distribution, Hammonds' fluid powered injectors marketed to
the general aviation industry and the U.S. military for application in fuel
system icing inhibitors, corrosion inhibitors, conductivity and thermal
stability additives. Hammonds' fuel handling equipment provides this market with
an advanced means of blendings additives and chemicals.






Fuel Additives
Market






Fuel
additives are the only means by which the performance of fuels can be enhanced.
Hammonds believes that higher levels of demand by the aviation and ground based
equipment industry will continue to grow, with increased levels of performance
from fuel additives. Hammonds manufactures and/or markets additives for
aviation, diesel, gasoline, LPGN and natural gas powered vehicles and equipment.
Governments worldwide are legislating specifications regarding the fuel itself
and engine design. Today's advanced fuel engines are far cleaner than the
engines of prior decades. Unfortunately, even today's engines are not clean
enough to meet current stricter air pollution regulations. Diesel fuel engines
can become ultra-clean. Meeting the environmental challenges will require
extensive research on clean-fuel technology. Research in this area is currently
being sponsored by government agencies, major engine companies, truck and plane
manufacturers, automobile makers, catalyst producers and, for fuels, oil
refining companies and their technology suppliers. Large Fortune 500 companies,
as well as small, emerging technology companies are investing hundreds of
millions of dollars in research and development worldwide on clean-fuel
technologies.






Hammonds
manufactures its Biobor® JF fuel additive for sale to the general and military
aviation industries. Biobor® JF provides a means of controlling dangerous
corrosion and contamination of aviation fuel as a result of hydrocarbon
utilizing micro organisms. Biobor® JF is one of only two biocides approved for
use in aviation fuels. Currently, only two manufactures are approved and Biobor®
JF has continued to command the majority of the aviation market. Also widely
used indiesel and
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 icing inhibitors. These
products are purchased in bulk from manufacturers such as Shell and Union
Carbide and are carefully selected to provide a well rounded family of products
that compliment the commercial and marine industry, aviation, railroad and
off-road equipment market. All such products have trademarked names owned by
Hammonds.Hammonds
offers fuel test kits and materials used inquality control, filter
media, water absorption 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 industry will require approximately 100,000
ground support vehicles during the next five years. Hammonds believes that the
aviation  industry is undergoing electrification and expansion into
regional jet service in addition to now facing a depleted and worn fleet as a
result of world political and economical conditions over the past three
years.






Fork
lifts: This fundamental industrial tool represents the largest segment of
industrial vehicle demand with an annual production of of more than 160,000
units during the past year. Hammonds believes that the technology and advanced
engineering features of its ODV  represents an advance in the fork lift
industry.






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






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






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






Each of
the  major classifications of equipment can be segmented into several
categories. A fundamental benefit of the ODV is the diversity of the markets and
industries it is capable of serving. In each segment of each major
classification, Hammonds believes that there are distinct market boundaries
providing a broad base of opportunity for the ODV product line.






Hammonds
Business Strategy






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






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






• Diverse
background in design, manufacturing and sales of materials handling
equipment;


•
Leadership in aviation fuels treatment for both commercial and military
uses;


• Strong
marketing alliances with major industries and organizations including 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;


•
Introduction and continued development of the ODV, providing significant growth
potential;


•
Continued development of an extensive network of distributors and original
equipment manufacturers;


•
Patented, proprietary technology in markets with high growth
potential;


• High
profile visibility with broad based industries such as aviation, petroleum
distribution, water treatment and utility vehicles; and


• Ability
to secure additional debt or equity financing at terms and conditions
satisfactory to the Registrant.






Competition






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






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






Among our
competitors are some of the world's largest chemical and water treatment
companies and major integrated companies that have their own raw material
resources and far greater financial resources. Hammonds will compete with
numerous well-established water treatment providers, fuel additive and chemical
products companies, fuel handling equipment companies and industrial vehicle
manufacturing and marketing 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 equipment manufacturers
presently offering new proprietary designs. Other providers, Hammonds believes,
sell new versions of systems based upon designs that were developed thirty and
forty years ago. Price is a powerful incentive in this industry, however, and
performance with low installation costs will continue to drive customer demands.
Hammonds believes that Gammon Technical Services and Lubrizol are its main
competitors in its fuel handling equipment business. There are a number of small
competitors that use non-proprietary technology. Hammonds' fuel handling
products are focused on unique market segments. Hammonds believes that its
injectors are most successful in markets where electrical power and or metering
equipment is not available. Hammonds has been a sole-source vendor for the
United States Air Force and Army since 1985.






In the
fuel additive market, Hammonds developed additive blending, introducing a fluid
powered system that has been widely accepted in military and general aviation.
The U.S. military has accepted the Hammonds' injectors as its "sole source" for
rapid deployment combat and terminal pipeline injection. This has provided
Hammonds with contracts for these products and it believes a competitive
advantage compared to other equipment manufacturers that cannot meet the
required specifications.






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






Hammonds'
Biobor® JF fuel biocide is approved for control of microbial growth in
hydrocarbon fuels. The Biobor® JF product, a fuel additive, is widely recognized
as a standard for control of fuel-born microbial growth and has been widely
accepted in the aviation, marine and power generation industries. Hammonds has
established a very competitive position with the Biobor® JF product, selling to
such major customers 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 does
not believe that any other product is as accepted in the market as its Biobor®
JR. While Biobor® JF is one of only two biocides approved for use in aviation
fuels, it has also been tested and approved as a preservative for manufactured
wood products such as engineered trusses, windows and sheet building materials.
The expanding use of these manufactured wood products should provide a new
expanded market for Biobor® JF since products such as arsenic have been removed
from the list of approved wood preservatives. Hammonds believes that it enjoys
strong market position in the aviation fuel additive market. Several other
competitors have entered this market with limited success. There is considerable
competition in the field of fuel biocides.






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






Many of
our competitors have achieved significant national brand name and product
recognition and engage in extensive promotional programs. Moreover, certain of
our products and services use technology that is widely available. Accordingly,
barriers to entry, apart from capital availability, may be low in certain
product segments of our business, and the entrance of new competitors into the
industry may reduce our ability to capture improving profit margins in
circumstances where capacity utilization in the industry is increasing.
Hammonds' ability to compete successfully will depend on our success at
penetrating each targeted market with our products and services, market
acceptance of its products and services, our ability to license and develop new
and improved products, and our ability to develop and maintain distribution
networks. There can be no assurance that Hammonds will be able to compete
successfully, that its products will continue to meet with customer approval,
that competitors will not develop and market products that are similar or
superior to our products or that Hammonds will be able to successfully enhance
its products or services.






Production
Facilities






Hammonds'
facilities are located on 10 acres of land in Houston, TX and include a 104,000
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 monthly rental of
$25,000. This facility also has a subtenant that leases approximately 24,000
square feet at a monthly rental of $8,000. In addition, Hammonds maintains an
executive office facility in Harris County, Houston, TX. The Houston, TX
facility has sufficient production capacity to meet the Company's anticipated
needs for product for the foreseeable future.






Materials
and Principal Suppliers






Hammonds'
additive systems are assembled using fabricated parts from Hammonds' facility
and machined parts manufactured in our in-house machine shop. Light sheet metal
working equipment were added to our fabrication capacity in 2005. Hammonds
performance additives, including detergents, pourpoint depressants, cetane
improver, lubricity agents and fuel systems icing inhibitors, are produced by
Hammonds from products that 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 range of
manufacturers offer equipment of this type making sourcing of primary components
selective 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. Hammonds other
significant customers include Arch Chemical, CSX Railroad, Exxon/Mobil, BP
Aviation, Chevron/Texaco, Tomco, KopCoat, Defense Energy Supply and Lockheed
Martin. If any of these major industrial or governmental agencies terminated its
relationship with Hammonds, whether as the result of technological advances by
competitors, or otherwise, the business operations 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 and patents pending. At
present, Hammonds owns three patents covering various fuel additive blending
applications. In addition, Hammonds owns six patents covering its water
treatment technology. Its new Omni Directional Vehicle is covered by five
patents related to design.






Employees






As
of December 31, 2005, Hammonds had 46 full time employees including 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 the rules 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 on personnel or the
environment. The use of certain chemicals and other substances is subject to
extensive and frequently changing federal, state, provincial and local laws and
substantial regulation under these laws by governmental agencies, including the
EPA, the Occupational Health and Safety Administration, various state agencies
and county and local authorities acting in conjunction with federal and state
authorities. Among other things, these regulatory bodies impose requirements to
control air, soil and water pollution, to protect against occupational exposure
to chemicals, including health and safety risks, and to require notification or
reporting of the storage, use and release of certain hazardous chemicals and
substances. Hammonds provides all required label warnings and instructions for
the handling of its fuel additive products. Hammonds believes that it is in
substantial compliance with all laws and regulations governing its material
business operations and has obtained all required licenses and permits for the
operation of its business. There can be no assurance that Hammonds in the future
will be able to comply with, or continue to comply with, all current or future
government regulations in every jurisdiction in which it will conduct its
material business operations without substantial cost 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 comply with
such requirements, Hammonds could be subject to substantial sanctions, including
restrictions on its business operations, monetary liability and criminal
sanctions, any of which could have a material adverse effect upon Hammonds'
business. However, Hammonds' believes that it is in full compliance with all
present environmental rules and regulations 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 equity ownership interest.
Shareholders will be subject to risks inherent in our business. The performance
of our shares will reflect the performance of our business relative to, among
other 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. An investor should carefully consider the following factors as
well as other information contained in this annual report on Form
10-KSB/A.






This
annual report on Form 10-KSB/A also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in the forward-looking statements as a result of many factors,
including the risk factors described below and the other factors described
elsewhere in this Form 10-KSB/A.






RISK FACTORS RELATED TO OUR
BUSINESS






Dependence Upon Affiliate
for Funding






The
Registrant completed the acquisition of 51% of Hammonds on April 28, 2005. In
order to successfully grow Hammonds business and meet Hammonds plans to increase
its market share for its products and services, the Registrant has been and
continues to be dependent upon the funding from its parent, American
International Industries, Inc. (OTCBB:AMIN) and the parent's ability to secure
and maintain its existing $2,000,000 revolving credit line for Hammonds. We
presently estimate that Hammonds will need approximately $1,500,000 in
additional financing in order to complete development of  Hammonds' ODV and
expand Hammonds products and services in water treatment technology systems,
fuel handling equipment systems, additives for general fuels and commercial
aviation fuels. The Registrant believes that additional debt and/or equity
financing will be available at terms and conditions acceptable to the
Registrant. However, there can be no assurance that unforeseen events, such as
the length of time necessary to generate market acceptance of the ODVs, 
any unexpected material increased development costs, and the general economy in
the markets where Hammonds operates, may result in an inability to secure
necessary additional financing at satisfactory terms and conditions, if at
all.






We may experience adverse
impacts on our results of operations as a result of adopting new accounting
standards or interpretations.






Our
implementation of and compliance with changes in accounting rules, including new
accounting rules and interpretations, could adversely affect our operating
results or cause 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 quarterly reports disclosing the effectiveness of our
internal controls and procedures. Although we believe our internal controls are
operating effectively, and we have committed internal resources to ensure
compliance, we cannot guarantee that we will not have any material weaknesses as
reported by our auditors and such determination could materially adversely
affect our business or significantly increase our costs in order to establish
effective controls and procedures.






Competition






While we
believe that we are competitive and have an established presence in our water
treatment technology systems, fuel handling equipment systems, additives for
general fuels and commercial aviation fuels business sectors, we may face
significant competition in our efforts to market and sell our new ODV. Further
we could face competition from our customers, if they determine to produce and
use the products we presently sell in our water treatment technology systems,
fuel handling equipment systems, additives for general fuels and commercial
aviation fuels business sectors. Many of our customers are well-established and
possess far greater financial, technical, human and other resources than does
the Registrant.






We will
compete against many companies in fragmented, highly competitive markets and we
have fewer resources than some of those companies. Our business sectors compete
principally on the basis of the following factors: product quality and
specifications (water treatment technology and fuel additives); customized
design and technical qualifications (fuel handling equipment and industrial
utility vehicles); and reputation, technical expertise and reliable service
(fuel additives and fuel handling equipment). Competitive pressures, including
those described above, and other factors could cause us additional difficulties
in acquiring and maintaining market share or could result in decreases in
prices, either of which could have a material adverse effect on our financial
position and results of operations. From time to time, the intensity 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 to generate an operating profit.






Development efforts for our
new ODV product line are dependent upon factors outside of our control, and upon
successful completion of development and market acceptance






We have
devoted significant financial and other resources to the development of our new
Omni Directional Vehicle (ODV). We are dependent upon the ability of the third
party manufacturers and subcontractors of the ODV components and complete units
and for them to to successfully complete manufacturing of the units in a timely
manner, with the features that 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 with forklifts, freight terminal tractors,
security vehicles, industrial highways mowers and a full range of aviation
ground handling vehicles. Hammonds has produced several prototypes of its ODV
products at its plant in Houston, TX and has entered into license agreements
with several major manufacturers to produce a range of vehicles based on its ODV
patented technology. While Hammonds has been successful in generating initial
stocking orders for 6 ODVs 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 sell a sufficient number of ODV units to
generate significant revenues and profits.






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






We rely heavily on
commodities in the manufacturing of our equipment and price fluctuations can
have a material and adverse affect on the cost structure of our
business






We are
exposed to fluctuations in market prices for various commodities in the
production of our fuel additive and water treatment products. The rising price
of steel also can have an impact on the cost of production of our ODVs. At this
time, we are unable to predict the 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, to limit near-term
exposure to fluctuations in raw material prices. As a result, the cost to
manufacture our products may rise at a time when we are unable to increase the
selling price of such products.






Our business is subject to
environmental regulations; failure to comply could result in substantial
penalties






We are
regulated by various national and local environmental laws governing our use of
substances and control of emissions in all our operations. Compliance with these
laws could have a material impact on our capital expenditures, earnings, or
competitive position. Our failure or inability to comply with the applicable
laws and regulations could result in monetary or other penalties, resulting in
unanticipated expenditures or restrictions on our ability to
operate.






We are dependent on
third-party distributors for our ODV sales, which could reduce our ability to
gain marketplace acceptance






We have
begun efforts to build the Hammonds ODV brand through direct sales and through
distribution networks and major supply agreements with other companies. Several
distributors have elected to carry initial stocking inventories of our ODV and
some have scheduled 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, in continued scheduled orders for future
shipment, as we as increasing development of our third party distribution
network. In addition, distributors may elect to make special ODV orders with
specific components and features based upon their various customers'
requirements.  This could result in continued adjustment to inventories
based on their assessments of future needs. Such adjustments can impact our
results either positively or negatively.






A disruption or termination
of our relationships with certain suppliers could have a material adverse effect
on our operations






Certain
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 number of suppliers. Disruption or termination of supplier
relationships could have a material adverse 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 of necessary components or the
need to develop alternative sources, if and as required in the future, could
result in delays or reductions in product shipments which in turn could have an
adverse effect on our operating results and customer relationships.






Actual results could differ
from the estimates and assumptions that we use to prepare our financial
statements






To
prepare financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions, as of the
date of the financial statements, which affect the reported values of assets,
liabilities, revenues and expenses and disclosures of contingent assets and
liabilities. Areas requiring 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 the
same






We are subject to the risks
associated with being a government contractor






We are a
provider of products and services to governmental agencies, including municipal
water agencies, waste treatment, and our fuel additive and injector services for
the U.S. military. We are therefore exposed to risks associated with government
contracting, including reductions in government spending, canceled or delayed
appropriations specific to our contracts or projects, heightened competition and
modified or terminated contracts. Legislatures typically appropriate funds for a
given program on a year-by-year basis, even though contract performance may take
more than one year and are not always guaranteed. As a result, at the beginning
of a contract or project, the related contract or project may be only partially
funded, and additional funding is normally committed only as appropriations are
made in each subsequent year. These appropriations, and the timing of payment of
appropriated amounts, may be influenced by, among other things, the state of the
economy, competing priorities, curtailments in the use of government contracting
firms, budget constraints, the timing and amount of tax receipts and the overall
level of government expenditures.






Our dependence on major
customers could adversely affect us






Hammonds
has been dependent upon its ability to market its products and services to major
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 or governmental agencies terminated its relationship with Hammonds,
whether as the result of technological advances by competitors, or otherwise,
the business operations and financial condition of the Registrant could be
adversely effected.






Our failure to attract and
retain qualified personnel, including key officers, could have an adverse effect
on us






Our
ability to attract and retain qualified engineers, and other professional
personnel in accordance with our needs is an important factor in determining our
future success. The market for these professionals is competitive, and there can
be no assurance that we will be successful in our efforts to attract and retain
needed professionals. In addition, our ability to be successful depends in part
on our ability to attract and retain skilled laborers in our manufacturing and
service business. Demand for these workers can be high at times and the supply
can be extremely limited at times. Our success is also highly dependent upon the
continued services of our key officer, Carl Hammonds and the 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 market






There can
be no assurance that we will be successful in marketing our ODV, which is a new
technology aimed at a highly competitive industry for industrial utility
vehicles.  The market for new products can be very difficult to establish.
There are competitors with long-established products, accepted technology and
superior financial resources for marketing such products. If the market for our
ODV product line takes longer to develop than anticipated, this would have an
adverse affect on revenues and potential profitability. While we believe the ODV
represents an important innovation in industrial utility vehicles, we cannot
ensure our targeted customers will purchase a significant number of units or
that we will be able to establish a nationwide and international network of
distributors. If the market develops more slowly than anticipated we may require
additional financing in addition to the presently estimated $1,500,000, and no
assurances can be made that additional funding will be available at acceptable
terms and conditions.






We may need additional
capital to fund our negative cash flow from operations through debt or
equity






Based
upon our present available cash and credit line, we require additional funding
through debt and/or equity financing to cover our costs of operations and the
costs of completing development of the ODV line. We expect to fund our general
operations and marketing activities for fiscal 2006 with the funding provided or
arranged for us by our corporate parent, American International Industries or
through the sale of equity. However, unexpected expenses or increases in costs
may arise. There is no assurance we can raise the additional capital in a timely
manner as and if needed. As additional funds are required it may be expected
that we sell additional securities or seek increased credit lines or new debt
financing, but there can be no assurance that such financing will be at terms
satisfactory to us.






Potential risks associated
with rapid technological changes






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






Changes
in technology, competitively imposed process standards and regulatory
requirements influence the demand for many of our products and services. To grow
and remain competitive, we need to anticipate changes in technological and
regulatory standards. We need to continue to introduce new and enhanced products
on a timely 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 operational failure. Stricter governmental regulations also may affect
acceptance of new products. Our various patents may not provide substantial
protection from competition or be of commercial benefit to us. We may not be
able to enforce our rights under trademarks or patents against third parties.
Some international jurisdictions may not protect these kinds of rights to the
same extent that they are protected under U.S. law. If a third party
successfully challenges our trademarks or patents, it may affect our competitive
and financial position.






Environmental factors and
changes in laws and regulations could increase 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
treatment business 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 and standards for regulated materials
and require us to obtain a permit and comply with various other
requirements






The
improper characterization, handling, or disposal of regulated materials or any
other failure to comply with federal, state and local environmental laws and
regulations or associated environmental permits may result in the assessment of
administrative, civil, and criminal penalties, the imposition of investigatory
or remedial obligations, or the issuance of injunctions that could restrict or
prevent our ability to perform.






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






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






Dependent upon our ability
to manage our growth.






Hammonds
anticipates continued rapid growth in the future, based upon in 2005 sales and
new orders, especially if its marketing efforts for its new ODV are successful.
In such event 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 a materially adverse effect on the Company's business
and results of operations.






Limited patent and
proprietary information protection






Hammonds
believes that its patents for its various products and systems, including the
new ODV, and the proprietary processes used in production of its products and
equipment systems, does not infringe on the patents and proprietary rights of
others. In the event that Hammonds' products infringe the patent or proprietary
rights of others, we may be required to modify our process or obtain a license.
There can be no assurance that we would 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. In addition, there can be
no assurance that the Company will have the financial or other resources
necessary to prosecute or defend a patent infringement or proprietary rights
action. Moreover, if any of the Company's products infringe patents or
proprietary rights of 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 own patents and proprietary know-how and
confidential information and employs various methods to protect the processes,
concepts, ideas and documentation associated with its proprietary rights.
However, such patents and methods may not afford complete protection and there
can be no assurance that others will not independently develop such processes,
concepts, ideas and documentation or otherwise challenge the Company's patents.
Although the Company requires all of its employees to sign non-disclosure,
non-competition and inventions agreements, there can be no assurance that such
agreements will be enforceable or will provide meaningful protection to the
Company. There can be no assurance that the Company will be able to adequately
protect its patents and trade secrets or that other companies will not acquire
information that the Company considers proprietary. Moreover, there can be no
assurance that other companies will not independently develop know-how
comparable to or superior to that of the Company.






RISK FACTORS RELATED TO
MARKET OF OUR COMMON STOCK






Market prices of our equity
securities can fluctuate significantly






The
market prices of our common stock may change significantly in response to
various factors 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
generate sufficient 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
employee stock options, conversion of debt, potential acquisitions, additional
financing or otherwise.






There is only a limited
trading market for our common stock






Our
common stock is subject to quotation on the pink sheets. There has only been
limited trading activity in our common stock. There can be no assurance that a
more active trading market will commence in our securities as a result of the
increasing operations of Hammonds. Further, in the event that an active trading
market commences, there can be no assurance as to the level of any market price
of our shares of common stock, whether any trading market will provide liquidity
to investors, or whether any trading market will be sustained.






State Blue Sky Registration;
Potential Limitations on Resale of our Securities






The class
of common stock registered under the Exchange Act has not been registered for
resale under the Act or the "blue sky" laws of any state. The holders of such
shares and persons who desire to purchase them in any trading market that might
develop in the future, should be aware that there may be significant state
blue-sky law restrictions upon the ability of investors to resell our
securities. Accordingly, investors should consider the secondary market for the
Company's securities to be a limited one.






It is the
intention of the management to seek coverage and publication of information
regarding the Company in an accepted publication which permits a manual
exemption. This manual exemption permits a security to be distributed in a
particular state without being registered if the Company issuing the security
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.
The listing entry must contain (1) the names of issuers, officers, and
directors, (2) an issuer's balance sheet, and (3) a profit and loss statement
for either the fiscal year preceding the balance sheet or for the most recent
fiscal year of operations. Furthermore, the manual exemption is a nonissuer
exemption restricted to secondary trading transactions, making it unavailable
for issuers selling newly issued securities.






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






Dividends
Unlikely






We do not
expect to pay dividends for the foreseeable future. The payment of dividends, if
any, will be contingent upon our future revenues and earnings, capital
requirements and general financial condition. The payment of any dividends will
be within the discretion of our board of directors. It is our intention to
retain all earnings for use in the business operations of Hammonds and
accordingly, we do not anticipate that the Company will declare any dividends in
the foreseeable future.






Possible Issuance of
Additional Securities






Our
Articles of Incorporation authorize the issuance of 195,000,000 shares of common
stock, 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 shares issued. We may issue additional shares of common stock
in connection with any future acquisitions of operating businesses or assets or
to raise additional funding. To the extent that additional shares of common
stock are issued, our shareholders would experience dilution of their respective
ownership interests in the Company. The issuance of additional shares of common
stock may adversely affect the market price of our common stock and could
impair our ability to raise capital through the sale of our equity
securities.






Compliance with Penny Stock
Rules






Our
securities will initially be considered a "penny stock" as defined in the
Exchange Act and the rules thereunder, since the price of our shares of common
stock is less than $5. Unless our common stock is otherwise excluded from the
definition of "penny stock," the penny stock rules apply with respect to that
particular security. The penny stock rules require a broker-dealer prior to a
transaction in penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the SEC that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its sales person in the transaction, and monthly account statements showing
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 such rules, must make a special written determination that the penny
stock is suitable for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure rules have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. So long as the common stock is subject to the
penny stock rules, it may become more difficult to sell such securities. Such
requirements, if applicable, could additionally limit the level of trading
activity for our common stock and could make it more difficult for investors to
sell our common stock.






Shares eligible for future
sale






As of
December 31, 2005, the Registrant had 20,135,000 shares of common stock issued
and outstanding, 16,446,280 shares are "restricted" as that term is defined
under the Securities Act, and in the future may be sold in compliance with Rule
144 under the Securities Act. Rule 144 generally provides that a person holding
restricted securities for a period of one year may sell every three months in
brokerage transactions and/or market-maker transactions an amount equal to the
greater of one (1%) percent of (a) the Company's issued and outstanding Common
Stock or (b) the average weekly trading volume of the 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 a person
who has not been an affiliate of the Company during the three months preceding
the sale and who has satisfied a two-year holding period. However, all of the
current shareholders of the Company owning 5% or more of the issued and
outstanding Common Stock are subject to Rule 144 limitations on
selling.






ITEM 2. DESCRIPTION OF PROPERTIESBack to Table of Contents






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






Hammonds'
facilities are located on 10 acres of land in Houston, 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 monthly rental of
$25,000. This facility also has a subtenant that leases approximately 24,000
square feet at a monthly rental of $8,000. In addition, Hammonds maintains an
executive office facility in Harris County, Houston, TX. The Houston, TX
facility has sufficient production capacity to meet the Company's anticipated
needs for product for the foreseeable future.






ITEM 3. LEGAL
PROCEEDINGBack to
Table of Contents






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






ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITIES HOLDERSBack to Table of Contents






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









PART
II






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






Market
Information






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




Fiscal
      2006
            
            
            Fiscal
      2005
            
            
            Fiscal
      2004High
            
            
            Low
            
            
            High
            
            
            Low
            
            
            High
            
            
            LowFirst
      Quarter ended March 31
            
            $
            0.60
            
            
            $
            0.35
            
            
            $
            0.28
            
            
            $
            0.23
            
            
            $
            0.05
            
            
            $
            0.05Second
      Quarter ended June 30
            
            $
            0.45
            
            
            $
            0.30
            
            
            $
            0.46
            
            
            $
            0.20
            
            
            $
            0.05
            
            
            $
            0.03Third
      Quarter ended September 30
            
            $
            0.50
            
            
            $
            0.25
            
            
            $
            0.85
            
            
            $
            0.35
            
            
            $
            0.05
            
            
            $
            0.02Fourth
      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. The transfer agent of our common stock is Colonial Stock
Transfer, Salt Lake City, UT.






Dividends






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






Securities
Authorized for Issuance Under Equity Compensation Plans






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






Sale
of Unregistered Securities






During
fiscal year ended December 31, 2005, the Registrant issued: 100,000 restricted
shares to its president and CFO as compensation valued at $3,000; 25,000
restricted shares to Rebekah Laird-Ruthstrom for services valued at $750; and
10,000 restricted shares to a consultant for services valued at $300. The
Company believes that the issuances of these restricted shares was exempt from
registration pursuant to Section 4(2) of the Act as privately negotiated,
isolated, non-recurring transactions not involving any public solicitation.
Appropriate restrictive legends are affixed to the stock certificates issued in
such transactions.






ITEM 6. MANAGEMENT'S DISCUSSION AND RESULTS OF OPERATIONS AND FINANCIALCONDITIONSBack to Table of Contents




The
following discussion should be read in conjunction with our financial statements
and the related notes appearing elsewhere in this annual report. The following
discussion contains forward-looking statements reflecting our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, 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 this annual report.






General






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






Revenues






Gross
revenues for the year ended December 31, 2005 were $3,395,151 generated by
Hammonds. During fiscal 2005, Hammonds’ production facility in Houston, TX was
forced to close for approximately two weeks related to Hurricane Katrina. In
addition, Hammonds’ production operations were halted for two weeks in
connection with Hammonds’ move from a leased facility to a facility owned by the
Registrant’s parent. The two stoppages reduced Hammonds revenues from those
anticipated. Hammonds' new 80,000 square foot facility has enabled it to
increase production which should result in increased sales revenues during 2006,
specifically from its new line of ODVs which were introduced during the fourth
quarter of 2005, and the increase in water purification systems and injector
business. We had inventories of $1,004,657 at December 31, 2005, consisting
primarily of parts and materials in expectation of increasing demand for our
products including Hammonds’ ODV line during 2006. Subsequent to the year ended
December 31, 2005, Hammonds  received orders for: its new line of ODVs;
water purification products; and fuel additives and injectors. These orders,
which exceed $3,000,000, are scheduled to be delivered during the last quarter
of 2006 and the first quarter of 2007






Cost of
Sales






Costs of
sales for the year ended December 31, 2005 was $2,396,950 or 70.6% of revenues.
Costs of sales are anticipated to increase during 2006 related to anticipated
increased costs of manufacturing including manufacturing components and direct
and indirect labor costs for the production of Hammonds’ new line of ODVs,
injector systems 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 expenses primarily consist of
sales and marketing expenses, research and development costs and engineering
expenses. General and administrative expenses are expected to increase in 2006
principally due to additional expenditures related to additional personnel
requirements. We expect our operating expenses to marginally decrease as a
percentage of revenues with increasing sales in 2006.






Operating
Loss






Our
operating loss was $1,106,272 in 2005. Our operating loss was mainly
attributable to slower than anticipated growth in sales, in part caused by
Hammonds’ two work stoppages and the later than anticipated introduction of the
new ODV line. We expect that our operating loss will decrease with the
anticipated growth in revenues and reduced expenses associated with research and
development as a percentage of revenues.






Net
Loss






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






Liquidity
and Capital Resources






Our
current assets were $1,937,150 at December 31, 2005, consisting mainly of
inventories and accounts receivable, which we expect are fully collectible. In
connection with the acquisition of Hammonds, we recorded intangible assets
valued at $2,536,263 as of December 31, 2005. Our total assets at December 31,
2005 were $5,749,767 compared to $832,142 at December 31, 2004, which increase
reflects the acquisition of Hammonds.






We had
current liabilities of $3,747,754 at December 31, 2005, consisting principally
of current installments of long-term debt of $1,442,849 and accounts payable and
accrued expenses of $2,131,605. At December 31, 2005, we had long-term
liabilities of $2,346,788 consisting of a note payable to our parent, American
International Industries, Inc. in the amount of $1,843,588 and deferred tax
liability of $503,200.






During
2005, we had a negative cash flow from operations of $1,419,992 mainly due to
our net loss of $1,194,652, an increase in accounts receivable and inventories
of $515,747, offset by depreciation and amortization of $304,946.






We funded
our cash used in operating activities through proceeds from our long-term line
of credit in the amount of $2,131,605 and through borrowings of $998,300 from
our parent. We made payments of $570,223 on short-term borrowings during
2005.






We used
cash for investing activities of $1,077,914 in 2005. Cash was used to purchase
property and equipment in the amount of $119,801. We received $998,300 in
short-term borrowings from our parent which funds were used by Hammonds for
working capital.






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






Off-Balance
Sheet Arrangements






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






Contractual
Obligations and Commitments






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






Critical
Accounting Estimates






Our
significant accounting policies are described in the note 2 to the notes to our
consolidated financial statements for the year ended December 31, 2005. The
following supplements the description of our accounting policies as described in
the notes to our consolidated financial statements.






Hammonds
Technical Services' business involves the manufacturing of several different
lines of equipment and product systems. As a result, Hammonds is subject to
fluctuations in profitability from period to period due to the types and
quantities of equipment and product systems ordered by and delivered to its
customers. Hammonds does not start production activity without firm purchase
orders from customers. Based upon the increasing size of Hammonds' orders,
Hammonds has a backlog of orders and this is expected to permit Hammonds to
achieve economic efficiencies in purchasing inventory and in allocation of its
workforce. Further, with its improving liquidity, achieved following its year
ended December 31, 2005, Hammonds has begun to generate improving economies in
manufacturing.






Hammonds
fuel additive business supplies additives to the industries which provide
purchase orders for the production of additives. Hammonds does not have
additives produced by third-parties until purchase orders are received and
accepted by Hammonds. Hammonds has a backlog in orders for fuel additives of
approximately $150,000 per month which enables Hammonds to produce one month's
production at a time. As Hammonds' fuel additive customers order increasing
quantities of its proprietary Biobor® JF fuel product, we estimate that
backorders will increase, resulting in increases in production and revenues in
future periods.






Hammonds'
Water Treatment Solutions was established after the 2005 fiscal year end to
identify its contribution to the Company. Hammonds Water Treatment Solutions
generates revenues and incurs costs from a third party that supplies Hammonds
purification chemicals. Hammonds projects that revenue from Hammonds Water
Treatment Solutions will exceed $2,000,000 during the next twelve
months.






Subsequent
to year end December 31, 2005, Hammonds Technical Services, Inc. was separated
into three segments: (i) Hammonds Technical Services, which is the manufacturing
segment for Hammonds product line, including ODVs, injectors and water
purification systems; (ii) Hammonds Fuel Additives, which supplies all of the
fuel additives; and (iii) Hammonds Water Treatment Solutions, the recently
established third segment, which provides the tablets for Hammonds' water
purification systems.






ITEM 7. FINANCIAL STATEMENTSBack to Table of Contents






The
Registrant's audited financial statements for the fiscal years ended December
31, 2005 and December 31, 2004 are attached to this annual report.






Financial
Statements






ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSUREBack to
Table of Contents




Not
Applicable.






ITEM 8A. CONTROLS
AND PROCEDURESBack to Table of Contents






Evaluation of disclosure controls
and procedures. In connection with 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 regarding the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or
15d-15(e) under the Exchange Act. Based upon the evaluation of these controls
and procedures and discussions with our independent accountants, our
president/chief financial officer concluded that our disclosure controls and
procedures were ineffective as of December 31, 2005. The president/chief
financial officer determined that the Company did not maintain effective
controls over the financial reporting process due to an insufficient complement
of personnel with an appropriate level of accounting knowledge, experience and
training in the application of generally accepted accounting principles
commensurate with its financial reporting requirements and the complexity of the
company’s operations and transactions, specifically at the Company’s operating
subsidiary, Hammonds Technical Services, Inc. The Company did not maintain
effective controls to ensure there was adequate analysis, documentation,
reconciliation and review of accounting records and supporting data and
monitoring and oversight of the work performed by completeness of the
consolidated financial statements in accordance with generally accepted
accounting principles. Specifically, the Company did not have effective controls
designed and in place over the consolidation of the financial statements of the
Hammonds subsidiary, including the acquisition, the reconciliation of
inter-company accounts,  inventory and reserves, fixed assets and
depreciation, accrued liabilities and general and administrative expense. In
light of the above, the Company has determined to restate its financial
statements for the periods ended June 30 and September 30, 2005.




In
response to a letter from the SEC in connection with the review of the Company’s
Form 10-QSB for Fiscal Quarter Ended September 30, 2006, the Company has
reexamined the footnote disclosures.  As a result of our
reexamination, we have restated footnotes (1) Summary of Significant Accounting
Policies and (2) Acquisition of Hammonds Technical Services, Inc. for the year
ended December 31, 2005.
  The
Company’s Chief Executive Officer and Chief Financial Officer have reassessed
our disclosure controls and procedures for the year ended December 31, 2005.
Based on the reassessment, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures were
therefore not, as of December 31, 2005, effective to provide reasonable
assurance that the information required to be disclosed by us in reports filed
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that information required to be disclosed by us in the reports we
file or submit under the Securities Exchange Act of 1934, as amended, is
accumulated and communicated to our management, including our principal
executive and financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.




Changes in internal controls.
Subsequent to December 31, 2005, the period covered by this annual report, the
Company made changes in our internal control over financial reporting in order
to improve such internal controls over financial reporting. Specifically, the
Company has taken the following steps to address the specific deficiencies in
internal disclosure controls and procedures: (i) the Company’s operating
subsidiary has hired a full time controller who has been directed to implement
procedures to correct the noted deficiencies; (ii) the Company has hired a
qualified consultant with accounting and auditing experiences to perform an
internal audit function; and the Company’s parent has hired a full time CFO to
oversee financial and accounting transactions to include the financial reporting
and disclosure.




ITEM 8B. OTHER
INFORMATIONBack to
Table of Contents




On April
28, 2006, the Company inadvertently filed its annual report on Form 10-KSB for
the fiscal year ended December 31, 2005, before certain edits and reviews were
fully completed. For this reason the Company filed an amended annual report on
Form 10-KSB/A on May 8, 2006.







PART
III






ITEM 9. 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. Our directors are elected to
serve until the next annual meeting of shareholders and until their respective
successors will have been elected and will have qualified. The following table
sets forth the name, age and position held with respect to our present directors
and executive officers:




Name
            Age
            PositionsGary
      D. Woerz
            60
            President,
      CFO and DirectorDaniel
      Dror
            65
            Chairman
      of the Board




Gary D.
Woerz has been the Company's President and Chief Financial Officer since June
2002 and became a director of the Company in February 2005. Mr. Woerz also
serves as Chief Financial Officer of American International Industries, Inc.
From 2000 to 2002, Mr. Woerz served as Chief Financial Officer of Phymetrics,
Inc., which was a subsidiary of High Voltage Engineering (HVE). Phymetrics was a
multi-divisional manufacturing and laboratory service company. From 1998 to
2000, Mr. Woerz served as Chief Financial Officer of Virtual Founders LLC, San
Jose, CA, whose business involved investment banking and management consulting
services to development stage high technology companies.






Daniel
Dror, Chairman of the Board, has also served as Chief Executive Officer,
President and Chairman of the Board of the Company's parent, American
International Industries, Inc. since September 1997. From 1994 to 1997, Mr. Dror
served as Chairman of the Board and Chief Executive Officer of Microtel
International, Inc., a public company in the telecommunication business. From
1982 until 1993, Mr. Dror served as Chairman of the Board and Chief Executive
Officer of Kleer-Vu Industries, Inc., a public company.






Code of
Ethics






The
Registrant has adopted a Code of Ethics that are designed to deter wrongdoing
and to promote honest and ethical conduct, full, fair, accurate, timely and
understandable disclosure in the Registrant's SEC reports and other public
communications. The Code of Ethics promotes compliance with applicable
governmental laws, rules and regulations.






Section
16(a) Compliance






Section
16(a) of the Securities and Exchange Act of 1934 requires the Registrant's
directors 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 of ownership with the Securities and Exchange Commission. Copies of all
filed reports are required to be furnished to the Registrant pursuant to Section
16(a). Based solely on the reports 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 COMPENSATIONBack to
Table of Contents






The
following table contains the executive compensation to the Registrant's
executive officer for the periods set forth below. No executive compensation was
paid during the fiscal years 2005, 2004 and 2003.




Summary
      Compensation TableLong
      TermAnnual
      Compensation
            Compensation
      AwardsOther
            Restricted
            SecuritiesAnnual
            Stock
            Underlying
            All
      OtherSalary
            Bonus
            Compensation
            Award(s)
            Options
            CompensationName and Principal
      Position
            
            Year
            ($)
            ($)
            ($)
            ($)
            ($)
            ($)Gary
      D. Woerz, President and CFO (1)
            
            2005
            ---
            ---
            ---
            3,000
            ---
            ---2004
            ---
            ---
            ---
            ---
            ---
            ---2003
            ---
            ---
            ---
            ---
            ---
            ---(2)
      Mr. Woerz received no cash compensation from the Registrant for serving as
      President and CFO.




The
Company has no employment agreement with any of its officers and
directors.






ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENTBack to
Table of Contents






The
following table sets forth information regarding the beneficial ownership of our
common stock as of December 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 and directors as a group.






Beneficial
ownership has been determined in accordance with the rules and regulations of
the SEC and includes voting or investment power with respect to the shares.
Unless otherwise indicated, the persons named in the table below have sole
voting and investment power with respect 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.
            
            16,311,280
            
            81.00%601
      Cien Street, Suite 235Kemah,
      TX 77565Gary
      D. Woerz, President, CFO and Director
            
            100,000
            
            0.00%601
      Cien Street, Suite 235Kemah,
      TX 77565Daniel
      Dror, Chairman of the Board
            
            0
            
            0.00%601
      Cien Street, 235Kemah,
      TX 77565Directors
      and Officers (2 person)
            
            100,000
            
            0.00%




(1)
Applicable percentage ownership is based on 20,135,000 shares of common stock
outstanding as of December 31, 2005. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. Shares
of common stock that are currently exercisable or exercisable within 60 days of
December 31, 2005 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.






ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONSBack to Table of Contents






During
the last two fiscal years, to the knowledge of the Registrant, there was no
person who had or has a direct or indirect material interest in any transaction
or proposed transaction to which the Registrant was or is a
party. Transactions in this context relate to any transaction
which exceeds $60,000. During 2005, the Registrant borrowed $998,300 from
its parent, American International Industries, Inc., which funds were used by
Hammonds for working capital.






ITEM 13. EXHIBITS AND REPORTS ON FORM 8-KBack to Table of Contents






(a) The
following documents are filed as exhibits to this report on Form 10-KSB or
incorporated by reference herein. Any document incorporated by reference is
identified by a parenthetical reference to the SEC filing that included such
document.




Exhibit
      No.
            Description3(i)
            Articles
      of Incorporation, as amended, attached to the Registrant's Form 10-SB/12g
      filed on August 24, 2004.3(i)1
            Certificate
      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,
      2004.17
            Letter
      on director resignation, attached to the Registrant's Form 8-K filed on
      December 29, 2004.10.1
            Stock
      Purchase Agreement between Registrant and Hammonds Technical Services,
      Inc., attached to the Registrant's Form 8-K filed on March 10,
      200531.1
            Certification
      of CEO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
            Certification
      of CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the
      Sarbanes-Oxley Act of 2002, filed herewith.32.1
            Certification
      of CEO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the
      Sarbanes-Oxley Act of 2002, filed herewith.32.2
            Certification
      of CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the
      Sarbanes-Oxley Act of 2002, filed herewith.99.1
            Amended
      Form 8-K filed on March 18, 2008, attached
  hereto.




(b) Reports
on Form 8-K Filed During the Last Quarter of the Fiscal Year Covered by this
Report: none






ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESBack to
Table of Contents




Independent
Public Accountants


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




Principal
Accounting Fees


The
following table presents the fees for professional audit services rendered by
Thomas Leger & Co., L.L.P. and R.E. Bassie & Co. for the audit of the
Registrant's annual financial statements for the years ended December 30, 2005
and 2004, and fees billed for other services rendered by Thomas Leger & Co.,
L.L.P. and R.E. Bassie & Co. during those years.




Year EndedDecember
      31,  2005
            
            
            December
      31, 2004Audit
      fees (1)
            
            $
            100,000
            
            
            $
            4,500Audit-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 Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.




By
      /s/ Daniel DrorDaniel
      DrorCEO,
      President and ChairmanMarch
      18, 2008By
      /s/ Sherry L. CouturierSherry
      L. CouturierCFOMarch
      18, 2008










Financial
Statements Back to Table of Contents




Report of Independent
      Registered Public Accounting Firm
            28Report of Independent
      Registered Public Accounting Firm
            29Consolidated
      Financial Statements:Balance Sheets -
      December 31, 2005 and 2004
            30Statements of
      Operations - Years ended December 31, 2005 and
    2004
            31Statements of
      Stockholders' Equity (Deficit) - Years ended December 31, 2005 and
      2004
            32Statements of Cash Flows
      - Years ended December 31, 2005 and 2004
            33Notes to Consolidated Financial
      Statements
            34













REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRMBack to Table of
Contents




To the
Stockholders


International
American Technologies, Inc. and Subsidiary


Houston,
Texas






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






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






In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects the financial position of International American
Technologies, Inc. and Subsidiary as of December 31, 2005, and the consolidated
results of their operations and their cash flows for the year ended December 31,
2005 in conformity with 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,
2006


Houston,
Texas







R.
      E. Bassie & Co.Certified
      Public Accountants6671
      Southwest Freeway, Suite 550Houston,
      Texas 77074Tel:
      (713) 272-8500 Fax: (713) 272-8515E-Mail:
      Rebassie@aol.com




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRMBack to Table of Contents






The Board
of Directors and Stockholders


International
American Technologies, Inc.:






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






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






In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of International American
Technologies, Inc. as of December 31, 2004, and the results of its operations
and its cash flows for the year ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of
America.






/s/ R. E.
Bassie & Co.


Houston,
Texas


March 15,
2005







INTERNATIONAL
      AMERICAN TECHNOLOGIES, INC.Consolidated Balance Sheets Back to Table of
      ContentsDecember
      31, 2005 and 20042005
            
            
            2004AssetsCurrent
      assets:Cash
            
            $
            61,875
            
            
            $
            99Certificate of deposits
            
            
            -
            
            
            
            300,000Accounts receivable, net ofallowance of doubtful accounts of $123,925 at December 31,
      2005
            
            
            829,294
            
            
            
            -Current portion of notes receivable
            
            
            27,435
            
            
            
            25,585Inventories
            
            
            1,004,657
            
            
            
            88,712Prepaid expenses
            
            
            13,889
            
            
            
            -Total current assets
            
            
            1,937,150
            
            
            
            414,396Long-term
      notes receivable
            
            
            390,310
            
            
            
            417,746Property
      and equipment, net
            
            
            829,049
            
            
            
            -Intangible
      assets, net
            
            
            2,536,263Other
      assets
            
            
            56,995
            
            
            
            -Total assets
            
            $
            5,749,767
            
            
            $
            832,142Liabilities and Stockholders' Equity
      (Deficit)Current
      liabilities:Accounts payable and accrued expenses
            
            $
            1,442,849
            
            
            $
            15Short-term note payable
            
            
            173,300
            
            
            
            -Current installments of long-term debt
            
            
            2,131,605
            
            
            
            -Total current liabilities
            
            
            3,747,754
            
            
            
            15Due
      to American International Industries, Inc.
            
            
            1,843,588
            
            
            
            -Deferred
      tax liability
            
            
            503,200
            
            
            
            -Total liabilities
            
            
            6,094,542
            
            
            
            15Stockholders'
      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
      and20,000,000 shares issued and outstanding at December 31,
    2004
            
            
            2,014
            
            
            
            2,000Additional paid-in capital
            
            
            969,378
            
            
            
            951,642Accumulated deficit
            
            
            (1,316,167
            )
            
            
            (121,515
            )Total stockholders' equity (deficit)
            
            
            (344,775
            )
            
            
            832,127Total liabilities and stockholders' equity (deficit)
            
            $
            5,749,767
            
            
            $
            832,142See
      accompanying notes to consolidated financial statements.





INTERNATIONAL
      AMERICAN TECHNOLOGIES, INC.Consolidated Statements of Operations Back to Table of
      ContentsYears
      ended December 31, 2005 and 20042005
            
            
            2004Revenues
            
            $
            3,395,151
            
            
            $
            -Costs
      and expenses:Cost of sales
            
            
            2,396,950
            
            
            
            -Selling, general and administrative
            
            
            2,104,473
            
            
            
            30,968Total operating expenses
            
            
            4,501,423
            
            
            
            30,968Operating
      loss
            
            
            (1,106,272
            )
            
            
            (30,968
            )Other
      income (expenses):Interest income
            
            
            18,237
            
            
            
            23,975Interest expense
            
            
            (106,617
            )
            
            
            -Total other income (expenses)
            
            
            (88,380
            )
            
            
            23,975Net 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 diluted
            
            
            20,111,000
            
            
            
            20,000,000See
      accompanying notes to consolidated financial statements





INTERNATIONAL
      AMERICAN  TECHNOLOGIES, INC.Consolidated Statements of Stockholders' Equity
      (Deficit) Back to Table of ContentsFor
      the years ended December 31, 2005 and 2004Additional
            
            
            
            
            
            TotalCommon
      Stock
            
            
            paid-in
            
            
            Accumulated
            
            
            stockholders'shares
            
            
            amount
            
            
            capital
            
            
            deficit
            
            
            equityBalance,
      December 31, 2003
            
            
            20,000,000
            
            
            $
            2,000
            
            
            $
            951,642
            
            
            $
            (114,522
            )
            
            $
            839,120Net loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (6,993
            )
            
            
            (6,993
            )Balance,
      December 31, 2004
            
            
            20,000,000
            
            
            
            2,000
            
            
            
            951,642
            
            
            
            (121,515
            )
            
            
            832,127Issuance of common stock for services
            
            
            135,000
            
            
            
            14
            
            
            
            17,736
            
            
            
            -
            
            
            
            17,750Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,194,652
            )
            
            
            (1,194,652
            )Balance,
      December 31, 2005
            
            
            20,135,000
            
            
            $
            2,014
            
            
            $
            969,378
            
            
            $
            (1,316,167
            )
            
            $
            (344,775
            )See
      accompanying notes to consolidated financial statements





INTERNATIONAL
      AMERICAN TECHNOLOGIES, INC.Consolidated Statements of Cash Flows Back to Table of
      ContentsYears
      ended December 31, 2005 and 20042005
            
            
            2004Cash
      flows from operating activities:Net loss
            
            $
            (1,194,652
            )
            
            $
            (6,993
            )Adjustments to reconcile net lossto net cash used in operating activities:Depreciation and amortization
            
            
            304,946
            
            
            
            -Issuance of common stock for services
            
            
            17,750
            
            
            
            -(Increase) decrease of operating assets, net of
    acquisitions:Accounts receivable
            
            
            (319,928
            )
            
            
            -Inventories
            
            
            (195,819
            )
            
            
            -Other
            
            
            (22,538
            )
            
            
            -Increase (decrease) in operating liabilities:Accounts payable and accrued expenses
            
            
            (9,751
            )
            
            
            15Net cash used in operating activities
            
            
            (1,419,992
            )
            
            
            (6,978
            )Cash
      flows from investing activities:Purchase of property and equipment
            
            
            (119,006
            )
            
            
            -Redemption (purchase) of certificate of deposit
            
            
            300,000
            
            
            
            (300,000
            )Proceeds from payments on long-term notes receivable
            
            
            25,586
            
            
            
            21,935Amount due from (to) affiliates
            
            
            (342,700
            )
            
            
            281,600Purchase of stock in majority-owned subsidiary
            
            
            (998,300
            )
            
            
            -Cash acquired in acquisition of majority-owned subsidiary
            
            
            56,506
            
            
            
            -Net cash provided by (used in) investing activities
            
            
            (1,077,914
            )
            
            
            3,535Cash
      flows from financing activities:Proceeds from long-term borrowing
            
            
            2,131,605
            
            
            
            -Proceeds from borrowings from related parties
            
            
            998,300
            
            
            
            -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
            
            
            $
            99Supplemental
      schedule of cash flow information:Interest paid
            
            $
            106,617
            
            
            $
            -Taxes paid
            
            $
            -
            
            
            $
            -Non-cash
      investing and financing transactions:Issuance of note payable and assumption of liabilitiesfor acquisition of subsidiary
            
            $
            1,457,400
            
            
            $
            -Non-cash
      portion of assets and liabilities received in the acquisition
      ofa majority-owned subsidiary (see Note 2):Current assets
            
            $
            1,379,433Property and equipment
            
            
            826,765Patents, trademarks and contract
            
            
            2,724,487Other non-current assets
            
            
            70,085Current liabilities
            
            
            (2,098,376
            )Deferred tax liability-
            
            
            (503,200
            )See
      accompanying notes to consolidated financial statements










INTERNATIONAL
AMERICAN TECHNOLOGIES, INC.


Notes to Consolidated Financial Statements


Back to Table of Contents


December
31, 2005 and 2004






(1)
Summary of Significant Accounting Policies (Restated)






Organization,
Ownership and Business






International
American Technologies, Inc., f/k/a Unlimited Coatings Corporation, (the
"Company"), is a 81% owned subsidiary of American International Industries, Inc.
(AIII). In 2005, the Company acquired, through its parent company, 51% of the
capital stock of Hammonds Technical Services, Inc.






Principles
of Consolidation






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






Presentation
of certain amounts for the year ended December 31, 2004 have been reclassified
to conform to the presentations for the current year.






Cash
and Cash-Equivalents






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






Accounts
Receivable






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






Allowance
for Doubtful Accounts






The
Company extends credit to customers and other parties in the normal course of
business. The Company regularly reviews outstanding receivables and provides for
estimated losses through an allowance for doubtful accounts. In evaluating the
level of established reserves, the Company makes judgments regarding its
customers' ability to make required payments, economic events and other factors.
As the financial condition of these parties change, circumstances develop or
additional information becomes available, adjustments to the allowance for
doubtful accounts may be required. In the event the Company was to determine
that a customer may not be able to make required payments, the Company would
increase the allowance through a charge to income in the period in which that
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 upon specific usage
and future utility. A charge to results of operations is taken when factors that
would result in a need for a reduction in the valuation, such as excess or
obsolete inventory, are noted.






Property,
Plant, Equipment, Depreciation, Amortization and Long Lived Assets






Long-lived
assets include:






Property,
Plant and equipment – These assets are recorded at original cost and increased
by the cost of any significant improvements after purchase. We depreciate the
cost evenly over the assets’ estimated useful lives. Upon retirement or sale,
the cost of the assets disposed of and the related accumulated depreciation are
removed from the accounts, with any resultant gain or loss being recognized as a
component of other income or expense.






Identifiable
intangible assets – These assets are recorded at original cost, intangible
assets with finite lives are amortized evenly over their estimated useful
lives.






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






During
April, 2005 the Company acquired Hammonds Technical Services, Inc. for a
purchase price of approximately $2,455,700 (See Note 2). The operations of
Hammonds Technical Services are included in the consolidated statements of
operations from date of acquisition.






Revenue
Recognition






Revenue
is recognized when the earning process is completed, the risks and rewards of
ownership have transferred to the customer, which is generally the same day as
delivery or shipment of the product, the price to the buyer is fixed or
determinable, and collection is reasonably assured. The Company has no
significant sales returns or allowances.






Income
Taxes






The
Company is a taxable entity and recognizes deferred tax assets and liabilities
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be in effect when the temporary differences
reverse. The effect on the deferred tax assets and liabilities of a change in
tax rates is recognized in income in the year that includes the enactment date
of the rate change. A valuation allowance is used to reduce deferred tax assets
to the amount that is more likely than not to be realized.






Earnings
(Loss) Per Share






The basic
net earnings (loss) per common share is computed by dividing the net earnings
(loss) by the weighted average number of shares outstanding during a period.
Diluted net earnings (loss) per common share is computed by dividing the net
earnings (loss), adjusted on an as if converted basis, by the weighted average
number of common shares outstanding plus potential dilutive
securities.






Management's
Estimates and Assumptions






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






Fair
Value of Financial Instruments






The
Company estimates the fair value of its financial instruments using available
market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the Company estimates of fair value are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumption and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The interest rates payable by the Company on its notes payable
approximate market rates. The Company believes that the fair value of its
financial instruments comprising accounts receivable, notes receivable, accounts
payable, 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, Accounting Changes and Error
Corrections. SFAS No. 154 replaces Accounting Principles Board Opinion
No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in
Internal Financial Statements, and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS No. 154
requires retrospective application of changes in accounting principle to prior
periods’ financial statements, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. SFAS No. 154
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. We will adopt SFAS No. 154 on January
1, 2006. Any impact on the Company’s consolidated results of operations and
earnings per share will be dependent on the amount of any accounting changes or
corrections of errors whenever recognized.






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






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






In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 152, which amends FASB statement No. 66,
"Accounting for Sales of Real
Estate," to reference the financial accounting and reporting guidance for
real estate time-sharing transactions that is provided in AICPA Statement of
Position (SOP) 04-2, "Accounting for Real Estate
Time-Sharing Transactions." This statement also amends FASB Statement No.
67, "Accounting for Costs and
Initial Rental Operations of Real Estate Projects," to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2. This statement is effective for financial statements for fiscal years
beginning after June 15, 2005. Management believes the adoption 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 ARB No. 43,
Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of
ARB 43, Chapter 4, previously stated that "under some circumstances, items
such as idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current period
charges." This statement requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so abnormal." In addition,
this statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this statement will have any immediate material impact on the
Company.






(2)
Acquisition of Hammonds Technical Services, Inc. (Restated)






Effective
April 28, 2005, the Company entered into a Stock Purchase Agreement ("the
Agreement") to acquire a 51% interest in the capital stock of Hammonds Technical
Services, Inc., a privately owned Texas corporation ("Hammonds") in
consideration for the Company or its parent, American International Industries,
Inc., providing: (i) $998,300 in cash to Hammonds for working capital; (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 in consideration for a $1,450,000 promissory note. These shares were
exchanged for two minority equity interests in Hammonds owned by third parties.
The total purchase price to acquire the 51% in Hammonds was $2,455,700
representing cash payments of $825,000, 145,000 shares of AIII’s restricted
common stock valued at $1,450,000 and the assumption of a note payable to one of
the former shareholders in the amount of $173,300 and liabilities in excess of
assets in the amount of $7,400. No minority interest liability was recognized at
the time of the acquisition because liabilities were in excess of
assets.






The
Company believes that $10 per share is appropriate to record the valuation of
the 145,000 restricted shares. SFAS No. 141, Paragraph 25, states that “A
business combination agreement may provide for the issuance of additional shares
of a security or the transfer of cash or other consideration contingent on
specified events or transactions in the future.” Further, Paragraph 26, states
that “amounts of contingent consideration that are determinable at the date of
acquisition shall be included in determining the cost of an acquired entity and
recorded at that date.” The sellers of 51% of Hammonds and Mr. Daniel Dror
entered into a stock repurchase agreement as of April 28, 2005, where the
sellers agreed to sell the 145,000 shares to Mr. Daniel Dror for $10.00 per
share through the third anniversary of the effective date of the agreement. This
stock repurchase agreement provides a specific price for a specific period of
time for the repurchase of the 145,000 restricted shares.






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 fuels
distribution, water treatment and utility vehicle industries. Hammonds products
are marketed by a worldwide network of distributors, manufacturers
representatives and original equipment manufacturers. On February 28, 2005,
Hammond Fuels Additives, Inc. was merged into Hammonds Technical Services,
Inc.






As
required by SFAS No. 141, the Company has recorded the acquisition using the
purchase method of accounting with the purchase price allocated to the acquired
assets and liabilities based on their respective estimated fair values at the
acquisition date. The purchase price of $2,455,700 had been allocated at
follows:




Hammonds
      Net Book Value
            
            Allocation
      of Purchase Price
            
            
            ConsolidatedCurrent
      assets
            
            $
            1,435,939
            
            $
            -
            
            
            $
            1,435,939Property
      and equipment
            
            
            418,603
            
            
            408,162
            
            
            
            826,765Patents,
      trademarks and contract
            
            
            173,749
            
            
            2,550,738
            
            
            
            2,724,487Other
      non-current assets
            
            
            70,085
            
            
            -
            
            
            
            70,085Current
      liabilities
            
            
            (2,090,976
            
            
            (7,400
            )
            
            
            (2,098,376
            )Deferred
      tax liability
            
            
            -
            
            
            (503,200
            )
            
            
            (503,200
            )$
            (7,400
            
            $
            2,448,300
            
            
            $
            2,455,700




The
following table contains a summary of the intangible assets
acquired:




As
      of December 31, 2005Gross
      Carrying Amount
            
            
            Accumulated
      Amortization
            
            Average
      Weighted LivesPatents
            
            $
            1,806,387
            
            
            $
            125,706
            
            12
      yearsTrademarks
            
            
            465,199
            
            
            
            29,464
            
            10
      yearsSole
      Source Contract
            
            
            464,039
            
            
            
            44,192
            
            7
      years$
            2,735,625
            
            
            $
            199,362
            
            10
      years








Aggregate
      Amortization ExpenseFor
      year ended December 31, 2005
            
            $
            199,362Estimated
      Amortization ExpensesFor
      year ending December 31, 2006
            
            $
            246,516For
      year ending December 31, 2007
            
            $
            246,516For
      year ending December 31, 2008
            
            $
            246,516For
      year ending December 31, 2009
            
            $
            246,516For
      year ending December 31, 2010
            
            $
            246,516




Revenues
and expenses are included in the Company’s statement of operations from May 1,
2005 through December 31, 2005.






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




December
      31, 2005
            
            
            December
      31, 2004Revenues
            
            $
            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:




2005Finished
      goods
            
            $
            134,240Work
      in process
            
            
            25,696Parts
      and materials
            
            
            1,148,3051,308,241Less:
      Obsolescence reserve
            
            
            (303,584
            )$
            1,004,657




(4)
Property and Equipment






A summary
of property and equipment and related accumulated depreciation and amortization
are as follows:




2005Machinery
      and equipment
            
            $
            839,393Leasehold
      improvements
            
            
            95,240Total
      property and equipment
            
            
            934,633Less:
      Accumulated depreciation and amortization
            
            
            (105,584
            )Net
      property and equipment
            
            $
            829,049




(5)
Intangible Assets






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




2005Patents
            
            $
            1,806,387Trademarks
            
            
            465,199Sole
      Source Contract
            
            
            464,0392,735,625Less
      accumulated amortization
            
            
            (199,362
            )$
            2,536,263




(6)
Long-term Debt






Long-term
debt consisted of the following:




December
      312005
            
            
            2004Note
      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
            
            $
            1,993,878
            
            
            $
            -Note
      payable, unsecured, with interest at 10.75%, interest payments due
      quarterly, with the principal balance due on December 10,
    2006
            
            
            89,890
            
            
            
            -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 at December 31,
2005:




2006
            
            $
            2,131,605Total
            
            $
            2,131,605




(7)
Concentration of Credit Risk






Financial
instruments that potentially subject the Companies to credit risk are primarily
accounts receivable – trade and notes receivable. The Company grants credit to
customers throughout the United States. Generally, the Companies do not require
collateral or other security to support customer receivables. Hammonds Technical
Services (HTS) had two customers that represented more than 10% of its total
sales. Hammonds Fuel Additives (HTA)had one customer that represented more than
10% of its total sales.




Customer
      A
            HTS
            25%Customer
      B
            HTS
            15%Customer
      C
            HFA
            10%




(8)
Income Taxes






The
following table set forth a reconciliation of the statutory of federal income
tax for the year December 31, 2005 and 2004. The loss before taxes was
$1,194,652 in 2005 and $6,993 in 2004.




December
      312005
            
            
            2004Income
      tax benefit computed at statutory rate for
            
            $
            (406,182
            )
            
            $
            (2,378
            )Permanent
      differences - non deductible expenses
            
            
            84,600
            
            
            
            -Increase
      in valuation allowance
            
            
            321,582
            
            
            
            2,378Tax
      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 and
taxable income are recognized as deferred tax asset and liability as of December
31,2005 is set below.




December
      312005
            
            
            2004Deferred
      tax assets:
            
            $
            
            
            
            $Net operating loss - current period
            
            
            362,882
            
            
            
            41,300Total deferred tax asset
            
            
            362,882
            
            
            
            41,300Valuation allowance
            
            
            (362,882
            )
            
            
            (41,300
            )Net deferred asset
            
            $
            -
            
            
            $
            -





December
      312005
            
            
            2004Deferred
      tax liability:
            
            $
            
            
            
            $Fixed asset temporary difference
            
            
            138,775
            
            
            
            -Intangible asset temporary difference
            
            
            364,425
            
            
            
            -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 Section 382.






(9)
Segment Information






The
Company has two reportable segments and corporate overhead: Hammonds was two
separate reportable segments, Hammonds Technical Services, Inc. and Hammonds
Fuel Additives, Inc. (collectively "Hammonds"). Hammonds manufacturers
engineered products and chemicals that serve multiple segments of the fuels
distribution, water treatment and utility vehicle industries. Hammonds products
are marketed by a worldwide network of distributors, manufacturers
representatives and original equipment manufacturers. The corporate overhead
includes the Company's investment holdings including financing current
operations and expansion of its current holdings as well as evaluating the
feasibility of entering into additional businesses.






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






The
Company's reportable segments are strategic business units that offer 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 financial
statements.






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




December
      312005
            
            
            2004Revenues:Hammonds
      Technical Services
            
            $
            2,583,887
            
            
            $
            -Hammonds
      Fuel Additives
            
            
            811,264
            
            
            
            -Corporate
            
            
            -
            
            
            
            -$
            3,395,151
            
            
            $
            -Cost
      of Sales:Hammonds
      Technical Services
            
            $
            1,878,500
            
            
            $
            -Hammonds
      Fuel Additives
            
            
            518,450
            
            
            
            -$
            2,396,950
            
            
            $
            -





Loss
      from operations:Hammonds
      Technical Services
            
            $
            (1,076,259
            )
            
            $
            -Hammonds
      Fuel Additives
            
            
            (10,888
            )
            
            
            -Corporate
            
            
            (19,125
            )
            
            
            (30,968
            )$
            (1,106,272
            )
            
            $
            (30,968
            )





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 noncancelable operating lease which expires
in October 2015. Future minimum lease payments under the operating lease are as
follows:




Year
      December 31,
            
            Amount2006
            
            $
            301,6002007
            
            
            307,2002008
            
            
            307,2002009
            
            
            307,2002010
            
            
            307,200Thereafter
            
            
            1,484,800$
            3,015,200




Lease
expenses for the years ended December 2005 and 2004, were $132,701 and $0,
respectively. The Company is obligated to pay a management fee to its parent in
the amount of $10,000 monthly.






(11)
Related Party Transactions and Economic Dependence






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






(12)
Restatement of Previously Issued Quarterly Data (Unaudited)






The data
for the quarterly periods ended June 30, 2005 and September 30, 2005 is being
restated to properly account for the allocation of the purchase price for the
acquisition of Hammonds. Originally, the acquisition of Hammonds incorrectly
included a 100% write-up of the assets to include the 51% interest and the 49%
minority interests. In addition, the restatement corrects for the overstatement
of income which primarily resulted from the forgiveness of debt in the amount of
$466,350, which should have been taken into consideration at the time of the
acquisition.










Quarter
      ended June 30, 2005As
      previously reported
            
            
            Restatement
      adjustments
            
            
            As
      restatedRevenues
            
            $
            576,035
            
            
            $
            -
            
            
            $
            576,035Cost
      of sales
            
            
            389,139
            
            
            
            -
            
            
            
            389,139Selling,
      general and administrative expenses
            
            
            391,955
            
            
            
            52,056
            
            
            
            444,011Total
      costs & expenses
            
            
            781,094
            
            
            
            52,056
            
            
            
            833,150Operating
      loss
            
            
            (205,059
            )
            
            
            (52,056
            )
            
            
            (257,115
            )Interest
      income
            
            
            5,469
            
            
            
            6,164
            
            
            
            11,633Other
      income
            
            
            466,350
            
            
            
            (466,350
            )
            
            
            -Total
      other income (expense)
            
            
            471,819
            
            
            
            (460,186
            )
            
            
            11,633Net
      earnings (loss) before minority interest
            
            
            266,760
            
            
            
            (512,242
            )
            
            
            (245,482
            )Minority
      interest
            
            
            (136,178
            )
            
            
            136,178
            
            
            
            -Net
      earnings (loss) applicable to common shareholders
            
            
            130,582
            
            
            
            (376,064
            )
            
            
            (245,482
            )Weighted
      average common shares
            
            
            20,125,000
            
            
            
            -
            
            
            
            20,125,000Net
      earnings (loss) per share applicable to shareholders -basic and diluted
            
            $
            0.01
            
            
            $
            -
            
            
            $
            (0.01
            )Patents
      and trademarks, net of amortization
            
            $
            138,415
            
            
            
            2,509,652
            
            
            
            2,648,067Goodwill
            
            
            4,134,049
            
            
            
            (4,134,049
            )
            
            
            -Current
      liabilities
            
            
            2,961,807
            
            
            
            (863,429
            )
            
            
            2,098,378Deferred
      tax liability
            
            
            -
            
            
            
            503,200
            
            
            
            503,200Minority
      interest
            
            
            2,200,231
            
            
            
            (2,200,231
            )
            
            
            -Accumulated
      deficit
            
            $
            4,291
            
            
            $
            (376,064
            )
            
            $
            (371,773
            )Total
      stockholders equity
            
            $
            967,933
            
            
            $
            (376,064
            )
            
            $
            591,869Quarter
      ended September 30, 2005As
      previously reported
            
            
            Restatement
      adjustments
            
            
            As
      restatedRevenues
            
            $
            1,704,922
            
            
            $
            -
            
            
            $
            1,704,922Cost
      of sales
            
            
            1,305,043
            
            
            
            -
            
            
            
            1,305,043Selling,
      general and administrative expenses
            
            
            1,058,947
            
            
            
            102,715
            
            
            
            1,161,662Total
      costs and expenses
            
            
            2,363,990
            
            
            
            102,715
            
            
            
            2,466,705Operating
      loss
            
            
            (659,068
            )
            
            
            (102,715
            )
            
            
            (761,783
            )Interest
      income
            
            
            14,325
            
            
            
            -
            
            
            
            14,325Other
      income (expense)
            
            
            519,099
            
            
            
            (519,099
            )
            
            
            -Total
      other income (expense)
            
            
            533,424
            
            
            
            (519,099
            )
            
            
            14,325Net
      loss before minority interest
            
            
            (125,644
            )
            
            
            (621,814
            )
            
            
            (747,458
            )Net
      loss applicable to shareholders
            
            
            (125,644
            )
            
            
            (621,814
            )
            
            
            (747,458
            )Weighted
      average common shares
            
            
            20,102,650
            
            
            
            22,350
            
            
            
            20,125,000Net
      loss per share applicable to shareholders - basic and
    diluted
            
            $
            (0.01
            )
            
            $
            -
            
            
            $