UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549___________________FORM 10-KSB________________________________ ýANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December
31, 2006   ̈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. YesxNo ̈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, 2006, the aggregate market value of the3,723,720common stock held by non-affiliates of the
Registrant was approximately $1,303,302. At December 31, 2006, the Registrant had
36,135,000 shares of common stock outstanding.Issuer's revenues for its most recent fiscal year: $6,467,393. Indicate
whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Yes ̈NoxIndicate whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).Yes ̈Nox




TABLE OF CONTENTS Item
    
    Description
    
    Page**PART I**ITEM
    1.
    
    DESCRIPTION OF BUSINESS
    
    
    3ITEM
    2.
    
    DESCRIPTION OF PROPERTY
    
    
    15ITEM
    3.
    
    LEGAL PROCEEDINGS
    
    
    15ITEM
    4.
    
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    15**PART II**ITEM
    5.
    
    MARKET
    FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    16ITEM 6.
    
    MANAGEMENT'S
    DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION
    
    
    16ITEM
    7.
    
    FINANCIAL STATEMENTS
    
    
    18ITEM 8.
    
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    18ITEM
    8.A
    
    CONTROLS AND PROCEDURES
    
    
    18ITEM 8.B
    
    OTHER INFORMATION
    
    
    18**PART III**ITEM 9.
    
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT, COMPLIANCE WITH SECTION 16(A)
    
    
    19ITEM 10.
    
    EXECUTIVE COMPENSATION
    
    
    20ITEM 11.
    
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    20ITEM 12.
    
    CERTAIN RELATIONSHIPS
    AND RELATED TRANSACTIONS
    
    
    20ITEM 13.
    
    EXHIBITS AND REPORTS
    ON FORM 8-K
    
    
    20ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND
    SERVICES
    
    
    21




**Cautionary Statement regarding Forward-Looking
Statements** This Annual Report on Form
10-KSB 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 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 OTCBB: Symbol "IMTG". The Company was incorporated on
August 18, 1986 and is a 45.1% owned subsidiary of American International Industries,
Inc., OTCBB: AMIN. AMIN consolidates IMTG even though its ownership is less than 51%,
because the Company exercises its right to occupy two of the three board of director
seats. Since IMTG is incurring losses and there is no minority interest, AMIN recognizes
100% of IMTGs losses. AMINs ownership percentage (original ownership 81.6% and
subsequent reduction) is based on the acquisition of the 49% minority interest of Hammonds
Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment
Systems, Inc. (sometimes hereinafter the "Hammonds Companies" or
"Hammonds") in exchange for 16,000,000 shares of IMTG common stock. AMINs
ownership percentage will diminish when Vision Capital converts their preferred shares
into common and if Vision Capital chooses to exercise their warrants.
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.

On August 1, 2006 The Company acquired the 49% minority interest of
Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water
Treatment Systems, Inc. by issuing 16,000,000 restricted shares or 44.4% of IMTG common
stock at a conversion rate of $.25 a share. The additional cost of $4,000,000 has been
allocated to patents, trademarks, and sole source contract and is being amortized in a
manner equivalent to the amortization used on the intangible assets acquired in the
initial purchase of 51% of the company.

On August 8, 2006, the Company entered into a Series A Convertible
Preferred Stock Purchase Agreement with Vision Opportunity Fund Limited, an institution
investor ("VOMF"), pursuant to which the Company issued and sold to VOMF for
consideration of $1,500,000 or $1.80 per share a total of 833,333 shares of a newly
authorized series A convertible preferred stock ("Series A Preferred Stock"),
each share convertible into ten shares of the Companys common stock. In connection
with the issuance and sale of Series A Preferred Stock, the Company issued to VOMF Series
A Warrant and Series B Warrants, each exercisable to purchase up to 8,333,333 additional
shares of common stock at a price of $0.18 per share. The Series A Warrants expire 5 years
from the date of issuance. The Series B Warrants initially expired 1 year from the date of
issuance, which expiration date was extended, in connection with the Company entering into
Series B Convertible Preferred Stock Purchase Agreement described below, to 2 years from
the date of issuance.

On September 29, 2006, the Company entered into a Series B Convertible
Preferred Stock Purchase Agreement with VOMF pursuant to which the Company issued and sold
to VOMF for consideration of $1,500,000 or $1.80 per share a total of 833,333 shares of a
newly authorized series B convertible preferred stock ("Series B Preferred
Stock"), each share convertible into ten shares of the Companys common stock.
In connection with the issuance and sale of Series B Preferred Stock, the Company issued
to VOMF Series C Warrant exercisable to purchase up to 8,333,333 additional shares of
common stock at a price of $0.50 per share. The Series C Warrants expire 5 years from the
date of issuance.

The above private financing transactions are sometimes hereinafter
referred to as the August 2006 and September 2006 Private Financing Transactions.

Subsequent to December 31, 2006, and in connection with the agreement
of VOMF to exercise up to 4,000,000 Series C Warrants in March 2007, the Company reduced
the exercise price from $0.50 per share to $0.18 per share through December 31, 2007,
following which the exercise price reverts to $0.50 per share. On March 27, 2007, VOMF
exercised 3,970,400 Series C Warrants at a price of $0.18 per share with gross proceeds of
$714,672 to the Company.

Revenue and expenses of Hammonds are included in the Companys
consolidated statements of operations from May 1, 2005 through the year ended December 31,
2006.
**General Background of Hammonds**

Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc.
were separate privately-owned companies. In connection with the February 28, 2005
acquisition by the Company, Hammonds Fuel Additives was merged into Hammonds Technical
Services. On April 2005 and January 2006, respectively, Hammonds Fuel Additives and
Hammonds Water Treatment Systems, respectively, were reincorporated as separate entities
from Hammonds Technical Services, and all three entities are wholly-owned subsidiaries of
the Company. 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:
Water Treatment for Municipal and Industrial Use. Hammonds
manufactures under several U.S. and foreign patents calcium hypochlorite tablet and
granular systems which provide water disinfection for a wide range of potable and waste
water applications. Greater focus is being placed on water disinfection and safety issues
associated with disinfection. Some municipalities are being required to meet added water
quality systems. 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. In August 2006, Hammonds Water Treatment Systems, Inc. received an order
for calcium hypochlorite for $764,500. This order supplied Hammonds water treatment
products to the poultry processing industry and is utilized by systems that include
Hammonds proprietary tablet feeders. This order reflects continued growth in demand for
solid disinfection used in the food processing, waste treatment and potable water treating
industries. During 2006, Hammonds had over $2,000,000 in chemical sales to the municipal
and food processing industries.
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 are 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 blending additives and chemicals. In May 2006, KBR received delivery
of six 4T-4A 800 MIL multiple additive systems for use in Iraq.

Current active projects total a unit requirement of approximately 925
of these injectors over the next five years with a current value in excess of $24 million.
Hammonds delivered five JP-8 fuel additive carts in June 2006 to its Middle Eastern
representative for use by the Egyptian Air Force. These fuel additive carts will be used
to service military aircraft in Egypt as well as transient military aircraft from other
countries including the United States. In August 2006, Hammonds received a major order for
its fluid powered additive systems used in production of JP-8 + 100 military specification
fuel for aircraft being serviced in the Middle East. The initial $576,000 order for
equipment will be delivered during the first quarter of 2007, with the total project
exceeding $2,304,000. Hammonds received a purchase order in January 2007 for a complex
fuel handling system, including fuel additive systems for the Al Dhafra Air Base in the
United Arab Emirates (UAE). Hammonds projects that it will recognize $960,000 in revenues
during the first quarter of 2007 and is expected to recognize a total of approximately
$2,000,000 related to this project for the 2007 fiscal year.

Cimmaron International Corporation, an industrial exporter, is
marketing the Hammonds-Cimmaron pre-packaged fuel additive dispensing systems to new, as
well as expanded aviation projects currently underway in the Middle East. In addition to
the Al Dhafra Air Base order, these same systems are expected to be specified at a new UAE
Air Base in Al-Minhad, having an estimated value exceeding $1,824,000. Hammonds believes
that its truck-mounted injectors are the technology of choice for major U.S. marketers of
jet fuel in providing custom blending at the end of the hose for not only jet fuel, but a
wide range of products including diesel, LPGN (propane), home heating oil, and bio-diesel.
In January, 2005, Hammonds began a long-term program to install dye injection systems in
over eight hundred Canadian and U.S. stationary and truck mounted diesel delivery
installations.
Fuel Additives. 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.
Industrial Utility Vehicle Market. In late 2006, Hammonds started
production of an entirely new type of industrial utility vehicle called the "omni
directional vehicle" or "ODV". Hammonds believes that ODV utility vehicles
will establish a new standard for industrial utility vehicles based on vehicle safety and
performance. The ODVs' target markets include the: aviation industry, which is undergoing
reorganization and expansion into regional jet service; fork lifts, which are a
fundamental industrial tool and represent the largest segment of industrial vehicle
demand; utility tractors, vehicles used for earth and snow handling; freight trailer
"mules", which are modified tractors used to move trailers at major terminals;
and ODVs for security/law enforcement, which can provide high visibility and radial vision
in a very limited space for use at airports, ports and bridges, among other high risk
locations. Hammonds has produced several prototypes of its new ODV product line at its
plant in Houston, TX. Hammonds intends to enter into license agreements with other
manufacturers to produce a range of ODVs based on its patented technology. During the
fourth quarter of 2005 Hammonds received initial stocking orders for the ODV from
distributors as well as scheduled purchase orders for delivery during 2007. In February
2006, Hammonds announced the appointment of Mark C. Pope Associates, Inc. (MCP) as a
distributor for the ODV to represent Hammonds as an Aviation Ground Support Distributor in
Georgia, Mississippi, Tennessee, North Carolina, South Carolina, Alabama, Florida and
Nevada. MCP ordered 4 ODV mobile demonstration units to initially cover their territory.
MCP took delivery of their first ODV in May 2006 at the annual AS3 convention, which
premiers ground support equipment for the aviation industry. Since that time, MCP received
their second demonstration unit and has been encouraged by the response gained as they
demonstrate the equipment to various aviation and industrial users. Following industry
response and MCPs experience with the vehicle, MCP elected to add the Snow
Management and Industrial classifications to their distributorship agreement in five
states. MCP issued a blanket purchase order in August 2006, covering various models of the
ODV, including 45 tow tractors, 5 snow plows, 2 Command Stations, and multiple attachments
that compliment ODV tractors. This represents net sales in excess of $2,100,000 to the
Company. In the 4th quarter of 2006, Hammonds shipped seven of its Model G-30
ODV tractors to be used as material positioning equipment at Robins Air Force Base in
Warner Robins, Georgia. While this was a one-time order, Hammonds is expecting many
opportunities for add-ons. Also, other groups within Warner Robbins now have interest in
ODVs. Hammonds intends to offer munitions loaders and aircraft tractor spotting dolly
equipment to the U.S. Navy in 2007-2008.

Hammonds has a backlog of approximately $5,645,000 for its additive and
injector systems, omni directional vehicles and water treatment solutions.
Description of Hammonds Products and Services

Water Treatment Technology Systems

Calcium Hypochlorite Tablet 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.
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 could contribute significant revenues to Hammonds' line of
fluid handling products once the new pump is placed into production.

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.
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 GE 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 of 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. In addition to aviation fuel,
Hammonds offers cutting edge technology in wild stream blending systems used in bio-diesel
delivery. 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 supplies systems to inject
additives in the mining, marine and drilling industries.

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 (ODV) Market

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. The industry spends
in excess of 4.6 billion dollars annually on new equipment.

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 fundamentalbenefit 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 has been a leader in providing 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 leases a 106,000 square foot manufacturing and office facility
on approximately 13 acres of land located in Houston, TX. The Houston, TX facility is
leased from an unaffiliated third party at an annual rental of $420,000 and 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 was 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 GE 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 including Arch Chemical,
CSX Railroad, Exxon/Mobil, BP Aviation, Chevron/Texaco, Tomco, KopCoat, Defense Energy
Supply and Lockheed Martin. In addition, Hammonds has been a long time supplier to all
branches of the United States Military with on-going contracts to supply equipment to the
U.S. Army. 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 over 25 patents covering various fuel additive
systems, water treating equipment and Omni Directional Vehicles. There are an additional
12 patents in pending status.
Employees

As of December 31, 2006, Hammonds had 48 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.
This annual report on Form 10-KSB 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.

RISK FACTORS RELATED TO OUR BUSINESS

Dependence Upon Affiliate for Funding
In order to successfully grow Hammonds business and its plan to increase market share for
Hammonds' products and services, we have been dependent upon the funding from our parent,
American International Industries, Inc. (OTCBB:AMIN), which loan at December 31, 2006 was
$1,931,056, and our parent's ability to secure and maintain our existing $2,000,000
revolving credit line from a financial institution. During 2006, Hammonds obtained
additional financing of approximately $2,728,000 in connection with the Company's August
and September 2006 Private Financing Transactions involving the sale of its Series A and
Series B Preferred Stock.

If additional debt and/or equity financing is required in 2007, we
believe that such financing will be available from our parent and private investors at
terms and conditions acceptable to the Company. In addition, as part of the August and
September 2006 Private Financing Transactions, we issued VOMF, an institutional investor,
24,999,999 warrants. In March 2007, VOMF exercised 3,970,400 Series C Warrants at a price
of $0.18 per share with gross proceeds of $714,672 to the Company. If all of the remaining
warrants are exercised in their entirety would generate an additional $5,891,994 in gross
proceeds before fees and expenses. However, there can be no assurance that all or a
significant portion of the warrants will be exercised or 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
acceptanceWe 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 ODV stocking orders
and has scheduled delivery of at least 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 statementsTo 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
contractorWe 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 usHammonds 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 usOur 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. The Company has "key" man
life insurance on the life of Mr. Hammonds in an amount that it deems sufficient.
Risks inherent in establishing a new marketThere 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 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 equityBased 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 changesRapid 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 protectionHammonds 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 significantlyThe 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 NASD Bulletin Board. 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.
The outstanding warrants may adversely affect us in the future and
cause dilution to existing shareholders

There are currently 21,029,599 Series A, B and C Warrants outstanding
after the exercise of the 3,970,400 Series C Warrants in March 2007, all of which Warrants
are owned by VOMF. The Series A and Series C Warrants expire in 2011 and the Series B
Warrants expire in 2008. The exercise price of the Series A and B Warrants is $0.18 per
share and the exercise price of the remaining 4,362,933 Series C Warrants is $.50 per
share, subject to adjustment in certain circumstances. Exercise of the Warrants will cause
dilution in the interests of other shareholders as a result of the additional shares of
common stock that would be issued upon such exercise. In addition, sales of the shares of
our common stock issuable upon exercise of the Warrants could have a depressive effect on
the price of our common stock, particularly if there is not a coinciding increase in
demand by purchasers of our common stock. Further, the terms on which we may obtain
additional financing during the period any of the Warrants remain outstanding may be
adversely affected by the existence of these Warrants as well.
State blue sky registration; potential limitations on resale of our
securities
Our common stock, the class of the Companys securities that is registered under the
Exchange Act, has not been registered for resale under the Securities Act of 1933 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 on our common stock
We do not expect to pay dividends for the foreseeable future. Further, the August and
September 2006 Private Financing Transactions with VOMF provide that no cash dividends may
be paid on our common stock unless and until all accrued dividends on the Series A and
Series B Preferred Stock have been paid. 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, 2006, we had 36,135,000 shares of common stock issued and 1,666,666 preferred
shares issued. On March 26, 2007, we issued 3,970,400 shares in connection with the
exercise by VOMF of Series C Warrants at $0.18 per share. 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.

If the 833,333 shares of Series A Preferred Stock and 833,333 shares of
Series B Preferred Stock issued to VOMF are converted into shares of common stock and all
of the Series A and B as well as the remaining Series C Warrants are exercised in their
entirety, we would be required to issue an additional 37,696,265 shares of common stock.
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, 2006, the Registrant had 36,135,000 shares of common stock issued and
outstanding, 32,446,280 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
PROPERTIES Back 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 approximately 13 acres of land in
Houston, TX and include a 106,000 square foot industrial manufacturing, production,
warehousing and distribution plant that also serves as Hammonds' territorial sales office.
The real property and plant are leased to Hammonds by an unaffiliated third party at a
monthly rental of $35,000. This facility has sufficient production capacity to meet the
Company's anticipated needs for product for the foreseeable future.

In addition, Hammonds maintains an executive office facility in Harris
County, Houston, TX.
ITEM 3. LEGAL PROCEEDING Back 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 HOLDERS Back to Table of Contents During the year ended December 31, 2006, 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 under the symbol IMTG on the NASD
Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation system for
equity securities not included on The NASDAQ Stock Market. Quotation of the Company's
securities on the NASD Bulletin Board 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. For the periods indicated, the following table sets
forth the high and low bid prices per share of common stock. The below prices represent
inter-dealer quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions. **Fiscal 2007**
    
    **Fiscal 2006**
    
    **Fiscal 2005****High**
    
    **Low**
    
    **High**
    
    **Low**
    
    **High**
    
    **Low**First
    Quarter ended March 31
    
    $
    0.35
    
    $
    0.20
    
    $
    0.60
    
    $
    0.35
    
    $
    0.28
    
    $
    0.23Second Quarter ended June 30
    
    $
    ---
    
    $
    ---
    
    $
    0.45
    
    $
    0.30
    
    $
    0.46
    
    $
    0.20Third Quarter ended September 30
    
    $
    ---
    
    $
    ---
    
    $
    0.55
    
    $
    0.25
    
    $
    0.85
    
    $
    0.35Fourth Quarter ended December 31
    
    $
    ---
    
    $
    ---
    
    $
    0.44
    
    $
    0.20
    
    $
    0.65
    
    $
    0.31 As of December 31,
2006, our shares of common stock were held by approximately 186 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. However,
the August and September 2006 Private Financing Transactions provide that no cash
dividends may be paid on our common stock unless and until all accrued dividends on the
Series A and Series B Preferred Stock have been paid.
**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,
2006.
**Sale of Unregistered Securities**

During fiscal year ended December 31, 2005, the Registrant issued:
100,000 restricted shares to Gary D. Woerz 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.

On August 1, 2006 Mr. Carl L. Hammonds converted his 49% ownership of
Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water
Treatment Systems, Inc. into 16,000,000 restricted shares or 44.4% of IMTG common stock at
a conversion rate of $0.25 a share.

In connection with the August and September 2006 Private Financing
Transactions, the Company issued to VOMF, an accredited institutional investor, 833,333
shares of Series A Preferred Stock and 833,333 shares of Series B Preferred Stock both of
which are convertible into common stock at a ratio of ten shares of common stock for each
share of preferred stock. The Company also issued 8,333,333 Series A, B and C Warrants
exercisable to purchase a total of 24,999,999 shares of common stock. The transaction was
a privately negotiated transaction not involving any public solicitation and the Company
relied upon the exemptions provided in Section 4(2) of the Act and Rule 506 under
Regulation D. On March 27, 2007, VOMF exercised 3,977,400 Series C Warrants and was issued
3,977,400 restricted shares of common stock at an exercise price of $0.18 per share or
gross proceeds of $714,672 to the Company ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONSBack 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 14 of this
annual report.
General

The Registrant is a 45.1% owned subsidiary of American International
Industries, Inc., OTCBB: AMIN. AMIN consolidates IMTG even though its ownership is less
than 51%, because the Company exercises its right to occupy two of the three board of
director seats. Since IMTG is incurring losses and there is no minority interest, AMIN
recognizes 100% of IMTGs losses.

On April 28, 2005, the Registrant acquired 51% of its operating
subsidiary, Hammonds Technical Services, Inc. On August 1, 2006 The Company acquired the
49% minority interest of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc.,
and Hammonds Water Treatment Systems, Inc. by issuing 16,000,000 restricted shares or
44.4% of IMTG common stock at a conversion rate of $.25 a share. The additional cost of
$4,000,000 has been allocated to patents, trademarks, and sole source contract and is
being amortized in a manner equivalent to the amortization used on the intangible assets
acquired in the initial purchase of 51% of the company.

On August 8, 2006, IMTG entered into a stock purchase agreement with
VOMF pursuant to which IMTG agreed to sell up to 833,333 shares of newly designated IMTG
Series A Convertible Preferred Stock, having an 8% dividend, for consideration of
$1,500,000. On August 8, 2006, IMTG sold VOMF 555,555 shares of Series A Preferred Stock
for consideration of $1,000,000 and on August 23, 2006, IMTG sold an additional 277,778
shares of Series A Preferred Stock for consideration of $500,000. In connection with the
August 8 and August 23, 2006 private financing transactions, IMTG issued VOMF a Series A
Warrant exercisable to purchase 8,333,333 shares of IMTG common stock at $0.18 per share,
expiring in five years, and a Series B Warrant exercisable to purchase an additional
8,333,333 shares of IMTG common stock at $0.18 per share, expiring in August 2007.

On September 30, 2006, IMTG entered into a second stock purchase
agreement with VOMF pursuant to which it sold VOMF 833,333 shares of Series B Preferred
Stock, having identical terms as the Series A stock purchase agreement except for the
dividend rate of 4%, for consideration of $1,500,000 and issued VOMF Series C Warrants
exercisable to purchase 8,333,333 additional shares of common stock at a price of $.50 per
share, expiring in five years. In connection with the Series B stock purchase agreement,
IMTG agreed to extend the expiration dates of the Series B Warrants issued in the August
2006 private financing transactions from one year to two years.

Each share of IMTG Series A and Series B Preferred Stock is convertible
into ten shares of IMTG common stock. The Companys ownership percentage in IMTG will
decrease when VOMF converts its Series A and Series B Preferred Stock and/or exercises
warrants issued in the August and September 2006 private financing transactions into
shares of IMTG common stock. The Company's IMTG subsidiary received net proceeds of
approximately $2,728,000 from the sale of Series A and Series B Preferred Stock and will
receive gross proceeds of $7,166,666 if all of the warrants are exercised by VOMF. In
connection with the agreement of VOMF to exercise up to 4,000,000 Series C Warrants the
Company agreed to reduce the exercise price of the Series C Warrants for up to 4,000,000
shares from $0.50 to $0.18, the same exercise price applicable to the Series A and B
Warrants. On March 27, 2007, VOMF exercised 3,970,400 Series C Warrants at an exercise
price of $0.18 per share and was issued 3,970,400 restricted shares of common stock.

The material terms of these preferred stock issuances are included in
note 8 to the consolidated financial statements.

Revenue and expenses of Hammonds are included in the Companys
consolidated statements of operations from May 1, 2005 through the year ended December 31,
2006.
Revenues

Gross revenues for the year ended December 31, 2006 were $6,467,393
compared to $3,395,151 for the year ended December 31, 2005. 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. We had inventories of $1,309,612 at December 31, 2006,
consisting primarily of parts and materials in expectation of increasing demand for our
products including Hammonds ODV line during 2007. Subsequent to the year ended
December 31, 2006, Hammonds received orders for: its new line of ODVs; water purification
products; and fuel additives and injectors.
Cost of Sales

Cost of sales for the year ended December 31, 2006 was $5,336,529 or
82.5% of revenues compared to $2,396,950 or 70.6% of revenues for the year ended December
31, 2005. Costs of sales are anticipated to decrease during 2007 related to new, more
efficient equipment and supporting inventories.
General and administrative expenses

In 2006, general, selling and administrative expenses totaled
$3,311,656 or 51.2% of revenues compared to $2,104,473 or 61.98% of revenues in 2005. 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 2007 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 2007.
Operating Loss

Our operating loss was $2,180,792 in 2006 compared to $1,106,272 in
2005. Our 2006 operating loss was mainly attributable to 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, while
the loss in 2005 was 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.
Other Income

Other income for the Company in 2006 includes interest expense of
$491,344, interest and other income of $75,573, and Hammonds participation in the Parent
Companys gain on the sale of the Rankin Road property of $150,000.
Net Loss

Our net loss applicable to common shareholders was $2,506,988 in 2006
and $1,194,652 in 2005.
Liquidity and Capital Resources

Our current assets were $3,382,293 at December 31, 2006, consisting
mainly of inventories and accounts receivable, which we expect are fully collectible. In
connection with the 2005 acquisition of Hammonds and Carl Hammonds 49% minority interest
of Hammonds into shares of IMTG common stock in 2006, intangible assets were valued at
$6,038,870 at December 31, 2006. Our total assets at December 31, 2006 were $10,384,397.

We had current liabilities of $1,627,734 at December 31, 2006,
consisting principally of current installments of long-term debt and accounts payable and
accrued expenses. At December 31, 2006, we had long-term liabilities of $4,898,306
consisting of notes payable to banks of $2,464,050, and a note payable to our parent,
American International Industries, Inc. in the amount of $1,931,056 and deferred tax
liability of $503,200.

During 2006, we had a negative cash flow from operations of $3,044,382
mainly due to our net loss of $2,446,563, a gain on disposal of assets of $150,000, an
increase in accounts receivable, inventories and prepaid expenses of $908,529, a decrease
in accounts payable and accrued expenses of $180,791, offset by depreciation and
amortization of $627,500. 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 in 2006 through
proceeds from the issuance of preferred stock in the amount of $2,710,120 and long-term
borrowings in the amount of $1,012,231. We made payments of $514,984 on long-term
borrowings during 2006. In 2005, 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 provided cash from investing activities of $186,667 in 2006 compared
to using cash for investing activities of $1,077,914 in 2005. Cash was used to purchase
property and equipment in the amount of $51,841 in 2006 compared to $119,006 in 2005. The
cash provided from investing activities includes $150,000 in proceeds received from the
Parent Company for Hammonds participation in the sale of the Rankin Road property.

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.
**Related Party Transactions**

The Company has been and continues to be dependent upon the funding
from its parent, American International Industries, Inc. At December 31, 2006, the Company
owed the parent $1,931,056 (see note 13).
Off-Balance Sheet Arrangements

As of December 31, 2006 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, 2006, Hammonds leases its 106,000 square foot
manufacturing and office facility in Houston, TX from an unrelated third party at annual
rental of $420,000 (see note 12 to the consolidated financial statements). In addition,
Hammonds pays the Company a management fee of $10,000 per month.
Critical Accounting Estimates

Our significant accounting policies are described in note 2 to our
consolidated financial statements for the year ended December 31, 2006. 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, 2006, 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 $180,000 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, 2006 and December 31, 2005 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.  Our management is
responsible for establishing and maintaining an adequate level of internal controls over
financial reporting. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with GAAP.
Internal control over financial reporting includes policies and procedures that: - Pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; - Provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the Company; and - Provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the Companys assets that could have a material effect on the consolidated
financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with existing policies or procedures may deteriorate. 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 restated its financial
statements for the periods ended June 30 and September 30, 2005. In connection with the audit of the
Companys financial statements for the year ended December 31, 2006, 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 effective as of
December 31, 2006. Changes in internal controls. Subsequent to
December 31, 2005, 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 INFORMATION**Back to Table of Contents  None.




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. We
may elect one or more additional directors and appoint additional officers in connection
with our intent to pursue new business opportunities or entering into a business
combination. 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**
    **Positions**Daniel Dror
    66
    Chairman of the BoardGary D. Woerz
    61
    CEO, CFO and Director 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. Gary D. Woerz, CEO, Chief Financial Officer and a
director of the Registrant, serves also 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. 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 2006, 2005 and 2004. **Summary Compensation Table****Long
    Term****Annual
    Compensation**
    **Compensation
    Awards****Other**
    **Restricted**
    **Securities****Annual**
    **Stock**
    **Underlying**
    **All Other****Salary**
    **Bonus**
    **Compensation**
    **Award(s)**
    **Options**
    **Compensation****Name and
    Principal Position**
    
    **Year**
    **($)**
    **($)**
    **($)**
    **($)**
    **($)**
    **($)**Gary D. Woerz, CEO and CFO(1)
    
    2006
    ---
    ---
    ---
    ---
    ---
    ---2005
    ---
    ---
    ---
    3,000
    ---
    ---2004
    ---
    ---
    ---
    ---
    ---
    ---Carl Hammonds, President of Hammonds
    
    2006
    94,7122005
    90,000(1) Mr. Woerz received no compensation from the
    Registrant for serving as President and CFO. In April 2005, Mr. Carl Hammonds entered into a five-year employment
agreement with Hammonds Technical Services to serve as Hammonds President. The employment
agreement provides for an annual base salary of $90,000. In the event of termination by
the Company without "Good Cause," or the Mr. Hammonds resigns from his
employment for "Good Reason," Mr. Hammonds is entitled to severance pay in an
amount equal to either $90,000, or the present value of the salary and bonus payments due
over the remainder of the employment term, whichever is greater. Mr. Hammonds is not
entitled to severance pay in the event the agreement is terminated as a result of his
death or disability, voluntary resignation without "Good Reason," or his
termination for "Good Cause." The agreement contains a covenant not to compete
within sixty (60) miles of the Companys operations for the period covered by the
employment agreement and for one year following the termination of the agreement. 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, 2006. 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
    45.10%601 Cien
    Street, Suite 235Kemah, TX
    77565Carl Hammonds, CEO of Hammonds
    
    16,000,000
    44.30%910 Rankin RoadHouston, TX 77073Gary D. Woerz, President, CFO and
    Director
    
    100,000
    0.30%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)(2)
    
    16,411,280
    45.41% (1)
Applicable percentage ownership is based on 36,135,000 shares of common stock outstanding
as of December 31, 2006. 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, 2006 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.
(2) Includes shares owned by the Registrant's parent American International Industries,
Inc. 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 2006, the Registrant borrowed $87,468 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.**
    **Description**3(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 and
    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 and
    CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of
    2002, filed herewith. (b) Reports on Form 8-K Filed During the Last Quarter of the Fiscal
Year Covered by this Report: The Registrant filed a Form 8-K on October 23, 2006 with disclosure under Item 4.02,
"Non-reliance on previously issued financial statements or a related audit report or
completed interim review." ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESBack to Table of Contents Independent Public Accountants
The Registrant's Board of Directors has appointed John A. Braden & Co., P.C. On
January 1, 2007, John A. Braden & Co., PC merged with GLO CPAs, LLP, which firm has
issued its report on our consolidated financial statements for the year ended December 31,
2006.  Our financial statements
for the fiscal year ended December 31, 2005 were audited by Thomas Leger & Co., L.L.P. Principal Accounting Fees
The following table presents the fees for professional audit services rendered by John A.
Braden & Co., P.C. and Thomas Leger & Co., L.L.P. for the audit of the
Registrant's annual financial statements for the years ended December 30, 2006 and 2005,
and fees billed for other services rendered by John A. Braden & Co., P.C. and Thomas
Leger & Co., L.L.P. during those years. Year EndedDecember 31,  2006
    
    
    December 31, 2005Audit fees (1)
    $
    13,007
    
    $
    100,000Audit-related fees (2)
    
    4,125
    
    
    --Tax fees (3)
    
    --
    
    
    --All other fees
    
    
    
    
    375
    
    
    --(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. /s/ DANIEL DROR
   CHAIRMANDated: April 4, 2007 /s/ GARY D. WOERZ
   CEO AND CFODated: April 4, 2007




**Financial
Statements**Back to Table of Contents Report of Independent Registered Public Accounting Firm
    23Report of Independent Registered Public Accounting Firm
    24Financial Statements:Balance Sheets -
    December 31, 2006 and 2005
    25Statements
    of Operations - Years ended December 31, 2006 and 2005
    26Statements of Stockholders' Equity
    (Deficit) - Years ended December 31, 2006 and 2005
    27Statements
    of Cash Flows - Years ended December 31, 2006 and 2005
    28Notes
    to Consolidated Financial Statements
    29




REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBack to Table of ContentsTo 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, 2006 and the
related consolidated statements of operations, changes in stockholders deficit, and
cash flows for the year ended December 31, 2006. 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 audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An audit 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 audits provide 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, 2006, and the consolidated results of
their operations and their cash flows for the year ended December 31, 2006 in conformity
with accounting principles generally accepted in the United States of America.

/s/ GLO CPAs LLP

March 23, 2007
Houston, Texas




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Back to Table of Contents  To the Stockholders
International American Technologies, Inc. and Subsidiary
Houston, Texas We have audited the accompanying
consolidated statements of operations, changes in stockholders deficit, and cash
flows for the year ended December 31, 2005 of International American Technologies, Inc.
and Subsidiary. 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 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




**INTERNATIONAL
    AMERICAN TECHNOLOGIES, INC.**Consolidated Balance SheetsBack to Table of ContentsDecember
    31, 2006**2006**AssetsCurrent assets:Cash
    $
    396,505Accounts
    receivable, net of allowance of doubtful accounts of $99,387 at December 31, 2006
    
    1,328,215Current portion of
    notes receivable
    
    229,418Inventories
    
    1,309,612Prepaid expenses
    
    118,543Total current assets
    
    3,382,293Long-term notes receivable
    
    160,892Property and equipment, net
    
    782,032Intangible assets, net
    
    6,038,870Other assets
    
    20,310Total assets
    $
    10,384,397Liabilities
    and Stockholders' Equity (Deficit)Current liabilities:Accounts payable
    and accrued expenses
    $
    1,333,831Short-term note
    payable
    
    276,410Current
    installments of long-term debt
    
    17,493Total current liabilities
    
    1,627,734Long-term debt, less current
    installments
    
    2,464,050Due to American International
    Industries, Inc.
    
    1,931,056Deferred tax liability
    
    503,200Total liabilities
    
    6,526,040Stockholders' equity (deficit):Preferred stock,
    $0.0001par value, authorized 5,000,000 shares:1,666,666
    issued and outstanding
    
    167Common stock,
    $0.0001 par value, authorized 195,000,000 shares:36,135,000 shares issued and outstanding at December 31, 2006
    
    3,614Additional paid-in
    capital
    
    7,677,731Accumulated
    deficit
    
    (3,823,155)Total
    stockholders' equity (deficit)
    
    3,858,357Total liabilities and stockholders' equity (deficit)
    $
    10,384,397See accompanying
    notes to consolidated financial statements.




**INTERNATIONAL AMERICAN TECHNOLOGIES, INC.**Consolidated Statements of OperationsBack to Table of ContentsYears ended December 31, 2006 and 2005****
    
    **2006**
    
    **2005**Revenues
    $
    6,467,393
    $
    3,395,151Costs and expenses:Cost of sales
    
    5,336,529
    
    2,396,950Selling, general
    and administrative
    
    3,311,656
    
    2,104,473Total operating expenses
    
    8,648,185
    
    4,501,423Operating loss
    
    (2,180,792)
    
    (1,106,272)Other income (expenses):Gain (loss) on sale
    of assets
    
    150,000
    
    -Interest income
    
    76,665
    
    18,237Interest expense
    
    (461,344)
    
    (106,617)Other expenses
    
    (1,092)
    
    -Total
    other income (expenses)
    
    (265,771)
    
    (88,380)Net loss
    
    (2,446,563)
    
    (1,194,652)Preferred dividends
    
    (60,425)
    
    -Net
    loss before income tax
    
    (2,506,988)
    
    (1,194,652)Provision for income tax
    
    -
    
    -Net loss applicable to common shareholders
    $
    (2,506,988)
    $
    (1,194,652)Net loss per
    common share - basic and diluted
    $
    (0.09)
    $
    (0.06)Weighted
    average common shares - basic and diluted
    
    26,841,849
    
    20,111,000See accompanying
    notes to consolidated financial statements




AMERICAN
    INTERNATIONAL TECHNOLOGIES, INC.Consolidated Statements of
    Stockholders' Equity (Deficit) Back to Table of
    ContentsFor
    the years ended December 31, 2006 and 2005**Additional**
    
    
    
    **Total****Preferred
    Stock**
    
    **Common
    Stock**
    
    **paid-in**
    
    **Accumulated**
    
    **stockholders'****shares**
    
    **amount**
    
    **shares**
    
    **amount**
    
    **capital**
    
    **deficit**
    
    **equity**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)Issuance of
    preferred stock
    1,666,666
    
    167
    
    -
    
    -
    
    2,709,953
    
    -
    
    2,710,120Issuance of common
    stock for49%
    ownership in Hammonds
    
    
    
    
    16,000,000
    
    1,600
    
    3,998,400
    
    -
    
    4,000,000Net loss
    
    
    
    
    
    
    
    
    
    
    (2,446,563)
    
    (2,446,563)Preferred dividends
    -
    
    -
    
    -
    
    -
    
    -
    
    (60,425)
    
    (60,425)Balance,
    December 31, 2006
    1,666,666
    $
    167
    
    36,135,000
    $
    3,614
    $
    7,677,731
    $
    (3,823,155)
    $
    3,858,357See
    accompanying notes to consolidated financial statements




INTERNATIONAL AMERICAN TECHNOLOGIES, INC.Consolidated Statements of Cash Flows Back to Table of ContentsYears ended December 31, 2006 and 2005****
    
    **2006**
    
    **2005**Cash flows from operating
    activities:Net loss
    $
    (2,446,563)
    $
    (1,194,652)Adjustments to
    reconcile net lossto net
    cash used in operating activities:Depreciation and amortization
    
    627,000
    
    304,946(Gain) loss on disposal of assets
    
    (150,000)
    
    -Issuance of common stock for services
    
    -
    
    17,750Miscellaneous write-off
    
    (22,684)
    
    -(Increase) decrease of operating assets, net of acquisitions:Accounts receivable
    
    (498,920)
    
    (319,928)Inventories
    
    (304,955)
    
    (195,819)Prepaid expenses
    
    (104,654)
    
    -Other
    
    (36,685)
    
    (22,538)Increase (decrease) in operating liabilities:Accounts payable and accrued expenses
    
    (180,791)
    
    (9,751)Net cash used in operating activities
    
    (3,044,382)
    
    (1,419,992)Cash flows from investing
    activities:Purchase of
    property and equipment
    
    (51,841)
    
    (119,006)Patents and
    trademarks
    
    (26,393)
    
    -Redemption
    (purchase) of certificate of deposit
    
    -
    
    300,000Proceeds from the
    sale of property
    
    150,000
    
    -Proceeds from
    payments on long-term notes receivable
    
    27,434
    
    25,586Amount due from
    (to) affiliates
    
    87,467
    
    (342,700)Purchase of stock
    in majority-owned subsidiary
    
    -
    
    (998,300)Cash acquired in
    acquisition of majority-owned subsidiary
    
    -
    
    56,506Net cash provided by (used in) investing activities
    
    186,667
    
    (1,077,914)Cash flows from financing
    activities:Proceeds from
    issuance of preferred stock
    
    2,710,120
    
    -Proceeds from
    long-term borrowing
    
    1,012,231
    
    2,131,605Proceeds from
    borrowings from related parties
    
    -
    
    998,300Net borrowings
    under line of credit
    
    570
    
    -Repayment of
    short-term borrowing
    
    (15,592)
    
    (570,223)Repayment of
    short-term borrowing
    
    (514,984)
    
    -Net cash provided by financing activities
    
    3,192,345
    
    2,559,682Net increase (decrease) in cash
    
    334,630
    
    61,776Cash at beginning of year
    
    61,875
    
    99Cash at end
    of year
    $
    396,505
    $
    61,875Supplemental schedule of cash
    flow information:Interest paid
    $
    491,344
    $
    106,617Taxes paid
    $
    -
    $
    -Non-cash investing and
    financing transactions:Issuance of note
    payable for equipment
    
    4,855
    
    -Issuance of note
    payable and assumption of liabilitiesfor
    acquisition of subsidiary
    $
    -
    $
    1,457,400Non-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 contracts
    
    -
    
    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, 2006 and 2005 (1) Summary of Significant Accounting Policies

Organization, Ownership and Business

International American Technologies, Inc., f/k/a Unlimited Coatings
Corporation, (the "Company"), was a public shell company with no operations in
2004. The Company is a 45.1% 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. On August 1, 2006, The Company acquired
the 49% minority interest of Hammonds Technical Services, Inc., Hammonds Fuel Additives,
Inc., and Hammonds Water Treatment Systems, Inc. by issuing 16,000,000 restricted shares
or 44.4% of IMTG common stock at a conversion rate of $.25 a share, valued in accordance
with the price of the common stock at the date of the transaction. As a result of this
transaction, the Company owns 100% of the Hammonds companies.

On August 8, 2006 the Company entered into a stock purchase agreement
with Vision Opportunity Fund Limited from which the Company received $1,500,000 for
833,333 series A convertible preferred shares with warrant A (8,333,333 warrants
exercisable over a period of 5 years at $.18) and warrant B (8,333,333 warrants
exercisable over a period of 2 years at $.18).

On September 29, 2006 the Company entered into a stock purchase
agreement with Vision Opportunity Fund Limited from which the Company received $1,500,000
for 833,333 series B convertible preferred shares with a warrant C (8,333,333 warrants
exercisable over a period of 5 years at $.50).

The series A and B convertible preferred shares are convertible at 10
to 1 ratio of common to preferred.
Principles of Consolidation

The 2006 consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries: Hammond Technical Services, Inc., Hammonds
Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc. In accordance with FIN
46(r), American International Industries, Inc., OTCBB: AMIN, consolidates IMTG even though
its ownership is less than 51%, because the Company exercises its right to occupy two of
the three board of director seats. Since IMTG is incurring losses and there is no minority
interest, AMIN recognizes 100% of IMTGs losses. All significant intercompany
transactions and balances have been eliminated in consolidation.
**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.
Inventories

Inventories are valued at the lower-of-cost or market on a first-in,
first-out basis. The Company assesses the reliability 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 may be adjusted for any additional 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
acquisition cost, intangible assets with finite lives and 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
the Hammonds companies 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 adopted
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 2006, the Financial Accounting Standards Board issued the following:
****- SFAS No. 155: Accounting for Certain Hybrid Financial Instruments- SFAS No. 156: Accounting for Servicing of Financial Assets- SFAS No. 157:Fair Value Measurements- SFAS No. 158:Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans

Management has reviewed these new standards and believes that they have
no impact on the financial statements of the Company.

(2) Acquisition of Hammonds Technical Services, Inc.


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. The value of the stock at $10.00 per share
was guaranteed. 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.

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**
    
    **Consolidated**Current 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, 2006**Gross Carrying Amount
    
    Accumulated Amortization
    Average Weighted LivesPatents
    $
    1,806,387
    $
    372,828
    12 yearsTrademarks
    
    465,199
    
    77,533
    10 yearsSole Source
    Contract
    
    464,039
    
    110,485
    7 years$
    2,735,625
    $
    560,846
    11 years
  Aggregate
    Amortization ExpenseFor year ended December
    31, 2005
    $
    199,362For year ended December
    31, 2006
    $
    361,484For year ending December
    31, 2007
    $
    266,613For year ending December
    31, 2008
    $
    250,646For year ending December
    31, 2009
    $
    250,646For year ending December
    31, 2010
    $
    250,646For year ending December
    31, 2011
    $
    250,646
 Revenues and expenses are included in the Companys statement of
operations from May 1, 2005 through December 31, 2006.

On August 1, 2006, The Company acquired the 49% minority interest of
Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water
Treatment Systems, Inc. by issuing 16,000,000 restricted shares or 44.4% of IMTG common
stock at a conversion rate of $.25 a share. The additional cost of $4,000,000 has been
allocated to patents, trademarks, and sole source contract and is being amortized in a
manner equivalent to the amortization used on the intangible assets acquired in the
initial purchase of 51% of the company. Additionally, the Company acquired patents
totaling $26,393 in 2006. The following table contains a summary of the intangible assets
acquired in 2006: **As of
    December 31, 2006**Gross Carrying Amount
    
    Accumulated Amortization
    Average Weighted LivesPatents
    $
    2,661,282
    $
    93,326
    12 yearsTrademarks
    
    684,000
    
    28,500
    10 yearsSole Source
    Contract
    
    680,000
    
    40,476
    7 years$
    4,026,393
    $
    162,302
    11 years
  Aggregate
    Amortization ExpenseFor year ended December
    31, 2006
    $
    162,302For year ending December
    31, 2007
    $
    387,849For year ending December
    31, 2008
    $
    387,849For year ending December
    31, 2009
    $
    387,849For year ending December
    31, 2010
    $
    387,849For year ending December
    31, 2011
    $
    387,849
 December 31, 2006 balances for Intangible Assets are included in note
5.
(3) Inventory

Inventory at December 31, 2006 consisted of the following: **2006**Finished
    goods
    $
    106,000Work in
    process
    
    40,680Parts and
    materials
    
    1,332,4461,479,126Less:
    Obsolescence reserve
    
    (169,514)$
    1,309,612
 (4) Property and Equipment

A summary of property and equipment and related accumulated
depreciation and amortization are as follows: **2006**Machinery and equipment
    $
    894,533Leasehold improvements
    
    96,796Total property and
    equipment
    
    991,329Less: Accumulated
    depreciation and amortization
    
    (209,297)Net property and equipment
    $
    782,032
 (5) Intangible Assets

Intangible assets at December 31, 2006 consisted of the following: **As of
    December 31, 2006**Gross Carrying Amount
    
    Accumulated Amortization
    Average Weighted LivesPatents
    $
    4,468,780
    $
    466,154
    12 yearsTrademarks
    
    1,149,199
    
    106,033
    10 yearsSole Source
    Contract
    
    1,144,039
    
    150,961
    7 years$
    6,762,018
    $
    723,148
    11 years
  Aggregate
    Amortization ExpenseFor year ended December
    31, 2005
    $
    199,362For year ended December
    31, 2006
    $
    654,465For year ending December
    31, 2007
    $
    638,495For year ending December
    31, 2008
    $
    638,495For year ending December
    31, 2009
    $
    638,495For year ending December
    31, 2010
    $
    638,495For year ending December
    31, 2011
    $
    638,495
 The Companys patents, trademarks, and sole source contract
resulted from the April 28, 2005 acquisition of 51% of Hammonds Technical Services and
from the August 1, 2006 acquisition of the 49% minority interest of the Hammonds
Companies.

The following table contains a summary of the intangible assets
acquired from the acquisition of Hammonds Technical Services on April 28, 2005: **As of
    December 31, 2006**Gross Carrying Amount
    
    Accumulated Amortization
    Average Weighted LivesPatents
    $
    1,806,387
    $
    372,828
    12 yearsTrademarks
    
    465,199
    
    77,533
    10 yearsSole Source
    Contract
    
    464,039
    
    110,485
    7 years$
    2,735,625
    $
    560,846
    11 years
 On August 1, 2006, The Company acquired the 49% minority interest of
Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water
Treatment Systems, Inc. by issuing 16,000,000 restricted shares or 44.4% of IMTG common
stock at a conversion rate of $.25 a share. The additional cost of $4,000,000 has been
allocated to patents, trademarks, and sole source contract and is being amortized in a
manner equivalent to the amortization used on the intangible assets acquired in the
initial purchase of 51% of the company. Additionally, the Company acquired patents
totaling $26,393 in 2006. The following table contains a summary of the intangible assets
acquired in 2006: **As of
    December 31, 2006**Gross Carrying Amount
    
    Accumulated Amortization
    Average Weighted LivesPatents
    $
    2,661,282
    $
    93,326
    12 yearsTrademarks
    
    684,000
    
    28,500
    10 yearsSole Source
    Contract
    
    680,000
    
    40,476
    7 years$
    4,026,393
    $
    162,302
    11 years
 (6) Short-term Notes Payable To Banks **December
    31, 2006**Note payable with interest
    at 10.75%, interest payments due quarterly, with a principal balance due on December 10,
    2007
    $
    90,459Note payable to former
    owner of equity interest in Hammonds payable on July 20, 2005 with accrued interest at
    prime plus 4%
    
    173,300Other notes with various
    terms
    
    12,651$
    276,410
 (7) Long-term Debt

Long-term debt consisted of the following: **December 31, 2006**Note payable to
    a bank, interest due monthly at prime plus 1%, principal payment due August 26, 2008,
    secured by assets of the Company's subsidiary
    $
    1,992,189Note payable to
    a bank, due in monthly installments of interest only at prime plus 1%, with a principal
    balance due on August 26, 2008
    
    400,000Note payable to
    a bank, due in monthly installments of principal and interest of $2,119.65 through April
    3, 2011
    
    89,3542,481,543Less current
    portion
    
    (17,493)$
    2,464,050
 Principal repayment provisions of long-term debt are as follows at
December 31, 2006: 2007
    $
    17,4932008
    
    2,411,4472009
    
    21,2412010
    
    23,4072011
    
    7,955Total
    $
    2,481,543
 (8) Preferred Stock

On August 8, 2006, IMTG entered into a stock purchase agreement with
VOMF pursuant to which IMTG agreed to sell up to 833,333 shares of newly designated IMTG
Series A Convertible Preferred Stock, having an 8% dividend, for consideration of
$1,500,000. On August 8, 2006, IMTG sold VOMF 555,555 shares of Series A Preferred Stock
for consideration of $1,000,000 and on August 23, 2006, IMTG sold an additional 277,778
shares of Series A Preferred Stock for consideration of $500,000. As part of the VOMF
purchase of 555,555 shares of Series A Preferred Stock on August 8, 2006 and 277,778
shares of Series A Preferred Stock on August 23, 2006 (the "August 2006 Private
Financing Transactions"), we issued VOMF: (i) Series A Warrants to purchase an
additional 8,333,333 shares at $.18 per share, or $1,500,000, expiring with respect to
5,555,555 shares on August 8, 2011, and expiring with respect to 2,777,778 shares on
August 23, 2011; and (ii) Series B Warrants to purchase an additional 8,333,333 shares at
$.18 per share, or $1,500,000, which warrants expire with respect to 5,555,555 shares on
August 8, 2007 and with respect to 2,777,778 shares on August 23, 2007.

On September 30, 2006, IMTG entered into a second stock purchase
agreement with VOMF pursuant to which it sold VOMF 833,333 shares of Series B Preferred
Stock, having identical terms as the Series A stock purchase agreement except for the
dividend rate of 4%, for consideration of $1,500,000. As part of this transaction (the
"September 2006 Private Financing Transaction"), we issued VOMF: (i) Series C
Warrants to purchase an additional 8,333,333 shares of our common stock at $.50 per share,
or $4,166,666, expiring on September 29, 2011; and (ii) we agreed to extend the
expiration dates on the Series B Warrants issued in the August 2006 Private Financing
Transactions from August 2007 to August 2008.

The Company has made no allocation to recognize the values of the
Series A, B, and C warrants. The entire proceeds have been allocated to Series A and B
Preferred Stock. The fair value of the warrants cannot be reasonably estimated separately
from the value of the shares of preferred stock.

Each share of Series A and B Convertible Preferred Stock is convertible
into ten shares of the Company's common stock. The Company received net proceeds of
approximately $2,728,000 from the sale of Series A and Series B Preferred Stock and will
receive gross proceeds of $7,166,666 if all of the warrants are exercised by VOMF. The
Company has made no allocation to recognize the value of the Series A, B, and C warrants.
The entire proceeds have been allocated to Series A and B Preferred Stock. The fair value
of the warrants cannot be reasonably estimated separately from the value of the preferred
stock. American International Industries ownership interest in IMTG will decrease
when VOMF converts its Series A and Series B Preferred Stock and/or exercises
warrants issued in the VOMF August and September 2006 private financing transactions into
shares of IMTG common stock.

The material terms of these issuances are disclosed in the following
paragraphs.
*Series A Convertible Preferred Stock*. The principal terms of the
Series A Preferred Stock are as follows: 
Voting: Except with respect to specified transactions that may affect the rights,
preferences, privileges or voting power of the Series A Preferred Stock and except as
otherwise required by Nevada law, the Series A Preferred Stock has no voting rights. We
shall not affect certain specified transactions, which include authorizing or increasing
the authorized or issued amount of any stock ranking pari passu or senior to the Series A
Preferred Stock with respect to the distribution of assets on liquidation or the
dissolution or winding up, without the affirmative vote or consent of the holders, voting
as a class, of at least 75% of the shares of the Series A Preferred Stock outstanding at
the time. Dividends: The holders of Series A Preferred Stock are entitled to receive out
of legally available assets dividends at the rate of 8% per annum, payable semi-annually
on June 30 and December 31. Dividends on the Series A Preferred Stock are cumulative and
are prior and in preference to payment of any dividend or distribution on any junior
stock. So long as any shares of Series A Preferred Stock are outstanding, we will not
declare, pay or set apart for payment any dividend or make any distribution on any junior
stock (other than dividends or distributions payable in additional shares of junior
stock), unless at the time of such dividend or distribution we shall have paid all accrued
and unpaid dividends on Series A Preferred Stock. Conversion: The holder of Series A
Preferred Stock may, at their option, elect to convert all or any portion of the shares of
the Series A Preferred Stock into a number of shares of common stock equal to the quotient
of (i) the liquidation preference amount ($1.80) of the shares of Series A Preferred Stock
being converted plus any accrued but unpaid dividends divided by (ii) the conversion
price, which initially is $0.18 per share, subject to certain adjustments. If, within 3
business days of our receipt of a conversion notice, our transfer agent shall fail to
issue to the holder the proper number of shares of common stock subject to the conversion
notice, or fail to issue a new preferred stock certificate representing the number of
shares of Series A Preferred Stock to which such holder is entitled, we shall be required
to pay additional damages on each business day after such 3rd business day that such
conversion is not timely effected equal to 0.5% of the product of: (i) the number of
shares of common stock not timely issued and, in the event we failed to timely deliver a
preferred stock certificate, the number of shares of common stock issuable upon conversion
of the shares of Series A Preferred Stock represented by such certificate; and (ii) the
closing bid price of our common stock on the last possible date which we could have timely
issued such common stock and/or such preferred stock certificate. If we fail to pay those
additional damages within 5 business days of the date incurred, then such payment shall
bear interest at the rate of 2.0% per month (pro rated for partial months) until such
payments are made. The conversion price of the Series A Preferred Stock may be adjusted in
the event of (i) common stock split or reclassification; (ii) capital reorganization;
(iii) distribution of dividends; or (iv) the issuance or sale of additional shares of
common stock or equivalents.

Liquidation. In the event of the liquidation, dissolution or winding up
of our affairs, the holders of outstanding shares of Series A Preferred Stock shall
be entitled to receive, out of our assets available for distribution to shareholders, an
amount equal to $1.80 per share or the liquidation preference amount of the Series A
Preferred Stock plus any accrued and unpaid dividends before any payment shall be made or
any assets distributed to the holders of the common stock or any other junior stock. If
our assets are not sufficient to pay in full the liquidation preference amount plus any
accrued and unpaid dividends payable to the holders of outstanding shares of the Series A
Preferred Stock and any series of preferred stock or any other class of stock ranking pari
passu, as to rights on liquidation, dissolution or winding up, with the Series A Preferred
Stock, then all of said assets will be distributed among the holders of the Series A
Preferred Stock and the other classes of stock ranking pari passu with the Series A
Preferred Stock, if any, ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. All distribution
payments, shall be in cash, property valued at its fair market value as determined by an
independent appraiser or a combination thereof.
*Series B Convertible Preferred Stock*. The principal terms of the
Series B Preferred Stock are identical to those of the Series A Preferred Stock except
that the dividends on the Series B Preferred Stock shall be at the rate of 4% per annum.
*Series A, B and C Warrants*. Each Series A and B Warrant allows
holders to purchase one share of common stock for $0.18, subject to adjustment. Series A
Warrants expire five (5) years from the August 8 and August 23, 2006 dates of issuance and
the Series B Warrants expire two years from the August 2006 dates of issuance. Each Series
C Warrant allows its holder to purchase one share of common stock for $0.50, subject to
adjustment. The Series C Warrants expire five (5) years from the September 30, 2006 date
of issuance. In the event that our registration statement is not effective, as required by
the registration rights agreement between the Company and VOMF, holders would also be
permitted to exercise the warrants through a cashless exercise. using the formula
considering the number of shares of Common Stock to be issued to the holder, the number of
shares of Common Stock purchasable upon exercise of the Warrant, the exercise price of the
Warrant and the closing bid price of our Common Stock. The exercise price of the Warrants
and the number of shares of Common Stock purchasable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events including recapitalization of
our Common Stock, dividends payable in our Common Stock, and the issuance of rights to
purchase additional shares of our Common Stock or other securities convertible into
additional shares of Common Stock. The Warrants provide that the Company shall not effect
the exercise of any Series A, B or C Warrants, and Warrant holder shall have the right to
exercise Warrants, if, after giving effect to such exercise, such Warrant holder would
beneficially own more than 9.99% of the then outstanding shares of our Common Stock.
Notwithstanding the foregoing, the Warrant holder may, by a sixty-0ne day notice, request
that we waive this 9.9% limitation with regard to any or all shares of Common Stock
issuable upon conversion of the Series A and/or Series B Preferred Stock, in which event
the 9.9% restriction shall be waived with respect to those shares of Common Stock subject
to the waiver notice.
(9) 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 Fuel
Additives (HFA)had one customer that represented more than 10% of its total sales.
Hammonds Water Treatment Systems (HWT) had one customer that represented more than 10% of
its total sales. Customer A
    HFA
    12%Customer A
    HWT
    58%
 (10) Income Taxes

The following table sets forth a reconciliation of the statutory
federal income tax for the year December 31, 2006. The loss before taxes was $2,446,563 in
2006 and $1,194,652 in 2005. **December 31, 2006**
    
    **December 31, 2005**Income
    tax benefit computed at statutory rate for
    $
    (831,831)
    $
    (406,182)Permanent differences - non deductible expenses
    
    
    
    84,600Increase in
    valuation allowance
    
    831,831
    
    321,582Tax 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, 2006 is set below. **December 31, 2006**Deferred
    tax assets:
    $Net operating loss -
    current period
    
    742,825Total
    deferred tax asset
    
    742,825Valuation
    allowance
    
    (742,825)Net
    deferred asset
    $
    -
  **December 31, 2006**Deferred
    tax liability:
    $Fixed
    asset temporary difference
    
    138,775Intangible asset
    temporary difference
    
    364,425Net
    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.
(11) Segment Information

The Company has three reportable segments: Hammonds Technical Services,
Hammonds Fuel Additives, and Hammonds Water Treatment Systems (collectively "Hammonds").
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. 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 from external customers, operating
income/(losses), and identifiable assets were as follows: **December 31****2006**
    
    **2005**Revenues:Hammonds
    Technical Services
    $
    3,180,163
    $
    2,583,887Hammonds Fuel
    Additives
    
    1,222,506
    
    811,264Hammonds Water
    Treatment
    
    2,064,724
    
    -$
    6,467,393
    $
    3,395,151Cost of Sales:Hammonds
    Technical Services
    $
    2,682,317
    $
    1,878,500Hammonds Fuel
    Additives
    
    804,356
    
    518,450Hammonds Water
    Treatment
    
    1,849,856
    
    -$
    5,336,529
    $
    2,396,950
 Loss from operations:Hammonds Technical Services
    $
    (2,286,217)
    $
    (1,076,259)Hammonds Fuel Additives
    
    31,499
    
    (10,888)Hammonds Water Treatment
    
    112,209
    
    -Corporate
    
    (38,283)
    
    (19,125)$
    (2,180,792)
    $
    (1,106,272)
 Identifiable assets:Hammonds Technical Services
    $
    8,969,439
    $
    2,193,207Hammonds Fuel Additives
    
    374,313
    
    3,138,302Hammonds Water Treatment
    
    590,861
    
    -Corporate
    
    449,784
    
    418,258$
    10,384,397
    $
    5,749,767
 **(12) Commitments**

Hammonds leases its 106,000 square foot manufacturing and office
facility from a third party under an operating lease which expires in October 2016. Future
minimum lease payments under the operating lease are as follows: **Year December
    31,**
    
    **Amount**2007
    $
    420,0002008
    
    420,0002009
    
    420,0002010
    
    420,0002011
    
    420,000Thereafter
    
    2,100,000$
    4,200,000
 Lease expenses for the years ended December 2006 and 2005, were
$290,400 and $132,701, respectively.
**(13) 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, 2006, the Company
owed the parent $1,931,056.
**(14) Subsequent Events**

In the first quarter of 2007, our parent company settled claims with
two parties associated with the acquisition of Hammonds. Our parent company paid $300,000
to pay off a short term note payable plus interest and acquire an option to purchase all
the partys shares of AMINs common stock. The other partys dividend
shares were relinquished and returned to our parent. The settlement of these lawsuits will
not significantly effect the income of the Company.

Subsequent to December 31, 2006, and in connection with the agreement
of VOMF to exercise up to 4,000,000 Series C Warrants in March 2007, the Company reduced
the exercise price from $0.50 per share to $0.18 per share through December 31, 2007,
following which the exercise price reverts to $0.50 per share. On March 27, 2007, VOMF
exercised 3,970,400 Series C Warrants at a price of $0.18 per share with gross proceeds of
$714,672 to the Company.