UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C. 20549


___________________




FORM
10-QSB/A


_______________________




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




For the
quarterly period ended September 30, 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






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




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ̈ Nox




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.




Large
      accelerated filer  ̈
            Accelerated filer ̈
            Non-accelerated
      filer x




At
September 30, 2006, the Registrant had 36,135,000 shares of common stock
outstanding.





EXPLANATORY NOTE




In
response to a letter from the SEC in connection with the review of the Company’s
Form 10-QSB for Fiscal Quarter Ended September 30, 2006, the Company has
reexamined the treatment of the valuation of the preferred stock issued by
Hammonds.  As a result of our reexamination and the analysis of
professional literature related to this very technical and complex issue, we
have restated the financial statements for the quarter ended September 30,
2006.





TABLEOF CONTENTS




Item
            
            
            
            Description
            
            PagePART
      I - FINANCIAL INFORMATIONITEM
      1.
            
            
            
            FINANCIAL
      STATEMENTS.
            
            
            3ITEM
      2.
            
            
            
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
      OPERATION.
            
            
            3ITEM
      3.
            
            
            
            CONTROLS AND
      PROCEDURES.
            
            
            5PART
      II - OTHER INFORMATIONITEM
      1.
            
            
            
            LEGAL
      PROCEEDINGS.
            
            
            5ITEM
      2.
            
            
            
            CHANGES IN
    SECURITIES.
            
            
            5ITEM
      3.
            
            
            
            DEFAULT UPON
      SENIOR SECURITIES.
            
            
            6ITEM
      4.
            
            
            
            SUBMISSION OF MATERS
      TO A VOTE OF SECURITY HOLDERS.
            
            
            6ITEM
      5.
            
            
            
            OTHER
      INFORMATION.
            
            
            6ITEM
      6.
            
            
            
            EXHIBITS AND REPORTS ON FORM
      8-K.
            
            
            6
















PART
I - FINANCIAL INFORMATION






ITEM 1.FINANCIAL STATEMENTS Back to
Table of Contents






The
Registrant's financial statements for the three and nine month periods ended
September 30, 2006 and 2005 are attached to this quarterly report.






Financial
Statements






ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATION Back to Table of
Contents






As used
in this Quarterly Report, the terms "we", "us", "our" and the
"Company" means International American Technologies, Inc., a Nevada
corporation, and its subsidiaries, Hammonds Technical Services, Inc., Hammonds
Fuel Services, Inc. and Hammonds Water Treatment Systems, Inc. (collectively,
"Hammonds"). To the extent that we make any forward-looking statements in the
"Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this
Quarterly Report, we emphasize that forward-looking statements involve risks and
uncertainties and our actual results may differ materially from those expressed
or implied by our forward-looking statements. Our forward-looking statements in
this Quarterly Report reflect our current views about future events and are
based on assumptions and are subject to risks and uncertainties. Generally,
forward-looking statements include phrases with words such as "expect", "anticipate", "intend",
"plan", "believe", "seek", "estimate" and similar expressions to identify
forward-looking statements.






Organization, Principal
Activities and Basis of Presentation






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
44.9% owned subsidiary of and is fully consolidated by its parent, American
International Industries, Inc., OTCBB: AMIN, because its parent controls the
Company's board of directors by having designated two of the Company's three
board of directors. Effective April 28, 2005, the Company completed a stock
purchase agreement to acquire a 51% equity interest in the capital stock of
Hammonds Technical Services, Inc., a privately-owned Texas corporation
("Hammonds"), in consideration for IMTG, or IMTG’s corporate 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) American International Industries issuing 145,000
restricted shares of common stock to IMTG in consideration for a $1,450,000
promissory note, which shares were exchanged for two minority equity interests
in Hammonds that were 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 restricted shares of American International Industries, valued
at $1,450,000, and the assumption of a $173,000 note payable to a former
shareholder of Hammonds and the assumption of $7,400 in
liabilities.






The
Company was an 81% owned subsidiary of American International Industries, Inc.
until Mr. Carl Hammonds, the Company's president and a director, converted his
49% minority ownership in Hammonds into 16,000,000 shares of the Company's
common stock at a conversion rate of $.25 per share. The additional cost has
been allocated to patents and is being amortized in a manner equivalent to the
amortization use on the intangible assets acquired in  the stock purchase
agreement with Hammonds effective April 28, 2005. We are in the process of
obtaining independent valuations of the intangible assets, upon completion of
which the amortization rates may be adjusted, if appropriate. Mr. Hammonds
converted his minority equity interest in the Company in connection with the
August 8, 2006 private financing transaction with Vision Opportunity Fund
Limited ("VOMF"), as discussed below. As a result of Mr. Hammonds conversion of
his 49% minority interest into IMTG shares, Hammonds has become a wholly-owned
subsidiary of IMTG.






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 $.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 $.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. In connection with the
Series B stock purchase agreement, the Company 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 and extended 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 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 $2,710,120 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. 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.






Revenue
and expenses of Hammonds are included in the Company’s consolidated statements
of operations from May 1, 2005 through the period ended September 30, 2006. The
condensed consolidated balance sheets, statements of operations and
comprehensive income, and cash flow included herein are unaudited, except for
the condensed consolidated balance sheet as of December 31, 2005. The unaudited
financial statements include, in the opinion of management, all the adjustments,
consisting only of the normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods presented. The unaudited financial statements included herein have
been prepared in accordance with the rules of the Securities and Exchange
Commission for Form 10QSB and accordingly do not include all footnote
disclosures that would normally be included in financial statements prepared in
accordance with generally accepted accounting principles, although the Company
believes that the disclosures presented are adequate to make the information
presented not misleading.






The
nature of the Company’s business is such that the results of interim periods are
not necessarily indicative of results that may be expected for any future
interim period or for a full year.






Results of
Operations






Three
and Nine Months Ended September 30, 2006 Compared to Three and Nine Months Ended
September 30, 2005.






The
following is derived from, and should be read in conjunction with, our unaudited
condensed consolidated financial statements, and related notes, as of and for
the three and nine months ended September 30, 2006 and 2005.






Revenues. Revenues increased
to $1,527,863 for the three months ended September 30, 2006 from $1,128,887 for
the three months ended September 30, 2005. For the nine month periods ended
September 30, 2006, revenues increased to $4,688,692 from $1,704,922 for the
same nine month period of 2005. In addition, during the nine month period ended
September 30, 2006, Hammonds projected backlog of orders has increased to
approximately $5,000,000, representing a substantial increase from
2005.






Cost of Sales. Cost of sales
was $1,321,205 and $3,577,990 for the three and nine months ended September 30,
2006 as compared to $915,904 and $1,305,043 for the three and nine months ended
September 30, 2005. The increase was primarily due to Hammonds increased
production volume.






Selling and Administrative.
Selling and administrative expenses increased to $952,917 and $2,416,312 for the
three and nine months ended September 30, 2006 from $717,651 and $1,161,662 for
the three and nine months ended September 30, 2005. The increase was primarily
due to sales and marketing expenses associated with the production of its new
line of omni direction utility vehicles, the on-going sales and marketing
efforts associated with all of its product lines, and the increase in
amortization costs of the patents and trademarks.






Loss from Operations. As a
result of the foregoing, our loss, excluding interest expense and income, for
the three and nine-month periods ended September 30, 2006 was $746,259 and
$1,305,610 compared to $504,668 and $761,783 for the same periods ended
September 30, 2005.






Other Income (Expense). Other
income (expense) decreased to $(179,230) and $(252,744) for the three and nine
month periods ended September 30, 2006 from $2,629 and $14,325 for the three and
nine-month periods ended September 30, 2005. The decrease was primarily due to
an increase in the working capital line of credit.






Net Income (Loss). Net Loss
increased to $2,236,387 and $2,869,252 for the three and nine month periods
ended September 30, 2006 as compared to $501,976 and $747,458 for the three and
nine month periods ended September 30, 2005. The increase in net loss was
primarily attributable to costs associated with Hammonds introduction of its new
line of omni directional vehicles.






Liquidity and Capital
Resources






At
September 30, 2006 and December 31, 2005, we had total assets of $12,431,846 and
$5,749,767, respectively. We had current liabilities at September 30, 2006 and
December 31, 2005 of $1,936,750 and $3,747,754, respectively. Our accumulated
deficit at September 30, 2006 and December 31, 2005 was $2,894,523 and
$1,316,167, respectively. We had positive working capital of $3,055,293 at
September 30, 2006 as compared to $(1,810,604) at December 31, 2005. Net cash
used in operations was $2,189,591 during the nine months ended September 30,
2006 compared to $885,178 for the same period of September 30, 2005. The cash
used was derived from an increase in accounts receivable of $403,298, an
increase in inventories of $539,813, a decrease in accounts payable of $9,997,
depreciation of $76,031, amortization of 307,469, a miscellaneous write-off of
$22,684, an increase in other current assets and prepaid expenses of $56,740,
and a decrease in other assets of $17,795. Net cash provided by investing
activities was $527,110 during the nine-month period ended September 30, 2006,
compared to $327,724 for the same period of 2005. The cash provided was from an
increase in amounts due to American International Industries, Inc. of $552,111,
offset by purchases of property and equipment of $20,203, and patents and
trademarks of $25,193. At September 30, 2006 we had net cash provided from
financing activities of $3,716,149 as compared to $1,215,720 at September 30,
2005. The net cash provided by financing activities was mainly due to the sale
to VOMF of Series A and Series B Preferred Stock of $2,727,746 and an increase
in long term borrowings of $995,915. In the event that the Series A, B and C
Warrants issued to VOMF in the August and September 2006 private financing
transactions are exercised, the Company may expect additional proceeds of
$4,166,666.






We
believe that with the net proceeds from our August and September 2006 private
financing transactions, together with anticipated positive cash flow from our
operations starting in 2007, funding provided under our bank line-of-credit and
funding available from our parent, that we will have adequate funding to execute
our planned expansion of our manufacturing capacity and our sales and marketing
efforts to meet our increasing orders in each of Hammonds' product lines. We
believe that we have sufficient cash to implement our growth plan. In addition,
if all of the warrants the Company granted are exercised, our plan is to use
additional net proceeds from such exercise for our working capital, in order to
accelerate our growth plan.






ITEM 3. CONTROLS AND PROCEDURES






Evaluation of disclosure controls
and procedures. As of September 30, 2006, the Company's chief executive
officer and 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, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.


In
response to a letter from the SEC in connection with the review of the Company’s
Form 10-QSB for Fiscal Quarter Ended September 30, 2006, the Company has
reexamined the treatment of the valuation of the preferred stock issued by
Hammonds.  As a result of our reexamination and the analysis of
professional literature related to this very technical and complex issue, we
have restated the financial statements for the quarter ended September 30,
2006.
  The
Company’s Chief Executive Officer and Chief Financial Officer have reassessed
our disclosure controls and procedures for the quarter ended September 30, 2006.
Based on the reassessment, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures were
therefore not, as of September 30, 2006, effective to provide reasonable
assurance that the information required to be disclosed by us in reports filed
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that information required to be disclosed by us in the reports we
file or submit under the Securities Exchange Act of 1934, as amended, is
accumulated and communicated to our management, including our principal
executive and financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.




Changes in internal controls.
During the quarterly period covered by this report, no changes occurred in our
internal control over financial reporting that materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.






PART
II - OTHER INFORMATION






ITEM1. LEGAL PROCEEDINGS Back to Table of
Contents






None.






ITEM 2.CHANGES IN SECURITIES Back to Table of Contents






On August
8, 2006, in connection with the August 2006 private financing transactions
between the Company and VOMF, Mr. Carl L. Hammonds, the Company's president and
a director, converted his 49% ownership of Hammonds into 16,000,000 shares of
the Company's common stock.






In August
2006, we sold 833,333 shares of Series A Convertible Preferred Stock for
$1,500,000 to VOMF. In September 2006, the Company sold additional 833,333
shares of Series B Preferred Stock for $1,500,000 to VOMF.






Each
share of Series A and B Convertible Preferred Stock is convertible into ten
shares of the Company's common stock.






ITEM 3. DEFAULTS UPON SENIOR SECURITIES Back to Table of Contents






None.






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






None.






ITEM5. OTHER INFORMATION Back to Table
of Contents






None.






ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Back to Table of Contents






(a) The
following documents are filed as exhibits to this report on Form 10-QSB 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.
            Description31.1
            Certification
      of CEO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the
      Sarbanes-Oxley Act of 200231.2
            Certification
      of CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the
      Sarbanes-Oxley Act of 200232.1
            Certification
      of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of
    200232.2
            Certification
      of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of
    2002




(b)
Reports on Form 8-K During the Period Covered by this Report: The Registrant
filed a Form 8-K on August 14, 2006 with Item 3.02 "Unregistered Sale of Equity
Securities" disclosure and a Form 8-K on September 28, 2006 with Item 5.02
"Departure of Director or Principal Officers; Election of Director; Appointment
of Principal Officers.






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


CEO


Dated:
March 18, 2008




/s/ Sherry L.
Couturier


CFO


Dated:
March 18, 2008












FinancialStatementsBack to Table of Contents




Condensed
      Consolidated Financial StatementsUnaudited Condensed Consolidated Balance Sheets -
      September 30, 2006 and December 31, 2005 (Audited)
            9Unaudited Condensed Consolidated Statement of Operations -
      Three and Nine months ended September 30, 2006 and
2005
            10Unaudited Condensed Consolidated Statement of Cash Flows -
      Nine months ended September 30, 2006 and 2005
            11Notes to Unaudited Financial Statements
            12





INTERNATIONAL
      AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARYConsolidatedBalance Sheets Back to
      Table of ContentsSeptember
      30, 2006 and December 31, 2005(unaudited)September
      30, 2006
            
            
            December
      31, 2005(restated)
            
            
            (Audited)AssetsCurrent
      assets:Cash
            
            $
            2,115,543
            
            
            $
            61,875Accounts receivable, net
            
            
            1,232,592
            
            
            
            829,294Current portion of notes receivable
            
            
            28,807
            
            
            
            27,435Inventories, net
            
            
            1,544,471
            
            
            
            1,004,657Prepaid expenses and other assets
            
            
            70,629
            
            
            
            13,889Total current assets
            
            
            4,992,042
            
            
            
            1,937,150Long-term
      notes receivable, less current portions
            
            
            368,543
            
            
            
            390,310Property
      and equipment, net
            
            
            778,075
            
            
            
            829,049Patents
      and trademarks, net
            
            
            6,253,987
            
            
            
            2,536,263Other
      assets
            
            
            39,199
            
            
            
            56,995Total assets
            
            $
            12,431,846
            
            
            $
            5,749,767Liabilities and Stockholders' Equity
      (Deficiency)Current
      liabilities:Accounts payable and accrued expenses
            
            $
            1,464,198
            
            
            $
            1,442,849Short-term notes payable
            
            
            289,558
            
            
            
            173,300Current installments of long-term debt
            
            
            157,402
            
            
            
            2,131,605Total current liabilities
            
            
            1,911,158
            
            
            
            3,747,754Long-term
      debt, less current installments
            
            
            2,817,172
            
            
            
            -Due
      to American International Industries, Inc.
            
            
            2,395,699
            
            
            
            1,843,588Deferred
      tax liability
            
            
            503,200
            
            
            
            503,200Total liabilities
            
            
            7,627,229
            
            
            
            6,094,542Stockholders'
      equity (deficiency):Preferred stock, $0.001par value, authorized 5,000,000
    shares:1,666,666 issued and outstanding
            
            
            167
            
            
            
            -Additional paid-in capital - preferred stock
            
            
            1,290,731
            
            
            
            -Additional paid-in capital - beneficial conversion
            
            
            1,290,898
            
            
            
            -Additional paid-in capital - warrants
            
            
            1,419,222
            
            
            
            -Common stock, $0.0001 par value, authorized 195,000,000
      shares:36,135,000 shares issued and outstanding at September 30,
    2006and 20,135,000 shares and outstanding at December 31, 2005
            
            
            3,614
            
            
            
            2,014Additional paid - in capital
            
            
            4,985,406
            
            
            
            969,378Accumulated deficit
            
            
            (4,185,421
            )
            
            
            (1,316,167
            )Total stockholders' equity (deficit)
            
            
            4,804,617
            
            
            
            (344,775
            )Total liabilities and stockholders' equity
            
            $
            12,431,846
            
            
            $
            5,749,767See
      accompanying notes to consolidated financial statements.





INTERNATIONAL
      AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARYConsolidated Statements of Operations Back to
      Table of ContentsFor
      the three and nine months ended September 30, 2006 and
2005(Unaudited)Three
      Months
            
            
            Three
      Months
            
            
            Nine
      Months
            
            
            Nine
      MonthsEnded
            
            
            Ended
            
            
            Ended
            
            
            EndedSeptember
      30, 2006
            
            
            September
      30, 2005
            
            
            September
      30, 2006
            
            
            September
      30, 2005(restated)
            
            
            (restated)
            
            
            (restated)
            
            
            (restated)Revenues
            
            $
            1,527,863
            
            
            $
            1,128,887
            
            
            $
            4,688,692
            
            
            $
            1,704,922Costs
      and expenses:Cost of sales
            
            
            1,321,205
            
            
            
            915,904
            
            
            
            3,577,990
            
            
            
            1,305,043Selling, general and administrative
            
            
            952,917
            
            
            
            717,651
            
            
            
            2,416,312
            
            
            
            1,161,662Total costs and expenses
            
            
            2,274,122
            
            
            
            1,633,555
            
            
            
            5,994,302
            
            
            
            2,466,705Operating
      loss
            
            
            (746,259
            )
            
            
            (504,668
            )
            
            
            (1,305,610
            )
            
            
            (761,783
            )Other
      income (expenses):Interest income
            
            
            3,764
            
            
            
            2,692
            
            
            
            11,204
            
            
            
            14,325Interest expense
            
            
            (307,088
            )
            
            
            -
            
            
            
            (388,042
            )
            
            
            -Other income
            
            
            124,094
            
            
            
            -
            
            
            
            124,094
            
            
            
            -Total other income (expenses)
            
            
            (179,230
            )
            
            
            2,692
            
            
            
            (252,744
            )
            
            
            14,325Net
      loss before income tax
            
            
            (925,489
            )
            
            
            (501,976
            )
            
            
            (1,558,354
            )
            
            
            (747,458
            )Provision for income tax
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss from operations before minority interest
            
            
            (925,489
            )
            
            
            (501,976
            )
            
            
            (1,558,354
            )
            
            
            (747,458
            )Net loss
            
            
            (925,489
            )
            
            
            (501,976
            )
            
            
            (1,558,354
            )
            
            
            (747,458
            )Preferred dividends
            
            
            (1,310,898
            )
            
            
            -
            
            
            
            (1,310,898
            )
            
            
            -Net loss applicable to common shareholders
            
            $
            (2,236,387
            )
            
            $
            (501,976
            )
            
            $
            (2,869,252
            )
            
            $
            (747,458
            )Net
      loss applicable to common shareholders:Basic
            
            $
            (0.07
            )
            
            $
            (0.02
            )
            
            $
            (0.12
            )
            
            $
            (0.04
            )Weighted
      average common shares:Basic
            
            
            30,743,696
            
            
            
            20,129,000
            
            
            
            23,710,092
            
            
            
            20,125,000See
      accompanying notes to consolidated financial statements.





INTERNATIONAL
      AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARYConsolidatedStatements of Cash Flows Back to
      Table of ContentsNine
      months ended September 30, 2006 and 2005(Unaudited)Nine
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30, 2006
            
            
            September
      30, 2005(restated)Cash
      flows from operating activities:Net loss
            
            $
            (1,558,354
            )
            
            $
            (747,458
            )Adjustments to reconcile net lossto net cash used in operating activities:Depreciation and amortization of property and equipment
            
            
            76,031
            
            
            
            52,736Amortization of intangibles
            
            
            307,469
            
            
            
            140,882Common stock issued for services
            
            
            -
            
            
            
            13,500Miscellaneous write off
            
            
            (22,684
            )
            
            
            -(Increase)
      decrease of operating assets, net of acquisition of
      subsidiary:Accounts receivable
            
            
            (403,298
            )
            
            
            (7,216
            )Inventories
            
            
            (539,813
            )
            
            
            (270,483
            )Prepaid expenses and other current assets
            
            
            (56,740
            )
            
            
            (36,390
            )Other assets
            
            
            17,795
            
            
            
            27,650Accounts payable and accrued expenses
            
            
            (9,997
            )
            
            
            (58,399
            )Net cash used in operating activities
            
            
            (2,189,591
            )
            
            
            (885,178
            )Cash
      flows from investing activities:Patents and trademarks
            
            
            (25,193
            )
            
            
            -Purchase of property and equipment
            
            
            (20,203
            )
            
            
            (65,051
            )Redemption of certificate of deposit
            
            
            -
            
            
            
            300,000Purchase of stock in majority-owned subsidiary
            
            
            -
            
            
            
            (998,300
            )Cash acquired in acquisition of majority-owned subsidiary
            
            
            -
            
            
            
            56,506Notes receivable
            
            
            20,395
            
            
            
            19,021Amount due to American International Industries, Inc.
            
            
            552,111
            
            
            
            360,100Net cash provided by (used in) investing activities
            
            
            527,110
            
            
            
            (327,724
            )Cash
      flows from financing activities:Proceeds from issuance of short-term debt
            
            
            16,315
            
            
            
            -Proceeds from issuance of preferred stock
            
            
            2,727,746
            
            
            
            -Proceeds from long-term borrowings
            
            
            995,915
            
            
            
            1,931,968Principal payments of short-term borrowings
            
            
            (22,198
            )
            
            
            (716,248
            )Principal payments of long-term borrowings
            
            
            (1,739
            )
            
            
            -Net borrowings under line of credit
            
            
            110
            
            
            
            -Net cash provided by financing activities
            
            
            3,716,149
            
            
            
            1,215,720Net increase (decrease) in cash
            
            
            2,053,668
            
            
            
            2,818Cash
      and cash equivalents at beginning of year
            
            
            61,875
            
            
            
            99Cash
      and cash equivalents at end of period
            
            $
            2,115,543
            
            
            $
            2,917Supplemental
      schedule of cash flow information:Interest
      paid
            
            $
            388,042
            
            
            $
            -Issuance
      of note payable for office equipment
            
            $
            4,855
            
            
            $
            -See
      accompanying notes to consolidated financial statements.










INTERNATIONAL
AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARY


Notesto  Consolidated Financial Statements Back to Table of Contents


September
30, 2006






(1)
General






International
American Technologies, Inc. (the "Company"), operates as through its
majority-owned subsidiaries Hammonds Technical Services, Inc., Hammonds Fuel
Additives, Inc., and Hammonds Water Treatment Systems, Inc.






Principles
of Consolidation






The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U. S. generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months period ended September 30, 2006 are not indicative
of the results that may be expected for the year ending December 31,
2006.






As
contemplated by the Securities and Exchange Commission (SEC) under Rules of
Regulation S-B, the accompanying financial statements and related footnotes have
been condensed and do not contain certain information that will be included in
the Company's annual financial statements and footnotes thereto. For further
information, refer to the Company's audited consolidated financial statements
and related footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 2005.






(2)
Use of Estimates






The
preparation of financial statements in conformity with U. S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from those
estimates.






(3)
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.






(4)
Recent Accounting Pronouncements






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.






(5)
Acquisition






On
February 28, 2005, the Company entered into a Stock Purchase 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 restricted shares were
exchanged for two minority equity interests in Hammonds owned by third parties,
which minority interest were cancelled. The total purchase price to acquire the
51% in Hammonds was $2,455,700, representing cash payments of $998,300, 145,000
shares of American International Industries’ 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. The acquisition of Hammonds closed on April 28,
2005.






Hammonds
is a manufacturer of fuel injectors and pumps for the aviation industry, and
producer of fuel and water additives for the aviation and potable water
industries. Sales are made to customers in both domestic and international
markets.






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:




Current
      assets
            
            $
            1,435,939Property
      and equipment, net
            
            
            826,765Patents
      and trademarks, net of amortization
            
            
            2,724,487Other
      non-current assets
            
            
            70,085Current
      liabilities
            
            
            (2,098,376
            )Deferred
      tax credit
            
            
            (503,200
            )$
            2,455,700




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 shares or 44.4% of IMTG common stock at a
conversion rate of $.25 a share for total consideration of $4,000,000. The
additional cost has been allocated to patents 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. The company is in the process of
obtaining independent valuations of the individual intangible assets and when
that process is completed, the amortization rates may be adjusted if
appropriate.






(6)
Inventory






Inventory
at September 30, 2006 consisted of the following:




2006Finished
      goods
            
            $
            141,564Work
      in process
            
            
            263,972Parts
      and materials
            
            
            1,420,3771,825,913Less:
      Obsolescence reserve
            
            
            (281,442
            )$
            1,544,471




(7)
Income Taxes






Income
taxes for the interim periods were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management. The estimated federal income tax expense
for the three and nine month periods ended September 30, 2006 and 2005 is
eliminated by net operating loss carry forwards.






(8)
Short-term Notes Payable To Banks




September
      30, 2006
            
            
            December
      31, 2005Note
      payable to former owner of equity interest in Hammonds payable on July 20,
      2005 with accrued interest at prime plus 4%
            
            $
            173,300
            
            
            $
            173,300Note
      payable with interest at 10.75%, interest payments due quarterly, with a
      principal balance due on December 10, 2006
            
            
            90,000
            
            
            
            -Other
      notes with various terms
            
            
            26,258
            
            
            
            -$
            289,558
            
            
            $
            173,300




(9)
Long-term Debt






Long-term
debt consisted of the following:




September
      30, 2006
            
            
            December
      31, 2005Note
      payable to bank, interest due monthly at prime plus 2%, principal payment
      due January 31, 2008, secured by assets of the Company's
      subsidiary
            
            $
            1,992,189
            
            
            $
            1,993,878Note
      payable to a bank, due in quarterly installments of interest only at 6.5%,
      with a principal balance due on 1/1/2008
            
            
            300,000
            
            
            
            -Note
      payable to a bank, due in quarterly installments of interest only at 7.5%,
      with a principal balance due on 1/18/2008
            
            
            200,000
            
            
            
            -Note
      payable to a bank, due in monthly installments of interest only at 9.75%,
      with a principal balance due on 10/26/2007
            
            
            400,000
            
            
            
            -Note
      payable to a bank, due in monthly installments of principal and interest
      of $2,119.65 through 4/3/2011
            
            
            82,385Note
      payable with interest at 10.75%, interest payments due quarterly, with a
      principal balance due on December 10, 2006
            
            
            -
            
            
            
            89,890Other
      notes with various terms
            
            
            -
            
            
            
            47,8372,974,574
            
            
            
            2,131,605Less
      current portion
            
            
            (157,402
            )
            
            
            (2,131,605
            )$
            2,817,172
            
            
            $
            -




Principal
repayment provisions of long-term debt are as follows at September 30,
2006:




4th
      quarter of 2006
            
            $
            4,1172007
            
            
            417,5032008
            
            
            2,511,4772009
            
            
            21,2552010
            
            
            20,222Total
            
            $
            2,974,574




(10)
Preferred Stock (Restated)






The
Company entered into preferred stock agreements with VOMF, described below, with
the strategic objectives to raise working capital funds, bring in outside
investors, and provide liquidity for the Company’s common shares.






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.






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 $2,710,121 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. 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
Company reviewed the following accounting standards to determine the appropriate
accounting for these issuances:






- SFAS
No. 133: Accounting for
Derivative Instruments and Hedging Activities


- SFAS
No. 150: Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity


- EITF
00-19: Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock


- EITF
98-5: Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios


- EITF
00-27: Application of Issue
No. 98-5 to Certain Convertible Instruments


- EITF
Topic D-98:Classification and
Measurement of Redeemable Securities


- ASR No.
268:Redeemable Preferred
Stocks






We
concluded that all components of these issuances should be classified as equity,
because the only way for the value of the conversion feature and the fair value
of the warrants to be realized is through the issuance of shares. The Company
has sufficient authorized and unissued shares available to settle the contracts
after considering all other commitments that may require the issuance of
stock.






The
proceeds for these issuances are required to be allocated based on the relative
fair values of the securities issued. We valued the warrants using the
Black-Scholes model, using the following assumptions:




Stock
      Price on Date of Issuance
            
            
            Volatility
            
            
            Risk-Free
      Interest RateWarrants
      A – Aug. 8, 2006
            
            $
            0.25
            
            
            
            102.4
            %
            
            
            6.25
            %Warrants
      B – Aug. 8, 2006
            
            $
            0.25
            
            
            
            102.4
            %
            
            
            6.25
            %Warrants
      A – Aug. 23, 2006
            
            $
            0.44
            
            
            
            106.4
            %
            
            
            6.25
            %Warrants
      B – Aug. 23, 2006
            
            $
            0.44
            
            
            
            106.4
            %
            
            
            6.25
            %Warrants
      B – Sept. 30, 2006
            
            $
            0.40
            
            
            
            104.45
            %
            
            
            6.25
            %Warrants
      B – Sept. 30, 2006
            
            $
            0.40
            
            
            
            104.45
            %
            
            
            6.25
            %Warrants
      C – Sept. 30, 2006
            
            $
            0.40
            
            
            
            104.45
            %
            
            
            6.25
            %




Volatility
was determined using 26 observations of the closing stock price over the prior
year.






The
Black-Scholes model assumes an active trading market for the underlying
security. It does not price in the impact of potential large trades for a thinly
traded stock. Since the Company’s common stock is thinly traded, realization of
the resulting fair value of the warrants that this model yields is unlikely, due
to the large number of shares involved. Other financial models would yield
different values, but are less accessible and costly to produce.












The
proceeds from the preferred share issuances have been allocated based on the
relative fair values of the securities issued as follows:




Exercise
      Price / Term
            
            Fair
      Value
            
            
            Allocation
      of ProceedsPreferred
      A – Aug. 8, 2006
            10
      to 1
            
            $
            1,388,888.75
            
            
            $
            387,499.34Warrants
      A – Aug. 8, 2006
            $0.18
      / 5 years
            
            $
            1,139,517.82
            
            
            $
            317,924.97Warrants
      B – Aug. 8, 2006
            $0.18
      / 1 year
            
            $
            709,497.05
            
            
            $
            197,949.36Totals
            
            
            $
            3,237,903.62
            
            
            $
            903,373.67








Exercise
      Price / Term
            
            Fair
      Value
            
            
            Allocation
      of ProceedsPreferred
      A – Aug. 23, 2006
            10
      to 1
            
            $
            1,222,222.32
            
            
            $
            176,643.37Warrants
      A – Aug. 23, 2006
            $0.18
      / 5 years
            
            $
            1,076,403.58
            
            
            $
            155,568.71Warrants
      B – Aug. 23, 2006
            $0.18
      / 1 year
            
            $
            826,663.96
            
            
            $
            119,474.75Totals
            
            
            $
            3,125,289.86
            
            
            $
            451,686.83








Exercise
      Price / Term
            
            Fair
      Value
            
            
            Allocation
      of ProceedsPreferred
      B – Sept. 30, 2006
            10
      to 1
            
            $
            3,333,333.20
            
            
            $
            726,755.40Warrants
      B – Sept. 30, 2006
            $0.18
      / 1 year
            
            $
            (2,118,000.19
            )
            
            $
            (461,780.44
            )Warrants
      B – Sept. 30, 2006
            $0.18
      / 2 years
            
            $
            2,442,305.00
            
            
            $
            532,487.52Warrants
      C – Sept. 30, 2006
            $0.50
      / 5 years
            
            $
            2,557,476.70
            
            
            $
            557,598.02Totals
            
            
            $
            6,215,114.71
            
            
            $
            1,355,060.50




As part
of the Preferred B issuance, the Warrants B with an expiration term of 1 year,
which were issued with the Preferred A stock, were cancelled and Warrants B with
an expiration term of 2 years were issued. The Company accounted for the change
in expiration terms as part of the Preferred B issuance because we regard the
consideration given for this issuance to include the change in expiration
terms.






The
Company has determined that a beneficial conversion feature exists. Based on our
review of the “Emerging Issues Task Force” EITF 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, and EITF 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments, the amount of proceeds allocated to the Series A and
Series B Convertible Preferred Stock should be assigned to the embedded
conversion feature with a corresponding amount recorded as a “deemed dividend”
to the preferred shareholders. This is based on paragraph 6 of EITF 98-5, which
states that “the discount assigned to the beneficial conversion feature is
limited to the amount of the proceeds allocated to the convertible
instrument.”






We
allocated the following amounts to the embedded conversion feature and recorded
a deemed dividend to the preferred shareholders:




Preferred
      A – August 8, 2006
            
            $
            387,499.34Preferred
      A – August 23, 2006
            
            $
            176,643.37Preferred
      B – September 30, 2006
            
            $
            726,755.40Total
      deemed dividend
            
            $
            1,290,898.11




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.






(11)
Employee Stock Based Compensation






The
Company grants options to non-employees for goods and services and in
conjunction with certain agreements. These grants are accounted for under FASB
Statement No. 123R, "Accounting for Stock-Based Compensation" based on the grant
date fair values.






(12)
Industry Segments






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:




September
      30,2006
            
            
            2005Revenues:Hammonds
      Technical Services
            
            $
            2,343,592
            
            
            $
            1,147,698Hammonds
      Fuel Additives
            
            
            916,141
            
            
            
            557,224Hammonds
      Water Treatment
            
            
            1,428,959
            
            
            
            -Corporate
            
            
            -
            
            
            
            -$
            4,688,692
            
            
            $
            1,704,922Income
      (loss) from operations:Hammonds
      Technical Services
            
            $
            (1,250,844
            )
            
            $
            (745,149
            )Hammonds
      Fuel Additives
            
            
            (47,311
            )
            
            
            15,780Hammonds
      Water Treatment
            
            
            76,780
            
            
            
            -Corporate
            
            
            (84,235
            )
            
            
            (32,414
            )$
            (1,305,610
            )
            
            $
            (761,783
            )





Identifiable
      assets:Hammonds
      Technical Services
            
            $
            5,044,077
            
            
            $
            5,140,000Hammonds
      Fuel Additives
            
            
            422,287
            
            
            
            345,158Hammonds
      Water Treatment
            
            
            733,352
            
            
            
            -Corporate
            
            
            6,232,130
            
            
            
            100,711$
            12,431,846
            
            
            $
            5,585,869




The
Company's areas of operations are in the United States.






(13)
Related party transactions






The
Company incurred management fees from AMIN of $30,000 and $90,000 for the
three-month and nine-month periods ending September 30, 2006, respectively.
Additionally, the Company paid interest on notes payable to AMIN of $209,458
during the three-month period ending September 30, 2006.




(14 ) Restatement
   In
response to a letter from the SEC in connection with the review of the Company’s
Form 10-QSB for Fiscal Quarter Ended September 30, 2006, the Company has
reexamined the treatment of the valuation of the preferred stock issued by
Hammonds. As a result of our reexamination and the analysis of professional
literature related to this very technical and complicated issue as explained in
note 10 above, we have restated the financial statements as of September 30,
2006. The differences are summarized below:
  Three
      Months Ended September 30, 2006As
      previously reported
              
              
              Restatement
      adjustments
              
              
              As
      restatedNet
      loss applicable to common shareholders
              
              $
              (945,489
              )
              
              $
              (1,290,898
              )
              
              $
              (2,236,387
              )Deemed
      dividend
              
              $
              -
              
              
              $
              (1,290,898
              )
              
              $
              (1,290,898
              )Net
      loss per share applicable to common shareholders – Basic and
      diluted
              
              $
              (0.03
              )
              
              $
              (0.04
              )
              
              $
              (0.07
              )
  
  Nine
      Months Ended September 30, 2006As
      previously reported
              
              
              Restatement
      adjustments
              
              
              As
      restatedNet
      loss applicable to common shareholders
              
              $
              (1,578,354
              )
              
              $
              (1,290,898
              )
              
              $
              (2,869,252
              )Deemed
      dividend
              
              $
              -
              
              
              $
              (1,290,898
              )
              
              $
              (1,290,898
              )Net
      loss per share applicable to common shareholders – Basic and
      diluted
              
              $
              (0.07
              )
              
              $
              (0.05
              )
              
              $
              (0.12
              )
  
  September
      30, 2006As
      previously reported
                
                
                Restatement
      adjustments
                
                
                As
      restatedAdditional
      paid-in capital - preferred stock
                
                $
                -
                
                
                $
                1,290,731
                
                
                $
                1,290,731Additional
      paid-in capital - beneficial conversion
                
                $
                -
                
                
                $
                1,290,898
                
                
                $
                1,290,898Additional
      paid-in capital - warrants
                
                $
                -
                
                
                $
                1,419,222
                
                
                $
                1,419,222Additional
      paid-in capital
                
                $
                7,695,359
                
                
                $
                (2,709,953
                )
                
                $
                4,985,406Accumulated
      deficit
                
                $
                (2,894,523
                )
                
                $
                (1,290,898
                )
                
                $
                (4,185,421
                )