**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
            10-KSB/A**
 AMENDMENT
              NO. 1
  The
              purpose of this Amendment is to replace the Statement of Stockholder’s Deficit
 Financial
              Statement and Cash Flow Statement as well as the C **omparison
              of Year Ended**
 **December
              31, 2005 to Year Ended December 31, 2004 section in the Management**
 **Discussion
              and Analysis or Plan of Operations** **.**
 
 Except
              as
              described above, no other changes have been made to the Report.
              This
 Amendment
              does not update any other disclosures to reflect developments since
 the
              original date of the filing.
 **ANNUAL
        REPORT UNDER SECTION 13 OR 15(d)**
 **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
 
 **FOR
        THE FISCAL YEAR ENDED DECEMBER 31, 2005**
 
 **000-29743**
 (Commission
        file number)
  
 **INTERNAL
        HYDRO INTERNATIONAL INC.**
 (Formerly
        Home Services International Inc)
   Florida
              88-0409143(State
                  or other jurisdiction of
                  incorporation or organization)
              (IRS
                  Employer Identification
                  No.)
   
 **334
        S. HYDE PARK AVE., TAMPA, FLORIDA 33606**
 (Address
        of principal executive offices) (Zip Code)
 
 813-286-7144
 (Issuer's
        telephone number)
 
 
 **SECURITIES
        REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE**
 
 **SECURITIES
        REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:**
 
 **TITLE
        OF EACH CLASS**
 **COMMON
        STOCK, $.001 PAR VALUE**
 
 Check
        whether the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act.
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
        [
 ] No [X ]
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 Yes
        [X]
        No [  ]
 
 Indicate
        by check mark if there is no disclosure of delinquent filers in response
        to Item
        405 of Regulation S-B is not contained in this form, and no disclosure will
        be
        contained, to the best of registrant's knowledge, in definitive proxy or
        information statements incorporated by referenced in Part III of this Form
        10-KSB or any amendment to this Form 10-KSB. [ ]
 
 Revenue
        for the year ended December 31, 2005: $0.00
 
 There
        is
        a limited trading market for the registrant's Common Stock. There were
        66,256,242 shares of Common Stock, and 9,707,365 shares of class "A" preferred
        stock issued and outstanding as of December 31, 2005.
 
 
 
 
 
 
 
 
  1
  **TABLE
        OF CONTENTS**
  
 **PART
                    I**
                PageItem
                    1
                Description
                    of Business
                3Item
                    2.
                Description
                    of Property
                8Item
                    3.
                Legal
                    Proceedings
                8Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                8**PART
                    II**Item
                    5.
                Market
                    for Registrant’s Common Equity and Related Stockholder Matters And Small
                    Business Issuer Purchase of Equity Securities
                9Item
                    6.
                Management's
                    Discussion and Analysis of Financial Conditions and Results of
                    Operations
                9Item
                    7.
                Financial
                    Statements
                14Item
                    8.
                Changes
                    in and Disagreements With Accountants on Accounting andFinancial
                    Disclosure
                29Item
                    8A
                Controls
                    and Procedures
                29Item
                    8B
                Other
                    Information
                29**PART
                    III**Item
                    9.
                Directors,
                    Executive Officers, Promoters and Control Persons;Compliance with Section 16(a) of the Exchange Act
                30Item
                    10.
                Executive
                    Compensation
                33Item
                    11.
                Security
                    Ownership of Certain Beneficial Owners and Related Stockholder
                    Matter
                33Item
                    12.
                Certain
                    Relationships and Related Transactions
                34Item
                    13.
                Exhibits
                35Item
                    14.
                Principal
                    Accountant Fees and Services
                35**SIGNATURES**
                37
  2
   **PART
        I**
  
 **ITEM
        1. DESCRIPTION OF BUSINESS**
 
  **GENERAL
        INFORMATION ABOUT INTERNAL HYDRO**
  Internal
        Hydro International, Inc. ("IHDR" or "Company") was organized on December
        31,
        1996 as Tel-Voice Communications, Inc. as a Nevada Corporation. On January
        6,
        2003, we changed our name to Home Services International, Inc. On January
        2,
        2004, the Company entered into a merger agreement with the Company and on
        January 13, 2004, the name was changed to Internal Hydro International, Inc.
        The
        Company was re-domiciled to Florida on February 4, 2004. We are a publicly
        traded company listed on the OTC Electronic Bulletin Board under the symbol
        "IHDR". Our offices are located at 334 S. Hyde Park Ave., Tampa, Florida
        33606.
        Our website is www.internalhydro.com.
 
 **HISTORY
        OF COMPANY**
 
 Tel-Voice
        Communications, Inc. ("Tel-Voice") was incorporated under the laws of the
        State
        of Nevada on December 31, 1996 to engage in any lawful corporate activity,
        including, but not limited to, selected mergers and acquisitions. From 1996-2000
        Tel-Voice was a development stage company with no business activity. On June
        30,
        2000, Tel-Voice acquired Smartdotcom, Inc. ("SDC") in a transaction accounted
        for as a reverse merger. The Company retained the name Tel-Voice Communications,
        Inc. SDC had developed a technology that provides private electronic networks
        for labor unions and integrated communities, both of which include subscribers
        of the unions and communities. SDC intended to provide the hardware, software
        and technical support required to setup and maintain the networks; however,
        SDC
        was never able to grow the Company due to liquidity issues.
 
 In
        December 2002, we addressed its liquidity problems and discontinued the
        operations of SDC and determined that it would abandon this business plan.
        On
        December 16, 2002, we closed a stock for debt exchange with its creditors
        effective on December 11, 2002 whereby all of its outstanding debt was converted
        to unregistered common stock at a conversion rate of one (1) share of common
        stock for each $0.45 of debt. In addition, on January 10, 2003, a majority
        of
        the shareholders approved a reverse split of the 28.9 shares of the old common
        stock for 1 share of new common stock effective January 13, 2003, the
        acquisition of a private entity name Home Services, Inc. and a name change
        to
        Home Services International, Inc.
 
 Home
        Services International, Inc. (“HSVI”) intended to act as a holding company for
        service businesses related to the home building and home buying that want
        to
        expand into national markets. HSVI intended to acquire, joint venture and
        develop such businesses.
 
 However,
        HSVI was presented with a business plan for a unique alternative energy
        technology by the management of Internal Command International (“ICI”) a Florida
        based private entity. HSVI felt that the Energy Commander technology for
        low
        impact hydro power production presented a unique opportunity. HSVI saw ICI’s
        technology as fulfilling a unique niche in the energy market. Thus, HSVI
        sought
        to acquire the technology, and related expertise through the reverse merger
        process.
 
 On
        January 2, 2004, Internal Hydro entered into a merger agreement with Home
        Services International, Inc. ("HSVI"). HSVI issued 27,500,000 shares of its
        Series A Preferred stock to the shareholders of ICI. In connection with this
        acquisition, the company was re-named Internal Hydro International, Inc.
        (“IHDR”). On February 4, 2004, the company was redomiciled to Florida. ICI was
        not a related party.
 
 As
        a
        result of the merger transaction with HSVI, the former Company stockholders
        obtained control of HSVI's voting stock. For financial accounting purposes,
        the
        acquisition was a reverse acquisition of HSVI, under the purchase method
        of
        accounting, and was treated as a recapitalization with the Company as the
        acquirer.
 
 
 
 
 
  3
  ITEM
        1. DESCRIPTION OF BUSINESS -
        continued
  **BUSINESS
        STRATEGY**
  IHDR
        is a
        development stage enterprise. We intend to manufacture and distribute
        alternative energy products that use water pressure flow to generate
        electricity. IHDR is currently finalizing production units of the Energy
        Commander Version Five ("EC V") super efficient low impact hydro units. The
        Company entered into an a comprehensive Agreement for Licensing, Joint Venture
        Agreement, and Manufacturing Agreement on October 12, 2005 with Regent Machine
        Products, LLC. for the exclusive rights to the HydroCam/EC V technology which
        was developed by Regent Machine Products, LLC. Anthony Pecoraro, our Chairman
        of
        the Board of Directors and Vice President of New Technology Development,
        is also
        the Vice President and Co-Founder of Regent Machine Products, LLC.
 
 IHDR
        has
        now entered into the production and fielding phase of its business plan,
        both
        domestically, and with an overseas strategic partner. IHDR is now centering
        activities on the final production plans, of a 10 unit fielding of its new
        energy units, the EC V. These units will be deployed to strategic locations
        around North America and in Europe for direct industrial use and for use
        in
        industrial flows such a cement, chemical, refineries, electrical utility
        plants,
        steam lines, pipelines, cooling applications and with application to natural
        flows such as water pipelines, rivers, aquaducts, and dams that can not support
        normal turbine hydro systems. Additionally, IHDR is identifying undervalued
        and
        underutilized alternative energy technologies that the company can either
        license or acquire other technologies as second divisions for the corporation.
        This will be done in order to maximize shareholder value and to utilize the
        relationships in the EU and other alternative energy friendly
        areas.
  Initial
        production of the EC units will be done in Europe with Internal Hydro’s joint
        venture partner, Cm2 and in the United States with a domestic partner and
        production team. Cm2's production facility is located in Terni, Italy, about
        one
        hour north of Rome. The facility encompasses a large 19,000 sq. meter area
        with
        a 7,000 sq. meter production warehouse. With on staff engineers, marketing
        and
        production, Cm2 is well positioned to handle the Energy Commander (“EC”)
        systems. Cm2 manufactures and produces large industrial electrical components
        for utilities and industries, including such items as transformers, MV and
        LV
        electrical switchboards, auxiliaries and conduits for big transformers, cooling
        ducts, conduit bars, motors and generators. Cm2 also works in the area of
        hydro
        technologies for implementation of systems to unutilized water flows, where
        the
        EC units will fill a large role. Cm2's clients include Siemens, Colgate
        Palmolive Europe, Alitalia and every large Italian utility, among others.
        Cm2
        has already arranged and dedicated through their engineering department a
        proper
        space in their 800,000 sq. foot warehouse for hosting the final development
        and
        the starting of the production line for the EC generator. Cm2 has also reached
        an agreement with Politecnico, one of the foremost Italian universities,
        for
        their endorsement of the technology under a transfer plan which we think
        will
        assist Cm2 in obtaining EU grants and the contribution from the Italian state
        and from the regional governments. Cm2 is ISO 9001 certified, and IQ NET
        certified for the production, maintenance and installation of all electrical
        systems, as well as maintaining certifications in the same for quality control.
        RINA (Italian Air and Shipping Registry), certifies that Cm2 works in accordance
        with ISO 9001 quality regulations in the making of the following products
        --
        process -- services: Planning, production, installation and assistance of
        civil
        and industrial technological systems for electric, electronic and mechanical
        sectors. We believe that additional manufacturing will occur in the United
        States, with other machining houses and manufacturers, yet to be selected
        and
        negotiated. However, IHDR has identified potential production partners in
        the
        United States that will be able to be contracted for machining and production
        purposes of the EC V.
  The
        patent for the base technology is held under a permanent assignment from
        the
        inventor, Rianey Nelson. Other intellectual property patents on the new
        technology will be generated into patent pending status before and commensurate
        with fielding. Additional patents will, in the opinion of management, be
        generated from the improvements in the technology.
 
 
 
 
 
 
 
 
 
 
 
 
  4
  ITEM 1. DESCRIPTION OF BUSINESS -
        continued
  IHDR
        has
        several advantages over all other alternative energy sources available. The
        patented Energy Commander (“EC”) system represents the first time, to our
        knowledge, that a technology has been created to use the positive displacement
        of water pressure to create mechanical force to create electricity. The
        advantages of the EC are numerous. Primarily, the system will use 100% of
        the
        flow pressure into the system, unlike hydro units that are only 30% to 70%
        efficient at best. The EC system uses less water flow than normal hydro,
        and is
        able to be used where flows for traditional hydro will not work. Second,
        the EC
        units will take up very little space; an EC unit takes up 1/100 the space
        of a
        solar array to gain the same amount of electrical output. Third, the price
        of EC
        system will be a fraction of the competition. Per Kw, the system cost will
        be
        around $150.00 that is 1/10 the usual renewable energy goal. This means enormous
        profit margins with the three available revenue streams and more competitive
        market entry. The EC has no direct competition. Solar, wind, biomass and
        large
        flow hydro-power sources are much different than the IHI technology, and
        these
        alternative energy sources can co-exist. The advantages that IHDR has over
        these
        sources are its cost, its flexibility and its constant availability. In the
        United States alone, IHDR estimates our technologies will surpass wind-generated
        power within three years and exceed solar in four years. IHDR is not competing
        with these segments, since our source of power is different than solar, wind,
        geothermal (although the system can use geothermal outlets as power sources),
        or
        biomass. The EC V technology is related to traditional hydropower, only in
        the
        sense that it can use water flows; however, the flows of water necessary
        for
        hydropower are much larger. Thousands of gallons per second are required.
        Our
        technology is low flow, and much less demanding than hydro. EC system optimizes
        and efficiently uses 100% of the flow. Hydropower is much less efficient.
        IHDR
        hopes to be a contributor to the renewable energy segment of the United States
        economy.
 
 The
        search and demand for alternative energy sources is reaching the highest
        priority possible, with many alternative energy initiatives being proposed
        domestically and internationally. IHDR’s EC technology saves expenditures,
        provides reliable electricity at a cheaper cost than current alternatives,
        and
        does so with free flows of wasted water or gas flows. The need for alternative
        energy is only as great as its reliability and value on a per kilowatt-hour
        of
        electricity basis. The common industry standard in the alternative energy
        field
        is to attempt to beat the cost of $1,500.00 per kilowatt of energy produced.
        IHDR will set a new benchmark for that goal in the alternative energy industry
        and we believe that the Energy Commander System beats that goal in the $150
        per
        kilowatt range **.**
 
 The
        unique aspect of IHDR’s technology is that our energy conversion technology, the
        EC System, has no direct competitor. No other technology uses low flow fluid
        or
        gas pressure for the creation of vast amounts of mechanical force to create
        electricity. No other technology has utilized positive displacement of flow
        pressure to create electricity. Solar power depends upon a clear day; wind
        upon
        the strength of nature at a given point, and hydro upon vast amounts of water
        flow. EC uses small flows to create mechanical force up to a hundred times
        the
        incoming pressure of natural or manmade flows. These flows are wasted potential
        energy and are free. We harness it and make it work to create electricity
        wherever needed.
 
 In
        today’s energy and renewable energy market, the positions of the players have
        stagnated. The renewable energy market has hinged around the six percent
        mark
        for a number of years. IHDR is targeting industries as a whole. We are not
        tied
        to the notion that our technology somehow has to be seen in the same vein
        as
        solar, biomass, or wind. This technology will simply fit where the opportunity
        is present in the flows available in a given area, building, or industrial
        use.
        IHDR is targeting industries with high electric utility costs and access
        to flow
        pressures of gas or fluid, which will run the EC. Wasted flows will give
        rise to
        the target areas. IHDR will target those who have the need to cut utility
        costs
        in the sectors identified with special emphasis on the textile, oil and gas
        refining and drilling, home development, agricultural, poultry, and other
        industries, which have communicated the greatest interest in placement of
        units.
        All of the industries are ones that will either have access to natural flow,
        be
        near man-made flow, which is wasted, or have internal wasted flow after the
        flow
        is used.
 
 IHDR’s
        Energy Commander System will be used in the industrial areas of steel and
        metals
        manufacturing, oil and gas drilling, oil and gas refining, chemical plants
        and
        processing, wood processing, paper and wood pulp, battery manufacturing,
        all
        areas of agriculture and food processing, cement and material processing,
        gas
        pipelines, and numerous other industrial and commercial applications. The
        EC
        technology will have many applications in rural and third world areas. In
        the
        United States alone, there are over 70,000 dams that do not produce electricity,
        but many are capable of doing so with no environmental impact. The technology
        has numerous applications in third world areas where ready access to natural
        flow exists, and yet is unused. Such flows as in these areas would not support
        conventional hydropower systems, but will support constant 24 hour a day
        power
        from the EC. Each unit of the EC will be kept as a corporate asset in North
        America, and will be shared with the user on a lease/revenue sharing model.
        Each
        unit will create and approximate $17,500.00 in revenue in the United States
        and
        Canada, which will be shares with the end user through savings on electrical
        costs, while IHDR will retain the tax credits, renewable energy credits,
        and
        portions of the energy value. In the EU where IHDR has strategic partnership
        for
        manufacturing and
        distribution of the units, the same model will be in place, where the units
        will
        be held by the Joint Venture, and the revenue distribution will be shared
        by
        IHDR along with the JV partner, and the user will be able to enjoy the reduced
        electrical costs, and revenue sharing in the EU, where revenues for a 30
        Kw unit
        have been estimated by Cm2 to be approximately $44,000.00 per unit, per
        year.
  5
  ITEM
        1. DESCRIPTION OF BUSINESS -
        continued
  EC
        will
        mean huge savings, and potentially, even payback to municipal, county, state
        and
        federal government facilities. Lowering or excluding power costs, while giving
        back potential revenue to governmental entities utilizing the EC to produce
        electricity in buildings, compounds, and governmental facilities. IHDR’s
        technology will have far reaching military aspects, able to be used by the
        U.S.
        military to help build nations the third world areas where power projection
        can
        be accomplished by the supplying of power to areas of need. EC will be used
        as a
        power source for direct power supply and for back-up power sourcing for
        hospitals, nursing homes, and other uses where back up power generation is
        required. The potential applications for the EC will only be limited by the
        flows available where they are found.
 
 We
        have
        prepared a business model that will market the EC V system through a distributor
        network around the world. Numerous municipalities, counties, manufacturing,
        textile, petroleum, residential development, and other industries have entered
        into agreements and intents with the Company for application of these units.
        We
        also intend to further its business plan by acquisition of similar technologies
        and by execution of contracts for future units and rights to distribution
        of the
        technology.
 
 However;
        since inception, we have suffered recurring losses from operations and have
        been
        dependent on existing stockholders and new investors to provide the cash
        resources to sustain our operations.
 
 Our
        long-term viability as a going concern is dependent on certain key factors,
        as
        follows:
 
 -
              Our
                  ability to continue to obtain sources of outside
                  financing.
 
 -
              Our
                  ability to increase profitability and sustain a cash flow level
                  that will
                  ensure support for continuing
                  operations.
 
 **ACQUSITIONS
        OF SIMILAR TECHNOLOGIES**
 
 CM2
        AGREEMENT:
 
 In
        February 2005, IHDR ** entered
        into a large scale joint venture agreement for production, distribution and
        sale
        of its Energy Commander units to the European Union. Under the performance
        based
        contract, Cm2,
        an
        Italian Energy Manufacturing and Supply Company, will manufacture units in
        Italy
        for distribution, sale, and lease into Europe. Cm2 will supply engineering,
        production, marketing, distribution, and service for the Energy Commander
        units.
        Cm2 believes they will build and place a minimum of between 300 and 600 thirty
        Kw units in Europe in the first year of full production. Under the agreement
        IHDR pays no significant capital expenditure, however, it receives revenues
        in
        various forms.
 
 Cm2
        is a
        producer and supplier of electrical systems for European utilities and
        industrial users. Cm2 is positioned to supply Internal Hydro’s units for all of
        the European Union for the foreseeable future. Cm2 will be producing the
        units
        under a revenue sharing and payment license from IHDR. Cm2 believes they
        will be
        able to produce 100 units per week in full production.
 
 Cm2
        will
        distribute, and service the units throughout Europe through a joint venture
        entity. IHDR shall receive an up front sum of $2,000 to $3,000 per unit produced
        for Europe plus a large portion of the revenue stream from all units placed
        in
        Europe, including electricity, renewable energy credits, and other readily
        available credits. Cm 2 estimates the unit revenue for a 30 Kw unit to be
        approximately $44,000 per unit per year. Energy credits in Italy are expected
        to
        be about 3 to 10 times the projection of revenue for IHDR units placed in
        the
        U.S. Under the agreement, Cm2 will be a strategic partner for delivery of
        the EC
        units to IHDR’s domestic US use for less than IHDR could produce the units in
        the United States. Due to their extensive experience in the European energy
        market, Cm2’s ability to produce, sell, and maintain the units, will give IHDR a
        strong partner for the EU.
 
 
 
  6
  ITEM 1. DESCRIPTION OF BUSINESS -
        continued
 KINETIC
        ENERGY
 
 On
        July
        8, 2004, we announced that we had entered into an agreement with Kinetic
        Energy
        Systems, Inc. (“Kinetic”), a privately held Florida Corporation, for a strategic
        partnership. IHDR received 20% of the shares of the private company with
        access
        to license and assist in the development of the technology Kinetic held for
        underwater and over water power generation. IHDR issued 1,250,000 shares
        of
        treasury stock for this interest. IHDR agreed to help develop the technology
        and
        market it within its resources. Kinetic has several new hydro and wind based
        technologies, all patented or patent pending at this time. These include
        the
        Hydrokinetic Generator; Offshore Energy Platform; KESC Bowsprit Generator;
        and,
        KESC Tidal Generator. These technologies create generate electrical power
        or
        hydrogen using kinetic energy from moving water and wind, utilizing wind
        and
        tides. The Hydrokinetic Generator is at the prototype and engineering stage.
        The
        Offshore Energy Platform is at the prototype and engineering stage. The KESC
        Bowsprit Generator at the prototype and engineering stage. The Bowsprit is
        being
        designed for prototyping in the dual role of hydrogen production. The KESC
        Tidal
        Generator is at the engineering and prototype stage. KESC is preparing to
        display the Bowsprit technology for the first time at the NERL conference.
 
 To
        date
        this relationship still exists, and IHDR will help market and develop the
        Kinetic line of production, in Europe and the United States. This support
        of
        Kinetic is tied to IHDR’s capital ability to do so. IHDR will help introduce
        Kinetic’s products to European entities for development and
        marketing.
 
 TRITON
        TECHNOLOGIES :
 
 In
        April
        2005, IHDR entered into a future marketing and distribution agreement with
        Triton Technologies of Reston Virginia. Through this agreement, Triton has
        the
        rights to market the Energy Commander technology. Under the agreement, Triton
        took on certain responsibilities for the capital support of the Energy Commander
        build out and engineering. Through the third quarter of 2005, Triton had
        directly taken on the contractual obligations for payment to the engineering
        firm APTEC for unit plans and production of the EC IV. IHDR was relieved
        of such
        payments during the period that Triton fulfills its obligations to APTEC,
        and to
        date has paid APTEC approximately $40,000 as reported to IHDR. The primary
        purpose of the agreement will be for Triton to develop and implement a strategic
        marketing plan for industry awareness and for sales of the Energy Commander
        under IHDR’s control, once units are fielded and able to be displayed. Under the
        agreement, Triton will receive a portion of the revenue flow from units placed
        under its marketing and distribution work. As part of the agreement, IHDR
        would
        also receive an equity position in Triton based upon the future position
        of
        Triton’s public company. IHDR was informed by management of Triton in September,
        2005, that they would be repositioning the assets of Triton, and this agreement
        for marketing and licensing to a new private entity in the near future, which
        IHDR did not object to. To date this contract will be fulfilled by the use
        of
        Triton as a marketing arm for the EC technology in the United States.
 
 ETIG
 
 On
        November 3, 2004, we entered into agreement with El Tigre Development (“ETIG”),
        a Florida Corporation, for the purchase of one hundred units of Energy Commander
        IV units. The purchase price of the one hundred units was $2,250,000, with
        the
        first ten units to cost $50,000 each. The agreement itself had a three year
        term
        and called for the Company and ETIG to share in revenue generated from each
        unit
        beyond the purchase price. For the first ten units, revenue is 20% from any
        source on the units. Additional units include 50% revenue. In exchange for
        the
        initial ten-unit purchase, we are granted rights for placement to ETIG in
        the
        states of Washington, North Carolina, Oregon and Utah. Upon execution of
        the
        first ten-unit purchase, two lines of credit will become effective. Each
        line of
        credit shall be for $5,000,000 to our benefit. The first line of credit will
        entitle ETIG to place units in Idaho and Asia. The second line of credit
        will
        entitle ETIG to place units in South America and Scotland. These lines of
        credit
        were represented by ETIG to be from financial houses and resources, which
        did
        not develop. The lines of credit were stated to be available for the production
        of units, at descending rates of pricing per Energy Commander Unit produced.
 
 As
        of
        April 15, 2006, we have not received the initial payment for the ten-unit
        order
        and ETIG, which had renamed itself McGregor Energy, Inc., We had previously
        requested a thirty (30) day extension for the payment of the initial ten
        units.
        The extension was granted. This contract was subsequently noticed by IHDR
        to be
        in default, with no answer being given by ETIG. We have determined that there
        was no operable or available source of recourse due to the lack of any financial
        resources or assets of ETIG, which became defunct in early 2005.
 
  7
  ITEM 1. DESCRIPTION OF BUSINESS -
        continued
 NEW
        IMPACT
 
 On
        November 2, 2004, IHDR and New Impact, LLC, a private Arizona based Company,
        entered into a contract for the purchase of energy units from IHDR, with
        rights
        for distribution and use of IHDR's technology. The initial phase of the contract
        calls for supplying ten units at a purchase price of $500,000 for use in
        New
        Impact's water treatment facilities and other areas in the Southwest. This
        contract has not been funded to date; however, in March 2005, this contract
        was
        absorbed by the later agreement with Triton Technologies of Reston Virginia,
        to
        be the marketing and sales arm of IHDR when IHDR is in a unit production
        ability.
 
 **GOING
        CONCERN RISK**
 
 We
        have
        had and could have losses, deficits and deficiencies in liquidity, which
        could
        impair our ability to continue as a going concern.
  In
        our
        consolidated financial statements, our independent auditors have indicated
        that
        certain factors raise substantial doubt about our ability to continue as
        a going
        concern. Since its inception, the Company has suffered recurring losses from
        operations and has been dependent on existing stockholders and new investors
        to
        provide the cash resources to sustain its operations. The above factors
        represent continue to raise doubt about the Company's ability to fully establish
        itself as a going concern.
  **IMPLEMENTATION
        OF BUSINESS STRATEGY DEPENDENT ON ADDITIONAL FINANCING**
  Internal
        Hydro must obtain financing to fund the expansion of operations. Such outside
        financing must be provided from the sale of equity or third party financing.
        Further, the sale of equity securities will dilute our existing stockholders'
        interests, and borrowings from third parties could result in our assets being
        pledged as collateral. While the Company is currently able to fund all basic
        operating costs, it is possible our operations could be restricted if loan
        terms
        increase our debt service requirements. There is no assurance that we can
        obtain
        financing on favorable terms.
  **EMPLOYEES**
 As
        of
        December 31, 2005, the company employed 3 full time employees. Additionally,
        the
        Company utilizes consultants on an as needed basis.
 
 **ITEM
        2. DESCRIPTION OF PROPERTY**
 
 Internal
        Hydro's principal executive offices are located at 334 S. Hyde Park Ave.,
        Tampa,
        FL 33606 with approximately 1500 square feet of shared office space which
        we
        receive without paying rent from the former Chairman of the Board of Directors,
        Mark Pena.
 
 Management
        believes that this office space is adequate for our present and future
        needs.
 
 **ITEM
        3. LEGAL PROCEEDINGS**
 
 On
        October 14, 2004, the Clerk in the Circuit Court of the Thirteenth Judicial
        Circuit of the State of Florida, in and for Hillsborough County Circuit Civil
        Division (Case No.: 04-CA-009272) sent a letter to the Company notifying
        the
        Company that a Foreign Judgment from the state of Arizona was filed. The
        defendant in the case is Tel-Voice Communications, Inc. and the plaintiff
        is
        Smartcom Solutions, Inc. The pending judgment is for non-payment of a debt
        of
        approximately $43,000. This judgment was apparently from a lawsuit filed
        in
        Phoenix Arizona, as a vendor law suit with the previous company HSVI. Notably,
        this suit was not disclosed to the management upon the reverse merger, or
        within
        the merger documents presented to the management of Internal Command
        International upon the merger.
 
 Currently,
        the Company has no additional information and is in the process of obtaining
        details on the date proceedings began and a description of the facts underlying
        the proceedings. The $43,000 is not accrued in the financial statements as
        management has determined that this payment currently is not yet
        probable.
 
 As
        of the
        date hereof, Internal Hydro is not a party to any further legal proceedings,
        and
        none are known to be contemplated against Internal Hydro.
  **ITEM
          4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 No
          matter
          was submitted to a vote of security holders during the year ended December
          31,
          2005.
 8
  **PART
        II**
 
 **ITEM
        5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS**
 
 The
        Company's common stock under the registered name of Internal Hydro
        International, Inc. was first quoted in June of 2002, and now trades on the
        Over-the-Counter ("OTC") Bulletin Board under the symbol "IHDR". On
        January 2, 2004, Internal Command International, Inc. (a private company)
        merged
        with Home Services International, Inc. (a publicly traded company under symbol
        of HSVI) to become Internal Hydro International, Inc. On January16, 2004,
        the
        trading symbol was changed from HSVI to IHDR.
 
 On
        July
        27, 2004, the Board of Directors approved a 5 to 1 stock split of our common
        and
        preferred stock to become effective September 10, 2004. The
        stock
        split increased the number of outstanding shares of common stock from 2,875,279
        to 14,376,395 and the number of outstanding shares of preferred stock from
        5,750,000 to 28,750,000 as of September 10, 2004. All references to the
        Company's common and preferred stock in the financial statements have been
        restated to reflect the stock split .
 
 As
        of
        December 31, 2005, Internal Hydro had 66,256,242 shares of common stock
        outstanding and 9,707,365 shares of class “A” preferred stock
        outstanding.
  Set
        forth
        below are the high and low closing bid prices for the Company's common stock
        as
        reported on the OTC Bulletin Board for the last two fiscal years.
  Quarter
              High
              Low2004First
                  Quarter
              $2.00
              $1.10Second
                  Quarter
              $2.10
              $0.90Third
                  Quarter
              $1.30
              $0.15Fourth
                  Quarter
              $0.26
              $0.122005First
                  Quarter
              $0.2
              $0.08Second
                  Quarter
              $0.25
              $0.08Third
                  Quarter
              $0.13
              $0.051Fourth
                  Quarter
              $0.1
              $0.03
 
 
 The
        above
        quotations represent inter-dealer quotations without retail markup, markdown
        or
        commissions and may not represent actual transactions.
 
 The
        bid
        price of our common stock was $0.26 per share on May 17 2006.
 
 **RECORD
        HOLDERS**
 
 As
        of
        December 31, 2005 the Company had 237 shareholders of record.
 
 **SECURITIES
        AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS FOR FISCAL YEAR ENDED
        DECEMBER 31, 2005**
 Number
                  of Securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              Weighted-average
                  price of outstanding options warrants and rights
              Number
                  of Securities
                remaining
                  available for future issuance under equity compensation plans(excluding
                  securities reflected in column (a))(a)
              (b)
              (c)Equity
                  compensation plans approved by security holders
              0
              0
              0Equity
                  compensation plans not approved by security holders
              0
              0
              0TOTAL
              0
              0
              0
 
 **OUR
        TRANSFER AGENT IS:**
 
 Island
        Stock Transfer
 100
        2 nd Avenue
        South #300 N.
 St.
        Petersburg, Florida 33701
 
 **DIVIDENDS**
 
 The
        Company has never declared or paid any cash dividends on our common stock.
        Any
        future determination relating to dividend policy will be made at the discretion
        of our Board of Directors and will depend on a number of factors, including
        the
        future earnings, capital requirements, financial condition and future prospects
        and such other factors as the Board of Directors may deem relevant.
 
 **RECENT
        SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM UNREGISTERED
        SECURITIES**
 
  During
        the last quarter of our fiscal year ended December 31, 2005, we completed
        the
        following transactions in reliance upon exemptions from registration under
        the
        Securities Act of 1933, as amended (the "Act") as provided in Section 4(2)
        thereof.  Each certificate issued for unregistered securities contained a
        legend stating that the securities have not been registered under the Act
        and
        setting forth the restrictions on the transferability and the sale of the
        securities.  None of the transactions involved a public offering and no
        commissions were paid.  We believe that each person had knowledge and
        experience in financial and business matters which allowed them to evaluate
        the
        merits and risks of our securities.  We believe that each person was
        knowledgeable about our operations and financial condition.
  A
        total
        of 8,831,000 shares were issued to eight individual as payment for services
        totaling $367,240. A toal of 56,667 shares of stock were issued for two short
        term loans totaling $1,500. Pursuant
        to the terms of the loans, if the loan can not be repaid within ten days,
        then
        shares are issued to the lender equal to the amount of the loan. Additionally,
        525,000 shares were paid to two individuals for shop rental valued at
        $21,000
 
 
 **ITEM
        6. MANAGEMENT’S DISCUSSIONS AND ANALYSIS OR PLAN OF
        OPERATIONS**
  The
        following discussion and analysis should be read in conjunction with the
        our
        consolidated financial statements and related footnotes for the year ended
        December 31, 2005 included in this Annual Report.
 
 **GENERAL**
 Internal
        Hydro International, Inc. ("IHDR" or "Company") was organized on December
        31,
        1996 as Tel-Voice Communications, Inc. as a Nevada Corporation. On January
        6,
        2003, we changed our name to Home Services International, Inc. On January
        2,
        2004, the Company entered into a merger agreement and on January 13, 2004,
        the
        name was changed to Internal Hydro International, Inc. The Company was
        re-domiciled to Florida on February 4, 2004. We are a publicly traded company
        listed on the OTC Electronic Bulletin Board under the symbol “IHDR”. Our offices
        are located at 334 S. Hyde Park Ave., Tampa, Florida 33606. Our website is www.internalhydro.com .
 
  9
  ITEM 6. MANAGEMENT’S DISCUSSIONS AND ANALYSIS OR PLAN
        OF OPERATIONS - continued
 **RESULTS
          OF OPERATIONS**
 
 Our
          first
          goal was the refinement of the technology to prove the large scale of the
          power
          potential of the Energy Commander (“EC”) technology. This entailed the design
          and engineering of a new style of unit on a much larger scale. It required
          the
          acquisition of materials, fabrication of unique machined parts; the manufacture
          and design of a
 
 In
        the
        third quarter 2005, IHDR chose to follow the new prototype design for the
        EC V,
        which is an alternate design from the EC IV in line system. The EC V will
        be
        smaller, as powerful, and easier to manufacture than the EC IV system. The
        new
        design of the EC IV uses new parts, a new engineering firm, new plans and
        new
        equipment to make it smaller and standardized for mass production. The EC
        V
        developmental prototype, is showing itself to be a fifth of the size of the
        EC
        IV, for the same power output and is projected to be displayed, or deployed
        in
        the field early in 2003. The new EC V prototype is a twelve cylinder radial
        system working from the same 65 p.s.i. flow placed into use through 12 cylinder
        “slices” with the usual set of four slices to produce the standard 30 Kw per
        unit. Each unit uses from 1200 to 1500 gallons per minute of flow. From this
        system the cylinders work on a common cam or shaft which is a unique new
        technology which produces the mechanical force to run a generator. The inlet
        and
        outlet of the system works through a common shaft system around the device
        to a
        common generator.
 
 IHDR
        has
        also sought the identification of undervalued and undercapitalized technologies
        that would be part of the corporate philosophy for renewable energy products.
        IHDR has explored other possible technologies including tire remediation,
        ethanol and bio-diesel production from appropriate feedstocks, clean water
        technologies, rapid response home security for provision of electricity and
        waste remediation, hazardous waste technologies, and other renewable and
        critical use technologies.
 
 **COMPARISON
        OF YEAR ENDED DECEMBER 31, 2005 TO YEAR ENDED DECEMBER 31,
        2004**
 
 Revenues
              were $0 in both 2004 and 2005. The
              $817,210 decrease in the net loss to $2,813,204 for the year ended
              December 31,
              2005 from $3,630,414 for the year ended December 31, 2004 is due to
              a few
              factors. One key factor was the one time loss on sale of securities
              of $697,237
              incurred in the year ended December 31, 2004. Selling, general &
administrative expenses decreased by $1,219,153 to $1,453,248 for the
              year ended
              December 31, 2005 from $2,672,401 for the year ended December 31, 2004
              primarily
              due to a decrease in the issuance of common and preferred stock for
              services.
              However, research & development costs increased by $201,281 to $417,257 for
              the year ended December 31, 2005 from $215,976 for the year ended December
              31,
              2004. Research & development costs increased as the company worked to meet a
              key goal which was the refinement of the technology to prove the large
              scale of
              the power potential of the EC technology.
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 We
        intend
        to continue development of the Energy Commander systems but will need additional
        private placements, debt financing or equity investment in order to participate
        fully and at the levels intended. There can be no assurance that any of the
        plans developed will produce cash flows sufficient to ensure its long-term
        viability.
 
 The
        Company has incurred additional deficits in cash flow from operating activities.
        These deficits have been funded from loans from significant shareholders.
        The
        Company is in discussions with several capital organizations with a view
        to
        selling more common and preferred shares as a means of financing future capital
        needs. The company anticipates it will be successful in these discussions,
        however there can be no assurances that the Company will be successful and
        will
        produce cash flows sufficient to ensure its long-term viability.
 
 **2006
        OUTLOOK**
 
 During
        the next twelve months, IHDR’s technology is targeted to be produced and field
        tested. At that point, IHDR will be entering into the is full production
        phase
        of its business plan, with revenues being produced, and further, an
        implementation of the new management structure for roll out in the global
        energy
        market. With the contractual arrangement with Cm2, IHDR has now partnered
        with a
        ready and able partner for production, and implementation of the Energy
        Commander systems in Europe. Given the vast experience and ongoing operations
        of
        Cm2 in the energy market, IHDR will have significant production ability for
        the
        EC units. IHDR forecasts that the final stage units will be made with Cm2,
        and
        other domestic resources for final stage production hopefully by the first
        half
        of 2006. IHDR will implement the new radial system of low impact hydro with
        Cm2,
        for production in the latter part of 2006, and for production of the initial
        10
        units of the system for field testing IHDR will also be implementing the
        portion
        of its business plan which for new personnel to take over certain management
        positions, and the creation of new positions in order to get ready for direct
        market participation in the alternative energy sector, and for the expansion
        of
        the company beyond the start up phase and into the global and domestic
        alternative energy market. Included in this plan is the implementation of
        new
        management with energy experience, and new board membership. IHDR met this
        goal
        with the implementation of a new board of directors in January, 2006.
  10
  ITEM
        6. MANAGEMENT’S DISCUSSIONS AND ANALYSIS
        OR PLAN OF OPERATIONS - continued
 We
        will
        enter into three important phases for the production mode and field testing
        of
        its energy units, set to occur in the second half of 2006. First, we will
        seek
        new capital contribution for carryover of operations and production in the
        United States, and for a limited need of capital for use with the existing
        relationship in Italy with Cm2. This will be done in order to fulfill basic
        financial obligations such as audit costs, payroll, travel and engineering
        support for the Italian operations, and for final unit development for
        production with Cm2. Since we do not have significant production costs related
        to the energy unit production in Italy of the ten units, the need for capital
        has been kept to a minimum. Cm2 under its agreement pays for all related
        costs
        of engineering and production of the unit, as well as some on site costs
        for
        IHDR personnel. Second is the final production unit plan for the EC V, which
        we
        will be the radial system twelve cylinder unit. This will be accomplished
        through Cm2 on site in Terni, Italy at their production facility, as well
        as
        initial production occurring for the units in the United States utilizing
        contracted or strategic partners. Our personnel and the prototype unit of
        the EC
        V will be transported on site for production of the final unit in both Europe
        and in the United States. With the machining and parts assembly and plans
        being
        completed, the final production value, first unit will be made.
 
 Finally
        we are in the process of a search to identify new CEO candidates with the
        appropriate public market experience and in the energy or alternative energy
        market.
 
 **First
        Half of 2006**
 
 During
        this time frame the final production of the first unit and additional ten
        units
        under the preliminary production plan should be completed at Terni, Italy
        and in
        the United States. These units will then be deployed for use in Italy under
        Cm2
        at predetermined sites, and to the United States, to be deployed at five
        locations by IHDR at predetermined sites. The units will under go certification
        process by Italian agency authorities and in the US by private entities so
        that
        they are qualified for tax and energy credits. During this time period with
        the
        deployment of units, we hope to also be expanding its management and board
        for
        full on production business plan operations. During this time, we anticipate
        that we will hold our annual meeting at which time the board of directors
        will
        be selected, and the committee memberships will be made. IHDR will, with
        the
        concurrent deployment of units, seek to raise a capital amount related to
        its
        operations for the next three quarters of the year, to include major marketing,
        certification, governmental relations, and further unit production. Production
        capacity and unit production for the end to start of the second and third
        quarters from Cm2 is expected to be 40 units by second and start of the third
        quarters. One half of these should ship to the United States for use, with
        the
        remaining portion being used in Europe. At this point with the first units
        being
        fielded, revenues should be realized from each fielded unit, both in Italy
        and
        the United States.
 
 Additionally,
        IHDR will choose a suitable production partner with several being identified
        in
        the United States for domestic production. IHDR has identified at least three
        such partners in negotiation, but will not enter into such agreement until
        the
        first units are supplied and fielded in the United States. With a solid European
        partner for initial production of even domestic units, IHDR does not feel
        it
        necessary to commit to a domestic partner at the first run of production
        due to
        the availability of a manufacturer in Cm2, and the ability to contract with
        domestic machining providers as required in the U.S. IHDR is seeking to avoid
        traditional capital investment as it has been able to avoid through it’s
        existence, until normal revenues are achieved in the second and third quarters
        of 2006. ****
 
 **Second
        Half of 2006**
 
 In
        addition, we envision and plan that the production phase of the EC units
        will be
        in full force from Italy and domestically by the third quarter of 2006, with
        contracts being sought by end users for unit application in both Europe and
        the
        United States. At this point, the major marketing effort of IHDR and Triton
        should result in future and immediate contracts for units to be supplied
        to
        industrial and natural flow users. The management team will then be
        filled
        out to include separate offices of the CEO and President, along with the
        CFO,
        and a vice president of marketing. The office in Rome will be staffed by
        indigenous personnel already identified, and should be able to now be a revenue
        producing section with units being produced from Cm2, and placed into the
        European energy market. At this point, IHDR will seek development of other
        complimentary and related products through its own research and development
        arm,
        and through the acquisition of new technologies either through licensing
        or
        acquisition. During this time the main portion for action will be the conduction
        and integration of revenue streams through the value of electricity, the
        sale of
        he renewable energy credits and the value of the tax credits. Significantly,
        the
        accounting of these matters will vary by not only the national placement
        of the
        units, but by the very locality where it is placed due to the value of
        electricity rates which can vary vastly. These accounting principles will
        be
        easier to bill and account for with the tracking system built into the unit,
        however, the accreditation and certification process will be a major mergence
        into the accounting of IHDR.
  11
  ITEM
        6. MANAGEMENT’S DISCUSSIONS AND ANALYSIS
        OR PLAN OF OPERATIONS - continued
 IHDR
        also
        seeks the identification of undervalued and undercapitalized technologies
        that
        would be part of the corporate philosophy for renewable energy products of
        the
        corporation. Such technologies that IHDR has explored are tire remediation,
        ethanol and bio-diesel production from appropriate feedstocks, clean water
        technologies, rapid response home security for provision of electricity and
        waste remediation, hazardous waste technologies, and other renewable and
        critical use technologies.
 
 **Forward
        looking statements**
 We
        are
        including the following cautionary statement in this Form 10-KSB to make
        applicable and take advantage of the safe harbor provision of the Private
        Securities Litigation Reform Act of 1995 for any forward-looking statements
        made
        by, or on behalf of, the Company. Forward-looking statements include statements
        concerning plans, objectives, goals, strategies, expectations, future events
        or
        performance and underlying assumptions and other statements which are other
        than
        statements of historical facts. The statements contained herein and other
        information contained in this report may be based, in part, on management's
        estimates, projections, plans and judgments. These forward-looking statements
        are subject to certain risks and uncertainties that could cause actual results
        to differ materially from historical results or those anticipated. In this
        report, the words "anticipates", "believes", "expects", "intends", "future",
        "plans", "targets" and similar expressions identify forward-looking statements.
        Readers are cautioned not to place undue reliance on the forward-looking
        statements contained herein. We undertake no obligation to publicly revise
        these
        forward-looking statements to reflect events or circumstances that may arise
        after the date hereof. Our expectations, beliefs and projections are expressed
        in good faith and are believed to have a reasonable basis, including without
        limitations, management's examination of historical operating trends, data
        contained in our records and other data available from third parties, but
        there
        can be no assurance that management's expectations, beliefs or projections
        will
        result or be achieved or accomplished. In addition to other factors and matters
        discussed elsewhere herein, the following are important factors that could
        cause
        actual results to differ materially from those discussed in the forward-looking
        statements: our dependence on limited cash resources, dependence on certain
        key
        personnel within the Company, and the ability to raise additional capital;
        our
        ability to obtain acceptable forms and amounts of financing; the demand for,
        and
        price level of, our products and services; competitive factors; the ability
        to
        mitigate concentration of business in a small number of customers; the evolving
        industry and technology standards; the ability to protect proprietary
        technology; the dependence on key personnel; and our ability to efficiently
        manage our operations. Accordingly, actual results may differ, possibly
        materially, from the predictions contained herein.
 
 **UNCERTAINTIES:**
 
 **Development
        Stage Company**
 
 The
        Company is in the development stage. There is no assurance that the Company's
        activities will be profitable. The likelihood of the success of the Company
        must
        also be considered in light of the problems, expenses, difficulties,
        complications, delays and all of the inherent risks frequently encountered
        in
        the formation and operation of a relatively new business.
 
 
 **Going
        Concern**
 
 The
        financial statements are presented on the basis that the Company is a going
        concern, which contemplates the realization of assets and the satisfaction
        of
        liabilities in the normal course of business over a reasonable length of
        time.
  Management
          believes that current plans to expand the Company's operations and a combination
          of its financing and capital raising plans will provide sufficient working
          capital to allow the Company to continue as a going
          concern.
  12
  ITEM
        6. MANAGEMENT’S DISCUSSIONS AND ANALYSIS OR
        PLAN OF OPERATIONS - continued
 **Costs
        Conducting Business**
 
 The
        Company will be required to incur substantial costs for research and development
        and equipment, establishing production and marketing operations, and related
        costs. A substantial portion of those costs must be paid whether or not any
        of
        its products prove to be commercially successful on a broad scale. The ability
        to generate a profit depends, among other factors, on the amount of equipment
        acquisition costs incurred, the amount of revenues from the sale of its products
        by the Company, and its operating costs.
 
 **Technological
        Change**
 
 The
        Company expects that many new technologies and products will be introduced
        over
        the next several years. The Company's success will depend, among other things,
        on its ability to develop and maintain a competitive position technologically.
        There can be no assurance that the Company will have access to subsequently
        developed technology by other persons. Technological advances by a competitor
        may result in the Company's present or future products becoming noncompetitive
        or obsolete. The Company cannot be assured that competitors will not develop
        functionally similar or superior products, which event could have an adverse
        effect on the Company's business.
 
 **Contracts**
 
 There
        can
        be no assurance that the Company will be able to obtain sufficient and suitable
        contracts for its business plan.
 
 **Fluctuations
        Operating Results**
 
 The
        Company's revenues and results of operations may vary significantly in the
        future. The Company's revenues and results of operations are difficult to
        forecast and could be adversely affected by many factors, some of which are
        outside the control of the Company, including, among others, the expected
        relatively long sales and implementation cycles for the Company's products;
        the
        size and timing of individual license transactions and joint venture
        arrangements; seasonality of revenues; changes in the Company's operating
        expenses; changes in the mix of products sold; timing of introduction or
        enhancement of products by the Company or its competitors; market acceptance
        of
        new products; technological changes in technology; personnel changes and
        difficulties in attracting and retaining qualified sales, marketing, technical
        and consulting personnel; changes in customers' budgeting cycles; quality
        control of products sold; and economic conditions generally and in specific
        industry segments.
 
 There
        can
        be no assurance that the Company's products will achieve broad market acceptance
        or that the Company will be successful in marketing its products or enhancements
        thereto. In the event that the Company's current or future competitors release
        new products that have more advanced features, offer better performance or
        are
        more price competitive than the Company's products, demand for the Company's
        products would decline. A decline in demand for, or market acceptance of,
        the
        Company's products as a result of competition, technological change, or other
        factors would have material adverse effects on the Company's business, financial
        condition and results of operations.
 
 **Seasonality**
 
 The
        Company does not expect to experience material seasonal variations in revenues
        or operating costs.
 
 **Off
        balance sheet arrangements**
 
 For
        the
        year ended December 31, 2005, we did not have any off balance sheet
        transactions.
 
 13
 ITEM
        7. FINANCIAL STATEMENTS
 
 INTERNAL
          HYDRO INTERNATIONAL, INC. AND SUBSIDIARY
 
 CONSOLIDATED
          FINANCIAL STATEMENTS
 
 FOR
          THE
          YEARS ENDED DECEMBER 31, 2005 AND 2004
 
 TABLE
          OF
          CONTENTS
  PAGE
                    (S)REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                15CONSOLIDATED
                  BALANCE SHEETS
                16CONSOLIDATED
                  STATEMENTS OF OPERATIONS
                17CONSOLIDATED
                  STATEMENTS OF CASH FLOWS
                18CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' DEFICIENCY
                19NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
                20
  14
  REPORT
          OF
          INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To
          the
          Stockholders and Board of Directors of Internal
          Hydro International ,
          Inc.:
 
 
 We
          have
          audited the balance sheet of Internal
          Hydro International ,
          Inc.
          (the Company), a development stage company, as of December 31, 2005, and
          the
          related statements of operations, stockholders' deficit and cash flows
          for each
          of the two years in the period ended December 31, 2005, and for the period
          from
          January 21, 2003 (date of inception) to December 31, 2005. These 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 audits.
 
 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 the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. An audit includes examining,
          on a
          test basis, evidence supporting the amounts and disclosures in the financial
          statements. An audit also includes assessing the accounting principles
          used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe our audits provide a reasonable
          basis for our opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the financial position of Internal Hydro International,
          Inc.
          as of December 31, 2005, and the results of its operations and cash flows
          for
          each of the two years in the period ended December 31, 2005, and for the
          period
          from January 21, 2003 (date of inception) to December 31, 2005, in conformity
          with accounting standards generally accepted in the United States of
          America.
 
 As
          disclosed in Note 1, the accompanying financial statements have been prepared
          assuming that the Company will continue as a going concern. The Company
          has
          experienced material operating losses and had a net working capital deficiency
          of $ 336,097 at December 31, 2005. Management is seeking equity capital
          and is
          implementing a business plan that it believes will result in profitable
          operations. There can be no assurances that the Company will obtain sufficient
          capital or that operations will become profitable. These and other conditions
          raise substantial doubt about the Company’s ability to continue as a going
          concern. The accompanying financial statements do not include any adjustments
          that might be necessary should the Company be unable to continue as a going
          concern.
 
 
 
 /s/
          EPSTEIN, WEBER & CONOVER, PLC
 Scottsdale,
          Arizona
 May
          16,
          2006
 
 15
   **INTERNAL
                    HYDRO INTERNATIONAL INC****BALANCE
                    SHEET****As
                    of December 31, 2005****ASSETS****CURRENT
                    ASSETS**Cash
                    and equivalents
                
                **$**
                **600****600****PROPERTY
                    & EQUIPMENT**Computers
                    & Equipment(net
                    of accumulated depreciation)
                
                
                **10,452****OTHER
                    ASSETS**Investment
                    - Langley Park
                
                
                **14,124**Investment
                    - Kinetic Energy
                
                
                **68,750****82,874****$**
                **93,926****LIABILITIES
                    & STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES**Accounts
                    payable
                
                **$**
                **52,355**Contingent
                    Payroll Tax
                
                
                **37,988**Accrued
                    Liabilities
                
                
                **26,623**Due
                    to shareholder
                
                
                **165,700**Notes
                    Payable
                
                
                **54,031****336,697****OTHER
                    LIABILITIES**Debt
                    under professional management (Note 4)
                
                
                **906,879**Total
                    Liabilities
                
                
                **1,243,576****STOCKHOLDERS'
                    EQUITY**Common
                    stock, $.001 par value,200,000,000 shares authorized63,770,745
                    shares issued and outstanding
                
                
                **63,771**Preferred
                    stock, $.001 par value, 70,000,000 shares authorized7,167,445
                    shares issued and outstanding
                
                
                **7,167**Additional
                    paid-in capital
                
                
                **5,395,239**Unrealized
                    loss on Investment
                
                
                **(91,783**
                **)**Deficit
                    accumulated during Development Stage
                
                
                **(6,524,044**
                **)**Total
                    Stockholders' Equity
                
                
                **(1,149,650**
                **)****$**
                **93,926**
 See
            accompanying notes to unaudited financial statements
    16
   **INTERNAL
                    HYDRO INTERNATIONAL INC****STATEMENT
                    OF OPERATIONS**For
                    the years ended December 31, 2005 and 2004**Accumulated
                    from****Date
                    of Inception****For
                    the year ended**
                
                
                **For
                    the year ended**
                
                
                **through****December
                    30, 2004**
                
                
                **December
                    31, 2005**
                
                
                **December
                    31, 2005**NET
                    SALES
                
                $
                -
                
                $
                -
                
                $
                -COST
                    OF SALES
                
                
                -
                
                
                -
                
                
                -GROSS
                    PROFIT
                
                
                -
                
                
                -SELLING,
                    GENERAL & ADMINISTRATIVE EXPENSES
                
                
                **2,672,401**
                
                
                **1,453,248**
                
                
                **4,173,375**RESEARCH
                    & DEVELOPMENT
                
                
                **215,976**
                
                
                **417,257**
                
                
                **665,933**LOSS
                    FROM OPERATIONS
                
                
                **2,888,377**
                
                
                **1,870,505**
                
                
                **4,806,608**LOSS
                    ON SALE OF SECURITIES
                
                
                **697,237**
                
                
                **-**
                
                
                **697,237**PERMANENT
                    IMPAIRMENT WRITEDOWN ON
                
                
                
                
                
                **903,468**
                
                
                **903,468**MARKETABLE
                    SECURITIESINTEREST
                    EXPENSE
                
                
                **44,800**
                
                
                **39,231**
                
                
                **84,031**NET
                    LOSS
                
                **$**
                **3,630,414**
                
                **$**
                **2,813,204**
                
                
                **6,524,044**BASIC
                    NET LOSS PER COMMON SHARE
                
                **$**
                **(0.40**
                **)**
                **$**
                **(0.07**
                **)**DILUTED
                    NET LOSS PER COMMON SHARE
                
                **$**
                **(0.40**
                **)**
                **$**
                **(0.07**
                **)**WEIGHTED
                    AVERAGE OF COMMON SHARES OUTSTANDING
                
                
                **9,116,317**
                
                
                **39,375,134**
 See
            accompanying notes to unaudited financial statements
   17
  **INTERNAL
          HYDRO INTERNATIONAL INC**
  **STATEMENT
            OF CASH FLOWS**
  For
              the
              years ended December 31, 2005 and 2004
  **Accumulated
                      from****Date
                      of Inception****For
                      the year ended**
                  
                  
                  **For
                      the year ended**
                  
                  
                  **through****December
                      30, 2004**
                  
                  
                  **December
                      31, 2005**
                  
                  
                  **December
                      31, 2005****OPERATING
                      ACTIVITIES**Net
                      Loss
                  
                  $
                  (3,630,414
                  )
                  $
                  (2,813,204
                  )
                  $
                  (6,524,044
                  )Adjustments
                      to reconcile net loss to cash used by operating
                      activities:Depreciation
                      expense
                  
                  
                  3,931
                  
                  
                  3,700
                  
                  
                  7,631Issuance
                      of common and preferred stock for services performed
                  
                  
                  2,243,569
                  
                  
                  1,232,568
                  
                  
                  3,476,137Issuance
                      of common stock for Regent
                  
                  
                  
                  
                  
                  296,000
                  
                  
                  296,000Loss
                      on sale of securites
                  
                  
                  697,237
                  
                  
                  -
                  
                  
                  697,237Permanent
                      Impairment of marketable securities
                  
                  
                  
                  
                  
                  903,468
                  
                  
                  903,468Changes
                      in assets and liabilitiesStock
                      subscription receivable
                  
                  
                  (2,500
                  )
                  
                  2,500
                  
                  
                  -Stock
                      Loan receivable
                  
                  
                  
                  
                  
                  7,000
                  
                  
                  7,000Contingent
                      payroll liability
                  
                  
                  
                  
                  
                  37,987
                  
                  
                  37,987(Decrease)
                      Increase in accounts payable and accrued liabilities
                  
                  
                  40,931
                  
                  
                  38,048
                  
                  
                  78,979Cash
                      used by operating activities
                  
                  $
                  (647,246
                  )
                  $
                  (291,933
                  )
                  $
                  (1,019,605
                  )**INVESTING
                      ACTIVITIES**Purchase
                      of fixed assets
                  
                  $
                  (16,003
                  )
                  $
                  -
                  
                  $
                  (16,003
                  )Cash
                      on proceeds on sale of marketable securities
                  
                  
                  193,388
                  
                  
                  -
                  
                  
                  193,388Employee
                      advances
                  
                  
                  (7,000
                  )
                  
                  -
                  
                  
                  (7,000
                  )Cash
                      provided by investing activities
                  
                  $
                  170,385
                  
                  $
                  -
                  
                  $
                  170,385**FINANCING
                      ACTIVITIES**Net
                      proceeds from shareholder advances
                  
                  
                  414,527
                  
                  
                  254,482
                  
                  
                  749,820Cash
                      provided by financing activities
                  
                  $
                  414,527
                  
                  $
                  254,482
                  
                  $
                  749,820**INCREASE
                      IN CASH AND CASH EQUIVILENTS**
                  
                  $
                  (62,334
                  )
                  $
                  (37,451
                  )
                  $
                  (99,400
                  )**CASH
                      AND CASH EQUIVILENTS, beginning of year**
                  
                  
                  385
                  
                  
                  38,051
                  
                  $
                  38,436**CASH
                      AND CASH EQUIVILENTS, end of year**
                  
                  $
                  (61,949
                  )
                  $
                  600
                  
                  $
                  (60,964
                  )
 See
            accompanying notes to unaudited financial
            statements
  **INTERNAL
            HYDRO INTERNATIONAL INC**
 **December
            31, 2005**
 **STATEMENTS
            OF STOCKHOLDERS' DEFICIT**
  **Accumulated****Common
                          Stock**
                      **Preferred
                          stock**
                      
                      **Paid-in**
                      
                      
                      **Comprehensive**
                      
                      
                      **Accumulated****Shares**
                      
                      
                      $
                      
                      
                      **Shares**
                      
                      
                      $
                      
                      
                      **Capital**
                      
                      
                      **Loss**
                      
                      
                      **Deficit**
                      
                      
                      **Total**BALANCE
                          January 21, 2003
                      
                      
                      7,647,025
                      
                      $
                      7,647
                      
                      
                      27,500,000
                      
                      $
                      27,500
                      
                      $
                      45,664
                      
                      $
                      -
                      
                      $
                      -
                      
                      $
                      80,811Net
                          loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (80,426
                      )
                      
                      (80,426
                      )BALANCE
                          DECEMBER 31, 2003
                      
                      
                      7,647,025
                      
                      
                      7,647
                      
                      
                      27,500,000
                      
                      
                      27,500
                      
                      
                      45,664
                      
                      
                      
                      
                      
                      (80,426
                      )
                      $
                      385Recapitalization
                          for reverse merger
                      
                      
                      -
                      
                      
                      -
                      
                      
                      1,250,000
                      
                      
                      1,250
                      
                      
                      (1,035,012
                      )
                      
                      
                      
                      
                      
                      
                      
                      (1,033,762
                      )Shares
                          issued for services
                      
                      
                      5,099,602
                      
                      
                      5,100
                      
                      
                      
                      
                      
                      
                      
                      
                      2,238,470
                      
                      
                      
                      
                      
                      
                      
                      
                      2,243,569Debt
                          converted to common stock
                      
                      
                      1,627,250
                      
                      
                      1,627
                      
                      
                      
                      
                      
                      
                      
                      
                      486,864
                      
                      
                      
                      
                      
                      
                      
                      
                      488,491Conversion
                          of preferred to common
                      
                      
                      219,250
                      
                      
                      219
                      
                      
                      (219,250
                      )
                      
                      (219
                      )Value
                          of warrants and beneficial conversion feature
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      60,000
                      
                      
                      
                      
                      
                      
                      
                      
                      60,000Issued
                          for investment in marketable securities
                      
                      
                      2,375,000
                      
                      
                      2,375
                      
                      
                      
                      
                      
                      
                      
                      
                      1,778,875
                      
                      
                      
                      
                      
                      
                      
                      
                      1,781,250Issued
                          for Kinetic agreeement
                      
                      
                      1,250,000
                      
                      
                      1,250
                      
                      
                      
                      
                      
                      
                      
                      
                      186,250
                      
                      
                      
                      
                      
                      
                      
                      
                      187,500Net
                          loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,630,414
                      )
                      
                      (3,630,414
                      )Unrealized
                          loss on marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (771,362
                      )
                      
                      
                      
                      
                      (771,362
                      )Total
                          Comprehensive Loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (4,401,776
                      )BALANCE
                          DECEMBER 31, 2004
                      
                      
                      18,218,127
                      
                      
                      18,218
                      
                      
                      28,530,750
                      
                      
                      28,531
                      
                      
                      3,761,111
                      
                      
                      (771,362
                      )
                      
                      (3,710,840
                      )
                      $
                      (674,342
                      )Shares
                          issued for services
                      
                      
                      14,193,398
                      
                      
                      14,193
                      
                      
                      
                      
                      
                      
                      
                      
                      1,218,374
                      
                      
                      
                      
                      
                      
                      
                      
                      1,232,567Debt
                          converted to common stock
                      
                      
                      2,595,915
                      
                      
                      2,596
                      
                      
                      
                      
                      
                      
                      
                      
                      127,154
                      
                      
                      
                      
                      
                      
                      
                      
                      129,750Conversion
                          of preferred to common
                      
                      
                      21,363,305
                      
                      
                      21,363
                      
                      
                      (21,363,305
                      )
                      
                      (21,363
                      )Value
                          of warrants and beneficial conversion feature
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      
                      -Issued
                          for Regent Contract
                      
                      
                      7,400,000
                      
                      
                      7,400
                      
                      
                      
                      
                      
                      
                      
                      
                      288,600
                      
                      
                      
                      
                      
                      
                      
                      
                      296,000Net
                          loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (2,813,204
                      )
                      
                      (2,813,204
                      )Unrealized
                          loss on marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (223,889
                      )
                      
                      
                      
                      
                      (223,889
                      )Permanent
                          Impairment of marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      903,468
                      
                      
                      
                      
                      
                      903,468Total
                          Comprehensive Loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (2,133,625
                      )BALANCE
                          DECEMBER 31, 2005
                      
                      
                      63,770,745
                      
                      $
                      63,771
                      
                      
                      7,167,445
                      
                      $
                      7,168
                      
                      $
                      5,395,239
                      
                      $
                      (91,783
                      )
                      $
                      (6,524,044
                      )
                      $
                      (1,149,650
                      )
  See
            accompanying notes to unaudited financial statements
  
 19
 **INTERNAL
              HYDRO INTERNATIONAL INC.**
 NOTES
              TO CONSOLIDATED FINANCIAL
              STATEMENTS
  **FOOTNOTES**
 
 
 NOTE
        1 -
        DESCRIPTION OF BUSINESS AND SIGNIGICANT ACCOUNTING POLICIES
 
 Background
        and Nature of Business
 
 INTERNAL
        HYDRO INTERNATIONAL INC., (formerly Internal Command International (“ICI”)) was
        incorporated under the laws of the State of Florida on January 21, 2003 (the
        “Company”).
 
 On
        January 2, 2004 the Company entered into a merger agreement with Home Services
        International, Inc. (“HSI”). HSI issued 27,500,000 shares of its Series A
        Preferred stock. The Company is a development stage enterprise. The Company
        intends to manufacture and distribute its alternative energy products that
        use
        water pressure flow to generate electricity. In connection with this
        acquisition, the company was re-named INTERNAL HYDRO INTERNATIONAL
        INC.
 
 As
        a
        result of the merger transaction with HSI, the former Company stockholders
        obtained control of HSI’s voting stock. For financial accounting purposes, the
        acquisition was a reverse acquisition of HSI by the Company, under the purchase
        method of accounting, and was treated as a recapitalization with the Company
        as
        the acquirer. Accordingly, the historical financial statements have been
        restated after giving effect to the January 2, 2004, acquisition of the Company.
        The financial statements have been prepared to give retroactive effect to
        January 21, 2003 (date of inception), of the reverse acquisition completed
        on
        January 2, 2004, and represent the operations of the Company. Consistent
        with
        reverse acquisition accounting: (i) all of the Company’s assets, liabilities,
        and accumulated deficit, are reflected at their combined historical cost
        (as the
        accounting acquirer) and (ii) the preexisting outstanding shares of the HSI
        (the
        accounting acquiree) are reflected at their net asset value as if issued
        on
        January 21, 2003.
 
 Basis
        of
        Presentation
 
 The
        Company follows the accrual basis of accounting in accordance with accounting
        principles generally accepted in the United States of America and has adopted
        a
        year-end of December 31.
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.
 
 Management
        further acknowledges that it is solely responsible for adopting sound accounting
        practices, establishing and maintaining a system of internal accounting control
        and preventing and detecting fraud. The Company’s system of internal accounting
        control is designed to assure, among other items, that 1) recorded transactions
        are valid; 2) valid transactions are recorded; and 3) transactions are recorded
        in the proper period in a timely manner to produce financial statements which
        present fairly the financial condition, results of operations and cash flows
        of
        the Company for the respective periods being presented.
 
 Going
        Concern Uncertainty
 
 The
        accompanying financial statements have been prepared in conformity with
        accounting principles generally accepted in the United States of America,
        which
        contemplate continuation of the Company as a going concern. As reflected
        in the
        accompanying consolidated financial statements, the Company has had recurring
        losses and negative cash flows from operations, and negative working capital.
        The Company has abandoned it’s only operating business segment and is attempting
        to raise capital seek acquisition targets and commence operations in a new
        business segment. There are no assurances that the Company will be successful
        in
        any of these endeavors. These factors raise substantial doubt about the
        Company's ability to continue as a going concern. Without realization of
        additional capital, it would be unlikely for the Company to continue as a
        going
        concern. The financial statements do not include any adjustments relating
to
        the
        recoverability and classification of recorded asset amounts, or amounts and
        classification of liabilities that might be necessary should the Company
        be
        unable to continue its existence.
 
 20
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
  NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIGICANT ACCOUNTING
        POLICIES - continued
 
 Principles
        of Consolidation
 
 The
        accompanying consolidated financial statements include the accounts of HSI
        and
        its wholly owned subsidiary, ICI. All intercompany accounts and transactions
        have been eliminated.
 
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenue and expenses
        during
        the reporting period. Actual results could differ from those
        estimates.
 
 Fair
        Value of Financial Instruments
 
 The
        carrying amount of cash, accounts payable, notes payable and accrued
        liabilities, as applicable, approximates fair value due to the short term
        nature
        of these items.
 
 Cash
        and
        Cash Equivalents
 
 The
        Company considers all highly liquid investments purchased with original
        maturities of three months or less to be cash equivalents.
 
 Concentration
        of Credit Risk
 
 The
        Company places its cash in what it believes to be credit-worthy financial
        institutions. However, cash balances may exceed FDIC insured levels at various
        times during the year. There were no bank balances exceeding insured limits
        at
        December 31, 2005.
 
 Revenue
 
 There
        was
        no revenue generated in the years ended December 31, 2005 and 2004.
 
 Income
        Taxes
 
 Income
        taxes are provided for based on the liability method of accounting pursuant
        to
        Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
        for
        Income Taxes.” Deferred income taxes, if any, are recorded, using enacted tax
        rates expected to apply, to reflect the tax consequences on future years
        of
        differences between the tax bases of assets and liabilities and their financial
        reporting amounts at each year-end.
 
 Loss
        Per
        Share
 
 The
        Company calculates earnings per share in accordance with SFAS No. 128, "Earnings
        Per Share," which requires presentation of basic earnings per share ("Basic
        EPS") and diluted earnings per share ("Diluted EPS"). The computation of
        Basic
        EPS is computed by dividing loss available to common stockholders by the
        weighted average number of outstanding common shares during the period. Diluted
        EPS gives effect to all dilutive potential common shares outstanding during
        the
        period. The computation of Diluted EPS does not assume conversion, exercise
        or
        contingent exercise of securities that would have an anti-dilutive effect
        on
        earnings. As of December 31, 2005, there were no stock options and 107,497
        warrants outstanding.
 
 
 21
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
  NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIGICANT ACCOUNTING
        POLICIES - continued
 Stock
        Based Compensation
 
 In
        1996,
        SFAS No. 123 "Accounting for Stock-Based Compensation," became effective
        for the
        Company. SFAS No. 123, which prescribes the recognition of compensation expense
        based on the fair value of options on the grant date, allows companies to
        continue applying APB 25 if certain pro forma disclosures are made assuming
        hypothetical fair value method, for which the Company uses the Black-Scholes
        option-pricing model.
 
 The
        Company accounts for employee stock options in accordance with Accounting
        Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued
        to
        Employees.” Under APB 25, the Company recognizes no compensation expense related
        to employee stock options, as no options are granted at a price below market
        price on the date of grant.
 
 For
        non-employee stock based compensation, the Company recognizes an expense
        in
        accordance with SFAS No. 123 and values the equity securities based on the
        fair
        value of the security on the date of grant. For stock-based awards the value
        is
        based on the market value for the stock on the date of grant and if the stock
        has restrictions as to transferability a discount is provided for lack of
        tradability. Stock option awards are valued using the Black-Scholes
        option-pricing model.
 
 Advertising
 
 The
        Company expenses advertising costs as incurred. The Company had no advertising
        expense in the year ended December 31, 2005.
 
 Recently
        Issued Accounting Pronouncements
 
 
 In
        December 2004 the FASB issued a revised Statement 123 (SFAS 123R),
“ *Accounting
        for Stock-Based Compensation* ”
        requiring public entities to measure the cost of employee services received
        in
        exchange for an award of equity instruments based on grant date fair value.
        The
        cost will be recognized over the period during which an employee is required
        to
        provide service in exchange for the award — usually the vesting period.
        The Company is evaluating the impact of this new pronouncement and does not
        expect the effect of implementation will have a significant impact on the
        Company’s financial statements.
 
 22
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
  NOTE
        2 -
        RELATED PARTY TRANSACTIONS
 
 As
        of
        December 31, 2005, the Company has received loans totaling $165,700 from
        officers and shareholders to cover operating expenses and certain accounts
        payable. Currently, there has been no repayment terms specified for the
        shareholders loans; therefore, the Company has classified the loans as a
        current
        liability. These are non-interest bearing loans.
 
 In
        addition, our Company has entered into an a comprehensive Agreement for
        Licensing, Joint Venture Agreement, and Manufacturing Agreement on October
        12,
        2005 with Regent Machine Products, LLC. for the exclusive rights to the
        HydroCam/EC V technology which was developed by Regent Machine Products,
        LLC .
        Anthony Pecoraro, our new Chairman of the Board of Directors and VP of New
        Technology is the current Vice President and Co-Founder of Regent Machine
        Products, LLC. In addition, Mr. Pecoraro is married to Mary Pecoraro, the
        President and Co-Founder of Regent Machine Products, LLC. who also serves
        as our
        Secretary. Mr. Pecoraro was appointed as Chairman of the Board of Directors
        on
        January 18, 2006. Mr. Pecoraro was not affiliated with the Company at the
        time
        the comprehensive Agreement for Licensing, Joint Venture Agreement, and
        Manufacturing Agreement was signed although Mary Pecoraro was Secretary of
        the
        Company at that time. The total consideration for the Regent Contract was
        $7,400,000 restricted shares and the $150,000, of which the first payment
        of
        $8,333 out of a total of 18 payments were expensed in 2005.
  
 NOTE
        3 -
        NOTE PAYABLE
 
 The
        Note
        Payable is a 1 year Term, due April 30, 2006. The Note carries an interest
        rate
        payable of 12% per annum. The Note is Convertible into common stock at the
        discretion of the Lender, including all accrued interest at the lesser of
        $7.50
        per share or at a 30% discount to the three lowest closing bid prices for
        the
        five days prior to the conversion date. The Note also includes a warrant
        to
        purchase 100,000 shares of common stock at a price of $5.00 per share for
        a
        period of 5 years.
 
 The
        Company has valued the beneficial conversion feature of this Note Payable
        at
        $60,000. This amount was charged as a discount to the note and amortized
        to
        interest expense over a one year period. The Note has a balance of
        54,031.
 
 During
        the year ended December 31, 2005, the Lender exercised their right to convert
        a
        portion of the amount due to common stock. A total of $20,000 has been converted
        into 288,390 common shares.
 
 
 NOTE
        4 -
        STOCKHOLDERS' DEFICIENCY
 
 During
        the year ended December 31, 2003, HSI declared a 1 for 28.9 reverse stock
        split.
        The number of shares presented in these financial statements has been
        retroactively restated for all periods to reflect this reverse stock
        split.
 
 During
        the year ended December 31, 2004, the Company declared a 5 for 1 stock split.
        The number of shares presented in these financial statements has been
        retroactively restated for all periods to reflect this reverse stock
        split.
  During
          the year ended December 31, 2005, 7,400,000 shares were issued for the
          comprehensive Agreement for Licensing, Joint Venture Agreement, and
          Manufacturing Agreement on October 12, 2005 with Regent Machine Products,
          LLC.
 
 
 23
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
  NOTE 4 - STOCKHOLDERS' DEFICIENCY - continued
  During
        the year ended December 31, 2002, the Company placed 2,813,180 shares of
        its
        common stock in an escrow account. These shares are contingently issuable
        as
        they are to be issued to creditors as part of a plan to negotiate Company
        obligations through an intermediary. The Company is attempting to settle
        obligations by negotiating with creditors to take Company common stock as
        payment for the obligations. During the year ended December 31, 2002, the
        Company had not issued any of these shares to creditors.
  During
        the year ended December 31, 2002, the Company negotiated a settlement in
        which
        249,905 shares of common stock were issued out of escrow to settle a creditor
        obligation that had an original balance of $65,000. The settlement was recorded
        at the trading value of the shares on the date of settlement. That value
        was
        $299,866. The result was an additional expense of $234,866 charged to operations
        for the year ended December 31, 2003. During the year ended December 31,
        2004
        and December 31, 2005, the Company did not issued any of these shares to
        creditors.
 
 On
        July
        29, 2004 (the Company entered into a Stock Purchase Agreement ("Purchase
        Agreement"), effective October 7, 2004, with Langley Park Investments Plc
        ("Langley"), a corporation organized under the laws of England and Wales
        which
        is admitted to trade on the London Stock Exchange ("LSE") as an investment
        trust. Pursuant to the Purchase Agreement, the Company sold 2,375,000 shares
        (post-split) of its common stock ("Company Stock") to Langley for a total
        purchase price of approximately $1,780,000.
 
 Langley
        paid the purchase price by delivering 882,778 Ordinary Shares of Langley
        ("Langley Shares") to the Company with a value of one (1.00) British Pound
        Sterling (approximately U.S.$1.80) per share. The Company issued the Company
        Stock to Langley. Both the Company Stock and the Langley Shares will initially
        be placed into escrow, including fifty percent (50%) of the Langley Shares
        to be
        deposited into escrow as Downside Price Protection (the "Langley Escrow
        Shares").
 
 The
        Company intends to liquidate the Langley Shares released to it within a
        reasonable period of time following their listing on the LSE in order to
        fund
        operations. Although the parties have agreed upon a value of one (1.00) British
        Pound Sterling (approximately U.S.$1.80 per share) per Langley Share, there
        can
        be no assurances that the Company can liquidate some or all of the Langley
        Shares at that price.
 
 On
        November 3, 2004 the Company sold 441,389 shares of Langley Park Investment,
        (London Exchange: LPI) for $193,388. This was the first liquidation pursuant
        to
        the Agreement. These gross proceeds represented a loss of $697,237 based
        upon
        the difference between the selling price on November 3, 2004 and the Company’s
        trading price on July 29, 2004.
 
 The
        balance of the 441,389 shares owned by the Company are valued at December
        31,
        2004 at the market price of the Langley Park Investments Plc. as listed on
        the
        London Stock Exchange ("LSE") with the difference being carried as an unrealized
        loss in the equity section of the Company’s financial statements.
 
 On
        the
        two (2) year anniversary of the Purchase Agreement ("Two Year Anniversary"),
        the
        market value of the Company's common stock will be compared to the purchase
        price of the Company Stock under the Purchase Agreement" Market Value" is
        defined as the average of the ten (10) closing bid prices per share of the
        Company's common stock during the ten (10) trading days immediately preceding
        the Two Year Anniversary of the Agreement. If the Market Value of the Company's
        common stock on the Two Year Anniversary is the same or higher than purchase
        price per share, then at that time, the Company will receive all of the Langley
        Escrow Shares. If the Market Value on the Two Year Anniversary is less than
        purchase price per share, then for each percentage point decline in value,
        the
        Company must sell a corresponding percentage of the Langley Escrow Shares
        back
        to Langley for nominal consideration, up to the maximum number of Langley
        Escrow
        Shares, and the balance of the Langley Escrow Shares is released from escrow
        to
        the Company.
 
 Internal
        Hydro International was approached with the investment by the Langley, at
        a time
        where the 2 year lock up of the shares to be issued was voted on by the Board
        of
        Directors as being acceptable for purposes of investment given the stock
        price
        and discount proposed by Langley. Given that the escrowed shares which would
        be
        held by Langley of IHDR’s shares in the fund, these were accounted for in the
        analysis and date on December 31, 2004, as being accounted for as if they
        would
        eventually be sold at the two year mark for the investment holding period.
        At
        the time of the investment and at the time of the accounting determination,
        it was believed by the Company’s management that the Company would meet the
        criteria as set forth in the Langley agreement which would allow the sale
        of the
        remaining shares in the fund. The Company has recorded an additional unrealized
        loss of $91,783 on this investment at December 31, 2005 due to this provision.
        The additional write down was calculated on the basis of the quoted value
        of the
        Langley shares less the pro-rata value of shares that would be returned to
        Langley based on the trading value of the Company's common stock at December
        31,
        2005.
 
 24
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
  NOTE
        5 -
        COMMON AND PREFERRED STOCK
 
 **COMMON
        STOCK**
 The
        Company’s articles of incorporation authorize the issuance of up to 200,000,000
        shares of common stock, with a par value of $.001.
 
 The
        Company issues its common stock from time to time to compensate employees and
        consultants as consideration for services rendered. These shares are valued
        at
        the trading value on the date of grant. A total of 14,193,398 shares were
        issued to 23 individuals as payment for services totaling
        $1,232,568.
  In
          the
          year ended December 31, 2005, 288,390 issued for shares were issued for
          $20,000
          under a convertible note. The original note for $60,000 which is being
          paid in
          $10,000 increments which are converted to shares on a periodic basis. The
          note
          holders convert to shares at their discretion. There is no time table for
          repayment or conversion. The $20,000 was expensed as interest and reduced
          the
          note payable to a $54,031 balance..
 288,390
        issued for shares were issued for $20,000 under a convertible note. The original
        note for $60,000 which is being paid in $10,000 increments which are converted
        to shares on a periodic basis. The note holders convert to shares at their
        discretion. There is no time table for repayment or conversion.
 
 2,028,525
        shares of stock were issued for short term loans totaling $98,150. Pursuant
        to
        the terms of the loan, if the loan can not be repaid within ten days, then
        shares are issued to the lender equal to the amount of the loan.
 
 Additionally,
        325,000 shares were paid to two individuals for shop rental valued at $13,000.
        This was expensed under the prototype materials and supplies.
 
 Shareholders
        converted 21,363,305 Preferred shares into the Company's Common shares on
        a 1
        for 1 basis.
 
 **PREFERRED
        STOCK**
 The
        Company's articles of incorporation authorize the issuance of up to 70,000,000
        shares of serial A convertible preferred stock, with a par value of $.001.
        Series A convertible stock can be exchanged at the option of the stockholder
        into shares of common stock at the rate of one share of series A convertible
        preferred stock for one shares of common stock at any time after the first
        anniversary of the original date of issuance. The series A convertible preferred
        stock shall rank, as to dividends and upon liquidation senior and prior to
        the
        Company’s common stock and to all other classes or class of stock issued by the
        Company, except as otherwise approved by the affirmative vote or consent
        of the
        holders of a majority of the shares of series A convertible preferred stock.
        In
        addition, so long as any share of series A convertible preferred stock shall
        be
        outstanding, the holders of such convertible preferred stock shall be entitled
        to receive out of any funds legally available, when, as and if declared by
        the
        Board of Directors of the Company, preferential dividends at the rate of
        ten
        percent (10%) per annum, payable upon the first anniversary date of the original
        issue date, then quarterly with payment to be made in either cash or in the
        issuance of additional shares of series A convertible preferred stock. Such
        dividends shall be cumulative and begin to accrue from the original issue
        date,
        whether or not declared and whether or not there shall be net profits or
        net
        assets of the Company legally available for the payment of those dividends.
        To
        date, no dividend has been declared by the Board of Directors. The series
        A
        stockholders shall be entitled to vote on all matters requiring a shareholder
        vote of the Company. Each Series A shareholder of record shall have one vote
        for
        each Series A stock share outstanding
 
 25
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
 
 NOTE
        6 -
        FURNITURE AND EQUIPMENT
 
 Furniture
        and equipment is stated at cost less accumulated depreciation. Depreciation
        is
        recorded on a straight-line basis over the estimated useful lives of the
        assets
        of 3 to 5 years. Depreciation expense for the year ended December 31, 2005
        and
        2004 was $3700 and $3931, respectively.
 
 Property
        and equipment consisted of the following at December 31, 2005:
 
 Office
                  and computer equipment
              
              $
              33,388.00Less
                  accumulated depreciation
              
              
              22,936.00Furniture
                  and equipment, net
              
              $
              10,452.00
 
 NOTE
        7 -
        STOCK OPTIONS
 
 There
        were no stock options granted nor was there any pro forma effect of the vesting
        of options granted in previous periods in the years ended December 31, 2005
        and
        2004.
 
 NOTE
        8
        -INCOME TAXES
 
 The
        Company has no net income tax provision or benefit in the periods ended December
        31, 2005 and 2004. Prior to the merger transaction with HIS the Company elected
        to be treated as an S-Corporation as prescribed under Section 1362 of the
        Internal Revenue Code. As an S-Corporation, items of income, loss, deductions
        and credits generated by the Company flow through directly to the stockholders
        and are included in the tax returns of the individual stockholders.
 
 During
        the year ended December 31, 2005, the Company generated a tax benefit related
        to
        operating loss carryforwards of $2,685,047 which was equally offset by a
        valuation allowance.
 
 The
        Company has cumulative net operating losses as of December 31, 2005 of
        approximately $6,395,888 that expire in 2008 through 2023.
 
 At
        December 31, 2005, the Company had federal net operating loss carry forwards
        of
        approximately $6,395,888 that expire from 2013 to 2024 and state net operating
        loss carry forwards of approximately $6,620,000 that expire from 2005 to
        2008.
        Substantially all of the deferred income tax asset of $2,756,000 relates
        to
        income tax benefits from net operating loss carry forwards. Because of the
        change of control issues under Section 382 of the Internal Revenue Code and
        the
        current uncertainty of realizing the benefits of the tax carryforward, an
        equal
        valuation allowance has been established. The full realization of the tax
        benefit associated with the carry forward depends predominantly upon the
        Company's ability to generate taxable income during the carry forward
        period.
 
 NOTE
        9 -
        COMMITMENTS AND CONTINGENCIES
 
 The
        Company is not delinquent and is not attempting to pay current creditors
        and
        vendors with common stock.
 
 However,
        prior to the merger of Internal Command with Home Services, the Company (HSVI)
        had incurred additional deficits in cash flow from operating activities.
        The
        Company had accrued approximately $343,000 in obligations to vendors,
        consultants and former employees. We are attempting to settle these obligations,
        primarily through the issuance of common stock. Management believes we will
        ultimately settle these obligations for no more than amounts accrued at December
        31, 2004. As a part of the Merger Agreement with Internal Command International,
        Inc. (ICI), the then Chief Executive Officer of HSVI, Jay Budd, had and did
        affirm that the outstanding debts of HSVI have been properly structured for
        management of the debt post-merger; namely, that the debt was in the hands
        of
        suitable professional debt management
        team, including Fletcher & Associates, and Harry J. Miller, PLLC, that there
        has been set aside as part of the issued common stock for obligation and
        satisfaction of the debt, and that the incoming principals of ICI will be
        held
        harmless for this debt. The company in the summer of 2005, released Harry
        Miller, PLLC and Fletcher & Associates from their duties as debt managers,
        taking control of such matters internally due to the amount of legal expertise
        held. To date, the shares issued to secure these debts are unissued, and
        held by
        both Harry Miller PLLC in trust, and with the company, should the need arise
        for
        settlement of any such debts, if communication and demand for the same is
        made.
        To date no such verified debt demands have been made, so the shares are still
        held in safekeeping. Any settlements will be valued at the fair value of
        the
        stock at the time the settlement is reached, or some other amount as
        negotiated.
 
 26
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
  NOTE
        10 -
        MERGER TRANSACTION
 
 On
        January 2, 2004, the Company entered into a merger transaction with HSI.
        The
        Company had net assets of $385. The net deficit of HSI was approximately
        $1,034,000 at January 2, 2004. As discussed in Note 1, the Company accounted
        for
        this transaction under the purchase method of accounting, and it was treated
        as
        a recapitalization with the Company as the acquirer. HSI had office equipment
        of
        approximately $2,000, accounts payable and accrued liabilities of $400,000 and
        other liabilities of $636,000.
 
 NOTE
        11 -
        LOSS PER SHARE
 
 Outstanding
        options and warrants were not considered in the calculation for diluted earnings
        per share for the years ended December 31, 2004 and 2005 because the effect
        of
        their inclusion would be antidilutive.
 
 
 2004
              2005Per
              
              
              
              
              
              
              
              
              PerLoss
              
              
              Shares
              
              
              share
              
              
              Loss
              
              
              Shares
              
              
              shareNet
                  (Loss)
              
              $
              (3,630,414
              )
              
              
              
              
              
              
              $
              (2,694,454
              )Discontinued
                  operations
              
              
              0
              
              
              
              
              
              
              
              
              0Continuing
                  Operations
              
              $
              (3,630,414
              )
              
              
              
              
              
              
              $
              (2,694,454
              )Basic
                  Loss Per ShareLoss
                  available to common stockholders
              
              $
              (3,630,414
              )
              
              9,116,317
              
              
              0.40
              
              $
              (2,694,454
              )
              
              39,375,134
              
              
              0.07Effect
                  of dilutive securities
              
              
              N/A
              
              
              
              
              
              
              
              
              N/ADiluted
                  Loss Per Share
              
              $
              (0.39
              )
              
              
              
              
              
              
              $
              (0.07
              )
 
 Warrants
        and options to purchase 107,497 and 107,497 shares of common stock were
        outstanding and excluded from the loss per share calculation at December
        31,
        2005 and 2005 respectively.
 
 
 NOTE
        12-
        LOSS PER SHARE
 
 Outstanding
        options and warrants were not considered in the calculation for diluted earnings
        per share for the years ended December 31, 2005 and 2004 because the effect
        of
        their inclusion would be antidilutive.
 
 
 
 27
 
 **INTERNAL
            HYDRO INTERNATIONAL INC.**
 NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
 
 NOTE
        13 -
        INVESTMENTS
 
 During
        the year ended December 31, 2004, the Company entered into a Stock Purchase
        Agreement to acquire 882,778 shares of Langley Park Investments Plc ("Langley"),
        a corporation organized under the laws of England and Wales which is admitted
        to
        trade on the London Stock Exchange ("LSE") as an investment trust. Pursuant
        to
        the Purchase Agreement, the Company sold 2,375,000 shares (post-split) of
        its
        common stock ("Company Stock") to Langley for a total purchase price of
        $1,781,250 based on the trading value of the Company’s shares delivered to
        Langley. The Company sold one half of its Langley holdings during the year
        ended
        December 31, 2004.
 
 The
        Company currently classifies all investment securities as available-for -sale.
        These securities are presented at their estimated fair value. Unrealized
        gains
        and losses on such securities, net of the related income tax effect, are
        excluded from earnings and reported as a separate component of stockholders’
equity until realized. Realized gains and losses are included in earnings
        and
        are derived using the specific identification method for determining the
        cost of
        securities sold.
 
 Investment
        in Langley and Kinetic securities consisted of the following at December
        31,
        2005:
  Cost
              
              
              Gross
                  Gains
              
              
              Unrealized
                  Losses
              
              
              Impairment
                  Write-down
              
              
              Fair
                  ValueLangley
                Kinetic
              
              $
                
                $
              890,625
                
                187,500
              
              $
                
                $
              --
                
                --
              
              $
                
                $
              91,783
                
                118,750
              
              $
                
                $
              (784,718
                
                (118,750
              )
                
                )
              $
                
                $
              14,124
                
                68,750
 
 
 During
        the quarter ended September 30, 2005, the Company determined that the decline
        in
        value of the Langley shares was other than temporary. They believed that
        it had
        the ability and intent to hold an investment indefinitely. However, there
        was no
        basis to determine a forecasted recovery of fair value up to (or beyond)
        the
        cost of the investment. Therefore, the Company wrote the carrying value down
        to
        the investment's quoted trading value at September 30, 2005.
 
 Proceeds
        from sales of equity securities were $193,388 and gross realized (losses)
        gains
        were ($697,237) for the year ended December 31, 2004. The fair value at December
        31, 2005 is determined based on the trading price of Langley and translated
        to
        U.S. dollars at the exchange rate on December 31, 2005.
 
 The
        value
        on December 31, 2005 is determined based on the trading price of Langley
        and
        translated to U.S. dollars at the exchange rate on December 31,
        2005.
 
 During
        the year ended December 31, 2004, the Company invested in Kinetic Energy
        Systems, Inc. (“Kinetic”) by issuing 1,250,000 shares of its common stock for
        approximately 20% of Kinetic. The value of the investment was determined
        to
        $187,500 based on the trading price of the Company’s common stock at the time of
        the agreement. The Company intends to jointly develop and market complimentary
        technologies with Kinetic. The Company classifies its investment in Kinetic
        as
        available for sale and has carried its investment at cost. Kinetic is a private
        company and there is quoted market price for its securities. The Company
        has
        impaired the investment to reflect the trading price of IHDR common stock
        on
        December 31, 2005. The impaired value is $68,750. The reason for this impairment
        is because Kinetic’s stock is not considered to be a marketable security and
        therefore there is no way to accurately value their shares. The company added
        to
        its Gross Unrealized Losses account ($118,750). The Company owns 2,000,000
        voting preferred shares of Kinetic Energy Systems, Inc. Kinetic has 10,000,000
        preferred shares issued and outstanding and 1,000,000 common shares outstanding.
        The Company’s interest in Kinetic is approximately 18%. The Company exercises no
        management control and therefore, the cost method was used.
 
 28
  **ITEM
          8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON** **** **ACCOUNTING
          AND FINANCIAL DISCLOSURE**
 None.
 
 
 **ITEM
        8A. CONTROLS AND PROCEDURES**
 
 Craig
        A.
        Huffman, our Chief Executive Officer, and Lior Segal, our Chief Financial
        Officer, have evaluated our controls and procedures as of December 31, 2005.
        Each has concluded that our disclosure controls and procedures are appropriate
        and effective.
 
 During
        the quarter ended December 31, 2005, there were no changes in our internal
        controls or in other factors that could significantly affect these controls
        subsequent to the date of their evaluation, including any corrective actions
        with regard to significant deficiencies and material weaknesses.
 
 **ITEM
        8B. OTHER INFORMATION**
 
 None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  29
  **PART
          III**
 
 **ITEM
          9. DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
          WITH
          SECTION 16(A) OF THE EXCHANGE ACT**
 
 **EXECUTIVE
          OFFICERS AND DIRECTORS**
 The
        members of the Board of Directors of the Company serve until the next annual
        meeting of stockholders, or until their successors have been elected. The
        officers serve at the discretion of the Board of Directors.
  The
        following table sets forth the name, age, and position of each executive
        officer
        and director of the Company:
  NAME
                AGE
                POSITIONAnthony Pecoraro
                41
                Chairman and Vice President of New
                  Technology DevelopmentWade Kenyon
                65
                DirectorTony Council
                49
                DirectorJames A. Thomas
                39
                DirectorMichael Scionti
                37
                DirectorCraig Huffman
                39
                President/CEOLior Segal
                35
                Chief Financial
                  Officer
 
 Set
        forth
        below is certain biographical information, present occupation and business
        experience for the past five years of each director and executive officer
        of the
        Company. Directors hold office until their successors are chosen and qualified,
        until their death or until they resign or have been removed from office.
        All
        corporate officers serve at the discretion of the Board of
        Directors.
 
 **Anthony
        J. Pecoraro, age 41**
 Mr.
        Pecoraro was appointed as Chairman of the Board of Directors on January 18,
        2006
 
 Mr.
        Pecoraro is the Vice President and Founder of Regent Machine Products Inc.
        in
        2005 where he completed the design phase of the EC V. Mr. Pecoraro currently
        serves as our Vice President of New Technology Development. He was heavily
        involved in the production and development of the IHDR EC III and IV models,
        and
        is the inventor of numerous systems improvement for the HydroCam/EC5. For
        the
        last 5 years, Mr. Pecoraro has served in a continuing technical support role
        for
        Internal Hydro International and its predecessor company. During such time
        he
        has held positions with other companies including Mega Power, Inc. as repair
        supervisor and research and development supervisor as well as other positions
        with that company. He also worked with Gulf Marine Repair as leaderman machine
        shop supervisor. Mr. Pecoraro is a U.S. Navy Veteran of 15 years where he
        was
        awarded 3 Navy achievement medals. Mr. Pecoraro brings with him a large degree
        of experience in the rotary equipment repair area, where he has worked on
        diesel, steam, nuclear, and gas turbine power plants. He previously headed
        industrial repair shops, machine shops, in place machine and repair, and
        R&D
        for various companies. Has over 27 years experience as a machinery repairman.
        Has held 100 plus certifications in and out of the military from calibration
        technician to 1st class (A class) journeyman machinist.
  **Wade
        Kenyon, age 65**
 Mr.
        Kenyon was appointed to the Board of Directors on January 2, 2004.
  From
        2000
        to the present, Mr. Kenyon has been the Professional Sales Manager for Baring
        Industries, Inc., overseeing the activities of two other project management
        teams. From 1997 to 2000 he was with Johnson Lancaster as a Project Manager
        -
        where he solicited and managed high profile food service projects some of
        which
        include Universal Studios, Orlando, and Disney World, Orlando, along with
        University of North Carolina, Lenoir Hall in Greensboro, NC. From 1991 to
        1997,
        he was president of Kenyon and Kenyon, Inc. - Food Facilities and Laundry
        Design
        and Consulting. From 1991 to 1997, he was with Sherman Robinson Associates,
        Atlanta. From 1990 to 1991 Judy Ford Stokes and Associates -Contracted
        Consultant - responsibilities included participation in design and project
        management of several major food service in the southeast and Washington,
        D.C.
        From 1985 to 1990, Mr. Kenyon worked with Greitzer, Inc., as Vice President
        -responsible for revamping the manufacturing processes, participating in
        the
        design and development of the product lines, reorganizing the sales and
        marketing efforts and personally closing sales.
 
 He
        received his BA Degree University of South Florida - Majoring in Chemistry,
        Minor Zoology. Mr. Kenyon is the Co-founder of Internal Command
        Industries.
  30
  ITEM
        9. DIRECTORS EXECUTIVE OFFICERS, PROMOTERS
        AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT -
        continued
 **Tony
        Council, age 49**
 Mr.
        Council was appointed to the Board of Directors on January 18,
        2006.
 
 From
        January 1991 to the present, Mr. Council has been the founder and President
        of
        TLC Engineering, Inc. where he oversees the daily management of engineering,
        inspection and administrative matters, including contracting, and bid processing
        for large scale engineering projects. Mr. Council is a Professional Engineer
        with over two decades of experience in the oil and gas arena. Mr. Council
        received a BS degree in mechanical engineering from North Carolina ANT State
        University in 1978. He currently holds a current license in Texas for
        Professional Engineer which he has held 1993. From 1992 - 2000 was a Senior
        Consulting Engineer and Project Manager with Mustang Engineering, Inc. of
        Houston, Texas, where he had a very successful and renowned career in charge
        of
        engineering design and project manager of assigned oil and gas projects.
 
 **James
        A. Thomas, age 39**
 Mr.
        Thomas was appointed to the Board of Directors on January 3, 2006.
 
 Since
        1997, Mr. Thomas has run a very successful legal practice in Tampa, Florida.
        Mr.
        Thomas received his BA in English from the University of South Florida (1992)
        and his JD from Stetson University College of Law (1996). Mr. Thomas is a
        veteran of the United States Marine Corps where he served as a sniper (1984
        -
        1988), after which he served as a Police Officer with the City of Tampa Police
        Department (1989-1993). Mr. Thomas is a founding partner of the predecessor
        company, Internal Command International in 2001, and since that time has
        served
        at the direction of the board and senior management in the areas of investor
        relations and special projects.
 
 **Michael
        Scionti, age 37**
 Mr.
        Scionti was appointed to the Board of Directors on January 3, 2006.
 
 From
        2000
        to the present, Mr. Scionti has been a Captain in the United States Army
        Reserves, Judge Advocate General’s Corps (JAG); Member, United States Military
        Court of Criminal Appeals. Captain, United States Army, He volunteered for
        active duty and served with the Third Infantry Division; Served in Operation
        Enduring Freedom and Iraqi Freedom in support of our nation’s efforts to fight
        the global war on terrorism, participating in the initial invasion of Iraq
        with
        3 rd ID;
        Conducted damage assessments and consulted with Iraqi foreign nationals on
        cross-cultural awareness of humanitarian need for civilians in time of war;
        Was
        the responsible governing magistrate during the investigation of Abu Ghraib
        prisoner abuse; Decorated war veteran, receiving the Bronze Star for proven
        leadership and service during ground combat (2003 - 2004)
 
 Mr.
        Scionti received his BS in 1990 from Florida State University and his JD
        from
        South Texas College of Law (1996); Recipient, American Jurisprudence Award
        for
        Torts and Langdell Scholar for Excellence Admitted to Practice in Florida
        (1996); Member, Florida Supreme Court; United States Supreme Court, United
        States Court of Appeal, Eleventh Circuit; United States District Court, Middle
        District of Florida
 
 Mr.
        Scionti was formerly an Assistant Attorney General and Assistant State Attorney,
        State of Florida (1996 - 2005); he worked with various State and Federal
        law
        enforcement agencies in successfully prosecuting statewide white-collar
        corruption, and racketeer influenced criminal organizations (RICO) including
        in
        the areas of banking and securities fraud. Currently he is in private practice
        in Tampa, Florida where he specializes in business and civil litigation.
        Mr.
        Scionti is currently a Candidate, for the House of Representatives, District
        58,
        State of Florida.
    31
  ITEM 9. DIRECTORS EXECUTIVE OFFICERS, PROMOTERS
        AND
        CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT -
        continued
 **Craig
          Huffman, age 39**
 Mr.
          Huffman was appointed President on January 2, 2004.
  From
          2001
          through 2004, Mr. Huffman has been president and co-founder, Internal Command
          International, Tampa, Florida. He oversaw the development of the Energy
          Commander technology, all corporate operations, patent protection, and
          all other
          aspects of the corporate build up.
 He
        is the
        author of the business plan for Internal Hydro, and the revenue stream plan.
  In
        addition, from 1997 to the present, Mr. Huffman has been a solo practitioner:
        Craig A. Huffman, P.A. with his primary areas of practice being criminal
        law,
        civil tort practice, and appellate work. Mr. Huffman has tried over 50 jury
        trials, in both State and Federal Court; authored over 40 appeals.
  Mr.
        Huffman holds a BA, University of Tampa, 1989. Mr. Huffman was President
        Student
        Political Organization, and a member Sigma Phi Epsilon. Mr. Huffman holds
        a
        Juris Doctor, cum laude (2nd in class) from Stetson University College of
        Law,
        1997. he was a recipient West n s
        Corpus
        Juris Secundum Award for Torts and Civil Procedure. Mr. Huffman was an Army
        ROTC
        four year scholarship recipient as well as a Major, United States Army Reserve,
        1989-Present; commissioned as a Field Artillery Officer presently the JAG
        Corps.
        Mr. Huffman has completed the following: United States Army Field Artillery
        Officer Basic Course; United States Army Judge Advocate Officers Basic Course,
        Judge Advocate Officers Advanced Course.
  Mr.
        Huffman is a Deputy Sheriff in Hillsborough County Florida as an Enforcement
        Deputy from 1990-1995 Tampa Police Academy; Hillsborough County
        Sheriff n s
        Office
        Academy; Sex Crimes Investigations: Hostage Negotiations; Kinesic Interviewing
        Techniques; Interviews and Interrogations.
 
 **Lior
        Segal, age 35**
 Mr.
        Segal
        was appointed Chief Financial Officer on May 1, 2006.
 
 From
        March 16, 2006 to May 1, 2006, Mr. Segal was the treasurer of Internal Hydro.
        From August 2003 to the present, Mr. Segal also serves as the CFO of Sun
        Rayz
        Products Inc., a company engaged in the marketing and distribution of products
        containing the "FLA-USA" label. From August 2001 to August 2003, Mr. Segal
        served as a legal assistant for Lentz & Gengaro, P.A. From August 1998 to
        May 2001, Mr. Segal was the office manager for PlasTechs Engineering Group.
        Mr.
        Segal received a B.S. in Business Administration with a concentration in
        accounting from Montclair State University and is currently enrolled on a
        part
        time basis at Stetson University College of Law.
 
 **BOARD
        OF DIRECTORS**
 
 We
        currently do not have any committees. In the future, we may designate committees
        as necessary to conduct business. We believe this structure is adequate based
        on
        the size of our company. In the future. Directors may be paid their expenses,
        if
        any, of attendance at such meeting of the Board of Directors, and may be
        paid a
        fixed sum for attendance at each meeting of the Board of Directors or a stated
        salary as Director. No such payment shall preclude any Director from serving
        the
        Corporation in any other capacity and receiving compensation. No compensation
        has been paid to the Directors.
 
 There
        have been no material changes to the procedures by which security holders
        may
        recommend nominees to the board of directors.
 
 **COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT**
 
 Based
        solely upon a review of forms 3, 4, and 5 and amendments thereto, furnished
        to
        the Company during or respecting its last fiscal year, no director, officer,
        beneficial owner of more than 10% of any class of equity securities of the
        Company or any other person known to be subject to Section 16 of the Exchange
        Act of 1934, as amended, failed to file on a timely basis reports required
        by
        Section 16(a) of the Exchange Act for the last fiscal year.
 
 **CODE
        OF ETHICS**
 
 The
        Company has adopted a Code of Ethics for its Principal Executive and Senior
        Financial Officers. A copy of which is attached hereto as Exhibit
        14.1
   32
 **ITEM 10. EXECUTIVE
        COMPENSATION**
  SUMMARY
        COMPENSATION
        TABLE
  Annual
                  Compensation
              Long
                  Term Compensation
 Awards
              Payouts
 Name
                  and
                  Principal
                    Position
              Year
              Salary
                ($)
              Bonus
                ($)
                  ($)
              Other
                  Annual
                Compensation
              Restricted
                Stock
                    award(s)
                      (shares)
              Securities
                  Underlying
                    Options
                      /
                      SARs
                        (#)
              LTIP
                  Payouts
                    ($)
              All
                  Other
                  CompensationCraig
                  A. Huffman
                President
                    and
                    Director
              2003
                2004
                2005
              -0-
                  $51,850
                    $15,875
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
              -0-
                  145,000
                    141,237
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-Lior
                Segal
                Chief
                  Financial
                  Officer
              2003
                2004
                2005
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
              -0-
                -0-
                -0-
 
 OPTIONS/SAR
        GRANTS IN LAST FISCAL
        YEAR
  Individual
        Grants
 Name
              Number
                  of  Securities Underlying Options / SARs Granted (#)
              Percent
                  of Total Options/ SARs Granted to
                  Employees in Fiscal Year
              Exercise
                  of Base Price
                  ($/sh)
              Expiration Date
              Grant
                  Date Present Value
                  ($)Craig
                  A. Huffman
              0
              0
              0
              N/A
              N/ALior
                Segal
              0
              0
              0
              N/A
              N/A
  **AGGREGATED
          OPTION/SAR EXERCISES IN**
 **LAST
          FISCAL YEAR AND FOR YEAR END OPTIONS/SAR VALUES**
   Name
                Shares
                  Acquired on Exercise (#)
                Value
                    Realized ($)
                Number
                  of      Securities    
                  Underlying     Unexercised   
                  Options / SARs At Fiscal Year-End
                  (#)        Exercisable / 
                  Unexercisable
                Value
                    of        Unexercised In-
                    The-Money      
                    Options/SARs    At Fiscal Year- End
                    ($)         Exercisable
                    /   UnexercisableCraig
                    Huffman
                -0-
                -0-
                -0-
                -0-Lior
                    Segal
                -0-
                -0-
                -0-
                -0-
 
 **EMPLOYMENT
        AGREEMENTS**
 
 On
        November 22, 2004, we entered into an Employment Agreement with Craig Huffman
        that ends on December 1, 2006, to act as our President and Chief Executive
        Officer. Mr. Huffman is paid a salary of $96,000 per year, with enumerated
        other
        incentives. The base salary is subject to a ten percent incremental increase
        annually. A copy of Mr. Huffman’s employment agreement is attached hereto as
        exhibit 10.1.
 
 We
        do not
        have an employment agreement with Mr. Segal.
 
 **ITEM
        11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND
        MANAGEMENT**
 
 **PRINCIPAL
        SHAREHOLDERS; MANAGEMENT SHARE HOLDINGS**
 
 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. The following table sets forth Common Stock ownership
        information as of the Record Date with respect to (i) each person known to
        us to
        be the beneficial owner of more than 5% of our issued and outstanding Common
        Stock and Preferred Stock; (ii) each of our directors and executive officers;
        and (iii) all of our directors and executive officers as a group. Unless
        otherwise indicated, the business address of each person listed is Internal
        Hydro International, Inc., 334
        S.
        Hyde Park Ave., Tampa, Florida 33606
 
 
 
 
 
 33
  **ITEM
        11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT -
        continued** 
 As
          of May
          17, 2006, the Company had 83,848,773 common shares outstanding and 8,549,497
          Preferred Shares Outstanding.
 Title
                  of class
              Name
                  and address of beneficial owner
              Number
                  of Shares of Stock
              Percentage
                  of StockPreferred
                  Stock
              Craig
                  Huffman
                President
                  and CEO
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              0
              0%Preferred
                  Stock
              Lior
                  Segal
                Chief
                  Financial Officer
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              0
              0%Preferred
                  Stock
              Anthony
                  Pecoraro
                Director
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              0
              0%Preferred
                  Stock
              James
                  A. Thomas
                Director
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              1,201,228
              14%Preferred
                  Stock
              Michael
                  Scionti
                Director
                334
                  S. Hyde Park Ave.
                Tampa,
                  FL 33606
              0
              0%Preferred
                  Stock
              Tony
                  Council
                Director
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              0
              0%Preferred
                  Stock
              Wade
                  Kenyon
                Director
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              0
              0%**Preferred
                  Stock**
              **All
                  Officers and Directors as a group (total of 7)**
              **1,201,228**
              **14%**Common
                  Stock
              Craig
                  Huffman
                President
                  and CEO
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              7,042,887
              8%Common
                  Stock
              Lior
                  Segal
                Chief
                  Financial Officer
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              0
              0%Common
                  Stock
              Anthony
                  Pecororo
                Director
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              7,400,000
              8%Commom
                  Stock
              James
                  A. Thomas
                Director
                334
                  S. Hyde Park Ave.
                Tampa,
                  FL 33603
              4,756,452
              5%Common
                  Stock
              Michael
                  Scionti
                Director
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              333,333
              0.4%Common
                  Stock
              Tony
                  Council
                Director
                334
                  S. Hyde Park Ave.,
                Tampa,
                  FL 33606
              0
              0%Common
                  Stock
              Wade
                  Kenyon
                Director
                334
                  S. Hyde Park Ave.
                Tampa,
                  FL 33606
              797,319
              1%**Common
                  Stock**
              **All
                  Officers and Directors as a group (total of 8)**
              **20,329,991**
              **23%**
 
 
 **Beneficial
        Owner of More Than 5% of Stock**
 
 
 Common
                  Stock
              Rainey
                  Nelson
                334
                  S. Hyde Park Ave.
                Tampa,
                  FL 33606
              7,457,580
              8%
 
 
 
 **ITEM
        12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 Except
        as
        described below, none of the following persons has any direct or indirect
        material interest in any transaction to which we were or are a party during
        the
        past two years, or in any proposed transaction to which we propose to be
        a
        party:
 
 (A)
        any
        of our directors or executive officers;
 
 (B)
        any
        nominee for election as one of our directors;
 
 (C)
        any
        person who is known by us to beneficially own, directly or indirectly, shares
        carrying more than 5% of the voting rights attached to our common stock;
        or
 
 (D)
        any
        member of the immediate family (including spouse, parents, children, siblings
        and in-laws) of any of the foregoing persons named in paragraph (A), (B)
        or (C)
        above.
 
 The
        Company borrows funds from officers and stockholders from time to
        time
  Two
        individuals named in Item 403 of Regulation S-B have advanced the company
        money
        for general and administrative expenses: Craig Huffman, President of our
        Company
        and James Thomas, Director of our Company.
 
 In
        2004,
        Mr. Huffman loaned the Company $4,000 on 7/16/04. In 2005, Mr. Huffman loaned
        the Company $1,000 on 3/11/05, $8,000 on 3/16/05, $18,000 on 3/18/05 and
        $15,000
        on 8/4/05.
 
 In
        2004,
        Mr. Thomas loaned the company $15,000 on 6/29/04, and $10,000 on 7/1/04 for
        a
        total of $29,000 loaned in 2004. In 2005, Mr. Thomas loaned the Company $5,200
        on 6/23/05, and $10,000 on 8/4/05. Mr. Thomas was repaid $1,000 on 3/21/05
        and
        $2,000 on 11/18/05.
 
 As
        of
        December 31, 2005, Mr. Huffman is owed a total of $46,000 and Mr. Thomas
        is owed
        a total of $37,200.
 
 Currently,
        there have been no repayment terms specified for these loans, as such, the
        Company has classified the loans as a Current Liability.
 
 In
        addition, our Company has entered into an a comprehensive Agreement for
        Licensing, Joint Venture Agreement, and Manufacturing Agreement on October
        12,
        2005 with Regent Machine Products, LLC. for the exclusive rights to the
        HydroCam/EC V technology which was developed by Regent Machine Products,
        LLC .
        Anthony Pecoraro, our new Chairman of the Board of Directors and VP of New
        Technology is the current Vice President and Co-Founder of Regent Machine
        Products, LLC. In addition, Mr. Pecoraro is married to Mary Pecoraro, the
        President and CoFounder of Regent Machine Products, LLC. who also serves
        as our
        Secretary.
  34
  **ITEM
        13. EXHIBITS**
 
 **EXHIBIT
        INDEX**
 
 The
        following exhibits are filed as part of this Annual Report on Form 10-KSB
        or are
        incorporated herein by reference:
 
 **Exhibit**
              **Description**3.1.1
              Articles
                  of Incorporation (1)3.1.2
              Amended
                  Articles of Incorporation (1)3.2
              Bylaws
                  (1)10.1
              Employment
                  Agreement with Craig Huffman (2)10.2
              Agreement
                  for Licensing, Joint Venture Agreement, and Manufacturing Agreement
                  (2)14.1
              Internal
                  Hydro International Inc. Code of Ethics (2)31.1
              Certification
                  of Chief Executive Officer of Internal Hydro International, Inc.
                  required
                  by Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange
                  Act of
                  1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
                  Act of
                  2002.31.2
              Certification
                  of Chief Executive Officer of Internal Hydro International, Inc.
                  required
                  by Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange
                  Act of
                  1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
                  Act of
                  2002.32.1
              Certification
                  of Chief Executive Officer of Internal Hydro International, Inc.
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350
                  of 18
                  U.S.C. 6332.2
              Certification
                  of Chief Financial Officer of Internal Hydro International, Inc.
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350
                  of 18
                  U.S.C. 63.
 
 (1)
              Incorporated
                  by reference to the Exhibits to the Registration Statement filed
                  by the
                  Registrant on Form 10SB dated March 1,
                  2000.
 (2)
                Incorporated
                    by reference to the Exhibits to the Form 10KSB filed by the
                    Registrant on May 19,
                    2006.
  F  Filed
        herewith
 
 **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
  **AUDIT
        FEES**
 
 Epstein,
        Weber & Conover, PLC billed us in the aggregate amount of $20,050 and
        $31,590 for professional services rendered for their audit of our annual
        financial statements and their reviews of the financial statements included
        in
        our Forms 10-KSB for the year ended December 31, 2005 and December 31, 2004,
        respectively.
 
 **AUDIT-RELATED
        FEES**
 
 Epstein,
        Weber & Conover, PLC. did not bill us for, nor perform professional services
        rendered for assurance and related services that were reasonably related
        to the
        performance of audit or review of the Company’s financial statements for the
        fiscal years ended December 31, 2005 and December 31, 2004.
 
 **FINANCIAL
        INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES**
 
 For
        the
        fiscal years ended December 31, 2005 and December 31, 2004, Epstein, Weber
&
Conover, PLC did not bill us for, nor perform, any financial information
        systems
        design or implementation. For the fiscal years ended December 31, 2005 and
        December 31, 2004, we were not billed for professional services from any
        other
        accounting firm for information systems design or implementation.
  35
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 
- continued
 **TAX
        FEES**
 
 Epstein,
        Weber & Conover, PLC, L.L.P. billed us in the aggregate amount of $2,800 for
        professional services rendered for tax related services for the fiscal years
        ended December 31, 2005 and December 31, 2004, respectively.
 
 **ALL
        OTHER FEES**
 
 We
        were
        not billed for any other professional services for the fiscal year ended
        December 31, 2005.
  AUDITOR
        INDEPENDENCE
 
 Our
        Board
        of Directors considers that the work done for us in the year ended December
        31,
        2005 by Epstein, Weber & Conover, PLC is compatible with maintaining
        Epstein, Weber & Conover, PLC.’s independence.
 
 **AUDITOR'S
        TIME ON TASK**
 
 All
        of
        the work expended by Epstein, Weber & Conover, PLC on our December 31, 2005
        audit was attributed to work performed by Epstein, Weber & Conover, PLC’s
        full-time, permanent employees.
  36
  
 **CERTIFICATION**
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the undersigned has duly caused this Form 10-KSB to be signed on its
        behalf by the undersigned, there unto duly authorized, in the City of Tampa,
        Florida, on May
        18,
        2006.
 
  **INTERNAL
        HYDRO INTERNATIONAL, INC.**
  
 *By:
          /s/ Craig A. Huffman* Date:
          May
          19, 2006.
 ** Craig A.
        Huffman
 President
        and Director
 
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1933, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the date indicated.
 
 Date:
          May
          19, 2006.
 
 
 By:
        /s/ Craig A. Huffman
 Craig
        A.
        Huffman, Director and Chief Executive Officer
 
 
 Date:
          May
          19, 2006.
 
 
 By:
        /s/ Lior Segal
 Lior
        Segal, Chief Financial Officer