**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





**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 $945,366 decrease in the net loss to
        $2,685,048 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 $443,841 to
        $2,228,560 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
            
            $
            (3,630,414.00
            )
            $
            (2,813,204
            )
            $
            (6,443,618
            )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
            )
            $
            (939,179
            )**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
            
            
            669,009Cash
                provided by financing activities
            
            $
            414,527
            
            $
            254,482
            
            $
            669,009**INCREASE
                IN CASH AND CASH EQUIVILENTS**
            
            $
            (62,334
            )
            $
            (37,451
            )
            $
            (99,785
            )**CASH
                AND CASH EQUIVILENTS, beginning of year**
            
            
            385
            
            
            38,051
            
            
            -**CASH
                AND CASH EQUIVILENTS, end of year**
            
            $
            (61,949
            )
            $
            600
            
            $
            (99,785
            )





See
        accompanying notes to unaudited financial statements




18




**INTERNAL
      HYDRO INTERNATIONAL INC**




**NOTES
        TO FINANCIAL STATEMENTS**


**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
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (105,139
            )
            
            
            
            
            
            
            
            (105,139
            )Permanent
                Impairment of marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            903,468
            
            
            
            
            
            
            
            
            903,468Total
                Comprehensive Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,014,875
            )BALANCE
                DECEMBER 31, 2005
            
            
            63,770,745
            
            $
            89,636
            
            
            63,198,195
            
            $
            63,199
            
            $
            9,202,014
            
            $
            (744,395
            )
            $
            (10,315,310
            )
            
            
            
            $
            (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 (F)10.2
            Agreement
                for Licensing, Joint Venture Agreement, and Manufacturing Agreement
                (F)14.1
            Internal
                Hydro International Inc. Code of Ethics (F)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.


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
      18, 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
      18, 2006.








By:
      /s/ Craig A. Huffman


Craig
      A.
      Huffman, Director and Chief Executive Officer








Date:
      May
      18, 2006.








By:
      /s/ Lior Segal


Lior
      Segal, Chief Financial Officer