UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-QSB



xQUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period endedJune 30, 2006



oTRANSITION REPORT UNDER SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission file number000-26309



INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.


(Exact name of small business issuer as specified in its charter)



|Delaware                                                       | 98-0200471                       
|-------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.)



4235 Commerce Street

Little River, South Carolina 29566

(Address of principal executive offices)



(843) 390-2500

(Issuers telephone number)



Copies of Communications to:

Stoecklein Law Group

402 West Broadway, Suite 400

San Diego, CA 92101

(619) 595-4882

Fax (619) 595-4883



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.      YesxNoo



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



The number of shares of Common Stock, $0.001 par value, outstanding on August 4, 2006, was 40,237,793 shares.



Transitional Small Business Disclosure Format (check one):     Yeso  Nox







1

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PART I  FINANCIAL INFORMATION



Item 1. Financial Statements.



Integrated Environmental Technologies, Ltd.

Condensed Consolidated Balance Sheet



|                                     |                                                                       | June 30,         
|------------------------------------ | --------------------------------------------------------------------- | -----------------
|                                     |                                                                       | 2006             
|                                     |                                                                       | (Unaudited)      
|Assets                               |                                                                      
|Current Assets:                      |                                                                      
|                                     | Cash                                                                  | $          65,639
|                                     | Accounts receivable                                                   | 3,770            
|                                     | Inventory                                                             | 133,400          
|                                     | Deposits and prepaid assets                                           | 106,453          
|                                     |                                                                       |                  
|                                     | Total current assets                                                  | 309,262          
|                                     |                                                                       |                  
|Equipment                            |                                                                      
|                                     | Equipment                                                             | 14,695           
|                                     | Accumulated depreciation                                              | (5,297)          
|                                     |                                                                       |                  
|                                     | Total equipment                                                       | 9,398            
|                                     |                                                                       |                  
|Other assets:                        |                                                                      
|                                     | License agreement net of accumulated amortization of $14,407          | 60,593           
|                                     |                                                                       |                  
|                                     |                                                                       | $        379,253 
|Liabilities and Shareholders' Equity |                                                                      
|Current liabilities:                 |                                                                      
|                                     | Accounts payable                                                      | $        176,856 
|                                     | Accrued liabilities                                                   | 7,228            
|                                     | Notes payable                                                         | 103,774          
|                                     |                                                                       |                  
|                                     | Total current liabilities                                             | 287,858          
|                                     |                                                                       |                  
|Stockholders' Equity                 |                                                                      
|                                     | Common stock 200,000,000 shares authorized                            |                  
|                                     | par value $0.001, 38,929,043 shares issued and outstanding            | 38,929           
|                                     | Stock bought not issued, 1,165,728 shares                             | 1,166            
|                                     | Unamortized cost of stock and warrants issued for consulting services | (46,821)         
|                                     | Paid-in capital                                                       | 4,164,755        
|                                     | Retained deficit                                                      | (4,066,634)      
|                                     | Total stockholders' equity                                            | 91,395           
|                                     |                                                                       |                  
|                                     | Total liabilities and stockholders' equity                            | $        379,253 



See notes to condensed consolidated financial statements



2

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Integrated Environmental Technologies, Ltd.

Condensed Consolidated Statement of Operations

Unaudited



|                                     |                         | Three months ended
June 30, | Six months ended
June 30,
|------------------------------------ | ----------------------- | --------------------------- | -------------------------
|                                     |                         | 2006                        | 2005                     
|Sales                                | $   119,397             | $         20,692            | $        232,373         
|Cost of goods sold                   | 76,737                  | 9,055                       | 114,419                  
|                                     |                         |                             |                          
|Gross profit                         | 42,660                  | 11,637                      | 117,954                  
|                                     |                         |                             |                          
|Professional and administrative fees | 108,744                 | 54,547                      | 254,846                  
|Salary                               | 127,774                 | 109,127                     | 262,392                  
|Depreciation and amortization        | 1,923                   | 5,359                       | 4,277                    
|Research and development             | 24                      | 17,201                      | 1,066                    
|Office & miscellaneous expense       | 127,957                 | 106,154                     | 232,030                  
|                                     |                         |                             |                          
|                                     | Total operating expense | 366,422                     | 292,388                  
|                                     |                         |                             |                          
|Loss from operations                 | (323,762)               | (280,751)                   | (636,657)                
|                                     |                         |                             |                          
|Other (income) expense:              |                         |                             |                          
|                                     | Interest income         | (444)                       | -                        
|                                     | Interest expense        | 1,894                       | 29,397                   
|                                     |                         |                             |                          
|                                     | Total other expense     | 1,450                       | 29,397                   
|                                     |                         |                             |                          
|Net loss                             | $  (325,212)            | $     (310,148)             | $     (642,291)          
|                                     |                         |                             |                          
|Net loss per share basic and diluted | $        (0.01)         | $            (0.01)         | $           (0.02)       
|                                     |                         |                             |                          
|Weighted average shares outstanding  | 38,654,630              | 23,022,274                  | 35,915,433               



See notes to condensed consolidated financial statements



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Integrated Environmental Technologies, Ltd.

Condensed Consolidated Statement of Cash Flows

Unaudited



|                                                  |                                        | Six Months Ended June 30,
|------------------------------------------------- | -------------------------------------- | -------------------------
|                                                  |                                        | 2006                     
|Cash flows from operating activities:             |                                        |                          
|                                                  | Net loss                               | $     (642,291)          
|Adjustments to reconcile net loss to net cash     |                                        |                          
|                                                  | used in operating activities -         |                          
|                                                  | Depreciation and amortization          | 4,277                    
|                                                  | Beneficial conversion                  | -                        
|                                                  | Stock issued for services              | 2,275                    
|Changes in operating assets and liabilities:      |                                        |                          
|                                                  | Cash restricted                        | 50,000                   
|                                                  | Accounts receivable                    | (2,724)                  
|                                                  | Inventory                              | 23,139                   
|                                                  | Deposits and prepaid assets            | 8,489                    
|                                                  | Accounts payable                       | 105,104                  
|                                                  | Accrued liabilities                    | (30,532)                 
|                                                  |                                        |                          
|                                                  | Cash used in operating activities      | (482,263)                
|                                                  |                                        |                          
|Cash flows from investing activities:             |                                        |                          
|                                                  | Purchase of equipment                  | (1,650)                  
|                                                  |                                        |                          
|                                                  | Cash used in investing activities      | (1,650)                  
|                                                  |                                        |                          
|Cash flows from financing activities:             |                                        |                          
|                                                  | Payments on long-term debt             | -                        
|                                                  | Bank line of credit, net               | -                        
|                                                  | Increase in notes payable, net         | 18,015                   
|                                                  | Proceeds from the sale of common stock | 408,667                  
|                                                  |                                        |                          
|                                                  | Cash provided by financing activities  | 426,682                  
|                                                  |                                        |                          
|Decrease in cash                                  | (57,231)                               | 60,275                   
|                                                  |                                        |                          
|Cash beginning of period                          | 122,870                                | 179,251                  
|                                                  |                                        |                          
|Cash end of period                                | $         65,639                       | $        239,526         
|                                                  |                                        |                          
|Supplemental disclosure of cash flow information: |                                        |                          
|                                                  | Cash paid for interest                 | $           1,795        
|                                                  |                                        |                          
|Noncash financing activities:                     |                                        |                          
|                                                  | Stocks issued to employees             | $                    -   
|                                                  | Stock issued for services              | 43,668                   
|                                                  | Beneficial conversion                  | -                        



See notes to condensed consolidated financial statements



4



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Integrated Enviromental Technologies, Ltd.

Notes To Condensed Consolidated Financial Statements



Note 1 - Basis of Presentation

The unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation.  All such adjustments are of a normal recurring nature.  The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year.  Certain amounts in the prior year statements have been reclassified to conform to the current year presentations.  The statements should be read in conjunction with the financial statements and footnotes thereto included in our Form 10-KSB for the year ended December 31, 2005.



The financial statements include our wholly owned subsidiary.  All significant inter-company transactions and balances have been eliminated.



Note 2 - Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.  Our ability to continue as a going concern is dependent upon attaining profitable operations based on the development of products that can be sold.  We intend to use borrowings and security sales to mitigate the affects of our cash position, however, no assurance can be given that debt or equity financing, if and when required, will be available.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue in existence.



Note 3  Notes payable

We borrowed $50,000 from United Capital Group, Inc. on February 1, 2005 with repayment due February 16, 2005. On June 16, 2005, we entered into a promissory note agreement to extend the maturity to January 16, 2006.The balance at June 30, 2006 was $36,000 and the interest rate was 6%. As of June 30, 2006, the note was in default, however, on July 26, 2006 United Capital Group converted the unpaid balance, unpaid interest and additional fees into our common stock (see Note 9 Subsequent Events) thereby paying the note in full.



We have a line of credit from Crescent bank in the amount of $50,275 with interest at prime plus 1%.  At June 30, 2006, the line of credit balance outstanding was $50,275.



Note 4  Common stock and warrants

On July 21, 2005, we issued 400,000 shares of our common stock to CEOcast, Inc. pursuant to an agreement to provide investor relation services for a six-month period.  The value of the stock on the date of the agreement was $0.22 per share.  The consulting cost was valued at $88,000 and will be amortized over the life of the agreement.  At June 30, 2006, we had no remaining unamortized consulting cost.  We recorded $9,778 of professional fees during the six months ended June 30, 2006 relating to this transaction.





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On September 20, 2005, we entered into a translation and business consulting agreement with Mr. Goran Blagojevic. The term of the agreement was for five months, later extended for an additional 3 months.  Mr. Blagojevic received 200,000 shares of our common stock and 200,000 A warrants.  The value of the stock on the date of the agreement and the date of the extension was used to value the stock.  The stock value was $45,000 and this was recorded as unamortized consulting cost.  The value of the warrants was $24,000 as determined by the Black-Scholes pricing model.  We are amortizing the consulting cost over the period of the contract.  We recorded $35,670 of professional fees for the six months ended June 30, 2006 relating to this transaction.  The unamortized consulting cost at June 30, 2006 was $3,638.



On June 14, 2006, we entered into a consulting agreement with Red River Capital Partners (RRC) to provide financial advisory, capital advisory and investment banking services.  The term of the agreement is 270 days and can be extended.  Fees for the services includes 396,978 shares of our common stock (which was unissued on June 30, 2006), monthly cash payments and fees to be paid only if capital is raised by RRC.  The value of the stock was based on our closing market price on June 28, 2006 (the day the stock was earned) and totaled $43,668.  We recorded $485 of professional fees for the six months ended June 30, 2006 relating to this transaction.  The unamortized consulting cost at June 30, 2006 was $43,183.



During the six months ended June 30, 2006, we sold 500,000 shares of our common stock for $.10 per share, 1,000,000 shares for $0.075 per share and 3,000,000 shares for $0.08 per share.



At June 30, 2006 we had the following options and warrants outstanding:



|"A" Warrants-   | 3,415,000 to purchase common stock at $0.50 per share                                                                                                                            
|--------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|"B" Warrants-   | 3,215,000 to purchase common stock at $1.00 per share                                                                                                                            
|"C" Warrants-   | 5,500,000 to purchase common stock at $0.25 per share                                                                                                                            
|Other Warrants- | 100,000 to purchase common stock at $0.23 per share
            50,000 to purchase common stock at $0.20 per share
            50,000 to purchase common stock at $0.15 per share



Note 5-License agreement

On September 4, 2003, the Company entered into a license agreement with Electro-Chemical Technologies, Ltd. (licensor) and Laboratory of Electrotechnology, Ltd. (supplier) whereby the company has an exclusive, royalty-bearing license under the patents and the technical information to purchase, manufacture/assemble with the exceptions of flow-through electrolytic modules FEM, market, lease, sell, distribute and service Licensed Products throughout the territory for use in licensed applications, provided, however, that license/supplier shall retain the exclusive right to manufacture/assemble FEMs and to supply FEMs to licensee.  The license period goes through the date of the last expiration of the patent of the technology (5/2018).  A fee of $75,000 was paid for the agreement and the fee is amortized over the period of September 2003 through May 2018.  There will be a royalty of 8% of the net
sales price due on any sales made by the Company.  The amortization for the six months ended June 30, 2006 was $2,543.







6

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Note 6-Deposits

We have recorded a deposit of $84,000 paid to SPDG Naturol, Ltd., not related to any of our companies, for an extraction plant with a capacity of 150 liters.  We have not received this plant as of June 30, 2006.



Note 7-Related party transactions

We entered into a consulting agreement on August 1, 2005 with a shareholder for the purpose of raising capital.  The agreement is for one year and monthly payments will be $2,500.



In 2005, we loaned a stockholder $22,500 on a demand note with interest at 6%. The outstanding balance was $0 as of June 30, 2006.



In May 2006, a company owned by a shareholder loaned us $17,500 on a demand note with interest at 6%.



Note 8 Commitments and contingencies

We executed a lease for our office and manufacturing facilities in December of 2005.  This is a three-year lease with renewal options. Future rent payments on non-cancelable operating leases with an initial or remaining term of greater than one year are as follows: 2006 - $73,791; 2007 - $71,291; and 2008 - $71,291.



Note 9- Subsequent Event

On July 26, 2006, United Capital converted its note, unpaid interest and fees of $40,500 into 540,000 shares of our common stock at a conversion rate of $.075 per share.  We also paid additional interest of $326.



On August 7, 2006 the Board of Directors authorized the issuance of 544,000 shares of our stock to employees.



Subsequent to the end of the quarter, we placed ECT on notice that we were terminating our license with them within 60 days of such notice.



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FORWARD-LOOKING STATEMENTS



This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical fact are forward-looking statements for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.



Forward-looking statements may include the words may, could, estimate, intend, continue, believe, expect or anticipate or other similar words.  These forward-looking statements present our estimates and assumptions only as of the date of this report.  Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.



Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are not limited to:



| |  | increased competitive pressures from existing competitors and new entrants;
| | - | ---------------------------------------------------------------------------

| |  | increases in interest rates or our cost of borrowing or a default under any material debt agreements;
| | - | -----------------------------------------------------------------------------------------------------

| |  | deterioration in general or regional economic conditions;
| | - | ---------------------------------------------------------

| |  | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | loss of customers or sales weakness;
| | - | ------------------------------------

| |  | inability to achieve future sales levels or other operating results;
| | - | --------------------------------------------------------------------

| |  | the unavailability of funds for capital expenditures and/or general working capital; and
| | - | ----------------------------------------------------------------------------------------

| |  | operational inefficiencies in distribution or other systems.
| | - | ------------------------------------------------------------



For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see Factors That May Affect Our Results of Operations in this document and in our Annual Report on Form 10-KSB for the year ended December 31, 2005.







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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.



Throughout this Report references to we, our, us, IET, the Company, and similar terms refer to Integrated Environmental Technologies, Ltd. and its 100% owned subsidiary I.E.T., Inc.



OVERVIEW AND OUTLOOK



Integrated Environmental Technologies, Ltd. has evolved over a period of approximately three years from a development stage company to a two-division income-generating technology company.  We have focused our attentions on several critical issues:



| |  | Raising equity capital;
| | - | -----------------------

| |  | Developing our abilities to construct the equipment required for our EcaFloTM Division;
| | - | ---------------------------------------------------------------------------------------

| |  | Developing and enhancing our testing protocol with Coastal Carolina University in regards to our EcaFloTM technology;
| | - | ---------------------------------------------------------------------------------------------------------------------

| |  | Developing a relationship with Clemson University to produce testing assistance with our Essential Oils Extraction Division and research assistance on the agricultural side of the EcaFloTM Division; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Commencing the process of developing a brand identity and sales campaign through the appearance at various trade shows.
| | - | -----------------------------------------------------------------------------------------------------------------------



Our ability to proceed with our plan of operation has continuously been a function of our ability to increase revenues and raise sufficient capital to continue our operations.



We have incurred losses since inception. At the end of the second quarter ended June 30, 2006, we had a net loss of $325,212 as compared to a net loss of $310,148 for the same period in 2005.



Management intends to closely monitor the costs associated with the production of EcaFloTMdevices in an attempt to minimize capital shortages. As we continue to expand operational activities, we anticipate experiencing negative cash flows from operations, and we may be required to fund operations from bank borrowings or continued equity sales.



There can be no assurance that subsequent financing would be available, or if it is available, that it would be on acceptable terms. If additional financing is not available or is not available on acceptable terms, or we are unable to arrange a suitable strategic opportunity, we will be in significant financial jeopardy and we may be unable to continue our operations at current levels without significant changes to our business plan.



Results of Operations for the Three Months Ended June 30, 2006 and 2005.



The following table summarizes selected items from the statement of operations at June 30, 2006 compared to June 30, 2005.



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INCOME:



|                                 |  | Three Months Ended
June 30, |  | Increase (Decrease)
|-------------------------------- |  | --------------------------- |  | -------------------
|                                 |  | 2006                        |  | 2005               
|Sales                            |  | $    119,397                |  | $         20,692   
|                                 |  |                             |  |                    
|Cost of Goods Sold               |  | 76,737                      |  | 9,055              
|                                 |  |                             |  |                    
|Gross Profit                     |  | 42,660                      |  | 11,637             
|                                 |  |                             |  |                    
|Gross Profit Percentage of Sales |  | 36%                         |  | 56%                



Sales



Our sales for the three months ended June 30, 2006 were $119,397 compared to sales of $20,692 in the three months ended June 30, 2005.  This resulted in an increase in sales of $98,705, or 477%, from the same period a year ago.  We believe our sales will continue to increase in subsequent quarters.  We have had customers reorder products from us and we continue to seek additional distribution alternatives.



Cost of goods sold / Gross profit percentage of sales



Our cost of goods sold for the three months ended June 30, 2006 was $76,737, an increase of $67,682, or 747% from $9,055 for the three months ended June 30, 2006.  Our cost of goods sold will increase as our sales increase.  We are continuing to update and upgrade our product line and we closely monitor the cost of all of our products.  We believe the cost of sales will increase slightly less as a percentage of sales when we have additional sales.



Gross profit as a percentage of sales decreased from 56% for the three months ended June 30, 2005 to 36% for the three months ended June 30, 2006.  We monitor our gross profit margins and we believe that the margins will improve with future sales.



EXPENSES:



|                                          | Three Months Ended
June 30, | Increase (Decrease)
|----------------------------------------- | --------------------------- | -------------------
|                                          | 2006                        | 2005               
|Expenses:                                 |                             |                    
|Professional fees and administrative fees | $    108,744                | $      54,547      
|Salary                                    | 127,774                     | 109,127            
|Depreciation and Amortization             | 1,923                       | 5,359              
|Research and development                  | 24                          | 17,201             
|Office and miscellaneous                  | 127,957                     | 106,154            
|                                          |                             |                    





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|Total operating expenses | $    366,422 | $    292,388 | $      74,034 | 25%  
|------------------------ | ------------ | ------------ | ------------- | -----
|                         |              |              |               |      
|Loss from operations     | (323,762)    | (280,751)    | 43,011        | 15%  
|                         |              |              |               |      
|Other (income) expense:  |              |              |               |      
|Interest income          | (444)        | -            | 444           | -    
|Interest expense         | 1,894        | 29,397       | (27,503)      | (94%)
|Total other expense      | 1,450        | 29,397       | (27,947)      | (95%)
|                         |              |              |               |      
|Net loss                 | $ (325,212)  | $ (310,148)  | $15,064       | 5%   



Professional Fees and Administrative Fees



Professional fees and administrative fees for the three months ended June 30, 2006 were $108,744, an increase of $54,197, or 99%, from $54,547 for the three months ended June 30, 2005.  The increase in professional fees and administrative fees was the result of additional regulatory filings in the quarter and consulting costs from outside services.  Whenever possible we are trying to reduce outside consultants but we will still need some assistance as we do not have the expertise in house yet.



Salary Expenses



Salary expenses for the three months ended June 30, 2006 was $127,774, an increase of $18,647, or 17%, from $109,127 for the three months ended June 30, 2005.  The increase in salary expenses was the result of additional employees.  We expect salary expense to increase in the future as the Company grows and as production increases.



Depreciation and Amortization Expenses



Depreciation and amortization expenses for the three months ended June 30, 2006 was $1,923, a decrease of $3,436, or 64%, from $5,359 for the three months ended June 30, 2005.  Depreciation and amortization expenses decreased because we sold our building and are now renting .



Research and Development Expenses



Research and development expenses for the three months ended June 30, 2006 was $24, a decrease of $17,177, from $17,201 for the three months ended June 30, 2005.  The decrease in research and development expenses was the result of no further development done in the quarter.  We do not expect any major research and development projects in 2006 because we are concentrating on increasing the sales of existing products.



Loss from Operations



The loss from operations for the three months ended June 30, 2006 was $323,422, versus a loss from operations of $280,751 for the three months ended June 30, 2005, a change in loss from operations of $43,011 or 15%.  The increase in the loss from operations in 2006 was the result of additional operating expenses as compared to 2005.



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Other Expense



Other expenses for the three months ended June 30, 2006 were $1,450 as compared to $29,397 for the same period in 2005.  Our interest expense in 2005 was high because of temporary working capital loans that had a large interest rate and fees and we had a mortgage when we owned the building where our business is located.



Net Loss



Our net loss for the three months ended June 30, 2006 was $325,212, an increase of $15,064, or 5%, from $310,148 for the three months ended June 30, 2005.  We continue to have a net loss and believe the loss will be reduced and profitability will be attained in future quarters as the sales of our products increase.



Results of Operations for the Six Months Ended June 30, 2006 and 2005.



The following table summarizes selected items from the statement of operations at June 30, 2006 compared to June 30, 2005.



INCOME:



|                                 |  | Six Months Ended
June 30, |  | Increase (Decrease)
|-------------------------------- |  | ------------------------- |  | -------------------
|                                 |  | 2006                      |  | 2005               
|Sales                            |  | $    232,373              |  | $         82,062   
|                                 |  |                           |  |                    
|Cost of Goods Sold               |  | 114,419                   |  | 39,130             
|                                 |  |                           |  |                    
|Gross Profit                     |  | 117,954                   |  | 42,932             
|                                 |  |                           |  |                    
|Gross Profit Percentage of Sales |  | 51%                       |  | 52%                



Sales



Our sales for the six months ended June 30, 2006 were $232,373 compared to sales of $82,062 in the six months ended June 30, 2005.  This resulted in an increase in sales of $150,311, or 183%, from the same period a year ago.  Our sales have increased over a year ago and we believe that revenue will continue to increase in the future as we are able to market more products through different ways of distribution.





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Cost of goods sold / Gross profit percentage of sales



Our cost of goods sold for the six months ended June 30, 2006 was $114,419, an increase of $75,289, or 192% from $39,130 for the six months ended June 30, 2006.  Our cost of goods sold increased because we have additional sales and we are monitoring the cost of our product and the pricing structure of our products.



Gross profit as a percentage of sales was virtually unchanged from the preceding period.  We believe this is a good trend because of the increase in revenue and will attempt to maintain the high margins we currently have with increased sales.



EXPENSES:



|                              | Six Months Ended
June 30, | Increase (Decrease)
|----------------------------- | ------------------------- | -------------------
|                              | 2006                      | 2005               
|Expenses:                     |                           |                    
|Professional fees             | $    254,846              | $    267,603       
|Salary                        | 262,392                   | 190,768            
|Depreciation and Amortization | 4,277                     | 10,291             
|Research and development      | 1,066                     | 31,701             
|Office and miscellaneous      | 232,030                   | 181,584            
|                              |                           |                    
|Total operating expenses      | $    754,611              | $    681,947       
|                              |                           |                    
|Loss from operations          | (636,657)                 | (639,015)          
|                              |                           |                    
|Other (income) expense:       |                           |                    
|Interest income               | (862)                     | (500)              
|Interest expense              | 6,496                     | 34,121             
|Total other expense           | 5,634                     | 33,621             
|                              |                           |                    
|Net loss                      | $(642,291)                | $ (672,636)        



Professional Fees and Administrative Fees



Professional fees and administrative fees for the six months ended June 30, 2006 were $254,846, a decrease of $12,757, or 5%, from $267,603 for the six months ended June 30, 2005.  Professional fees and administrative fees decreased slightly in the 2006 fiscal year to date mainly because of timing of regulatory filings and the utilization of outside consultants.  We believe we will need to use outside services but are attempting to restrict this use as mush as possible.







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Salary Expenses



Salary expenses for the six months ended June 30, 2006 was $262,392, an increase of $71,624, or 38%, from $190,768 for the six months ended June 30, 2005.  Salaries increased as we need to grow our Company and to do this we need additional employees.



Depreciation and Amortization Expenses



Depreciation and amortization expenses for the six months ended June 30, 2006 was $4,277, a decrease of $6,014, or 58%, from $10,291 for the six months ended June 30, 2005.  When we sold our building in the 4th quarter of 2005 we knew our depreciation would decrease.  This also accounts for a large portion of the increase in office and miscellaneous as we are now paying rent.



Research and Development Expenses



Research and development expenses for the six months ended June 30, 2006 was $1,066, a decrease of $30,635, or 97%, from $31,701 for the six months ended June 30, 2005.  Research and development costs have declined as we are concentrating on existing products rather than on future products.



Loss from Operations



The loss from operations for the six months ended June 30, 2006 was $636,657, versus a loss from operations of $639,015 for the six months ended June 30, 2005, a change in loss from operations of $2,358.  We incurred a loss for fiscal 2006 similar to 2005 because we had additional revenue that offset the additional cost.  We continue to strive to bring the Company to become a profitable company.



Other Expense



Other expenses for the six months ended June 30, 2006 were $5,634 as compared to $33,621 for the same period in 2005.  Other expense declined because of less interest than in 2005 when we had temporary loans at high interest rates and a mortgage on a building.  For the remainder of 2006 we expect to have additional interest if we need to borrow money in order to increase production or maintain the business operations.



Net Loss



Our net loss for the six months ended June 30, 2006 was $642,291, a decrease of $30,345, or 5%, from $672,636 for the six months ended June 30, 2005.  Our anticipations are to continue the trend of reducing and eliminating net losses.





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Operation Plan



The main technology that drives our short-term and long-term plans is our EcaFlo Division.  Our plan of operation focuses on continuing the process of commercialization of EcaFloDivision equipment.  We have chosen to delay focus on our Essential Oils Extraction Division until such time as we are cashflow positive on the EcaFlo Division and we have received adequate funding to operate both divisions.



EcaFloDivision:



During the quarter ended June 30, 2006, we maintained a license for the following applications: (a) water purification units producing small volumes per hour of potable water; (b) residential water purification units; (c) water purification units for use by small businesses such as offices, motels and restaurants, and state and local government facilities, not including municipal water systems; (d) the disinfection of storm water runoff; and (e) the decontamination of oil well water.  We have also been allowed to market our FEM-3 ECA devices to potential customers outside of our exclusive application areas for purposes of determining the existence and size of such markets.



Our focus has been re-directed from providing small water purification units to the markets at-hand:  storm-water treatment, wastewater treatment, petroleum industry applications and food/beverage sanitation opportunities. FEMs (flow-through electrolytic modules) continue to be the main components of the EcaFlo Division equipment product line.  We have established vendor relations with domestic suppliers for the other components that are used in our equipment.  Engineering and design work on our 4-, 8-, 16-, 24- and 32-FEM devices are complete.  Parts have been ordered, received and assembled to continue producing our EcaFlo models 40, 40SS, 080, 080 LP, 160 MLP, 160 LP, 160, and 240, while continuing development of the EcaFlo models 320, 480, 640 and 960.



We are also marketing our FEM-3 ECA devices to potential customers outside of our exclusive application areas for purposes of determining the existence and size of such markets.



On January 19, 2006, we entered into a two year supply agreement for our EcaFlo devices with Layne Christensen Company, a water services provider.  On January 26, 2006, we sold our first EcaFlo Model 080 to Layne Christensen.  We have delivered our equipment to Laynes associated labs in Ottawa, Kansas, where empirical data continues to be compiled for Laynes use in developing effective sales strategies for furthering EcaFlo equipment applications and sales as we move along in the NSF-61 and UL certification processes for our EcaFlo equipment.



Subsequent to the end of the quarter, we placed ECT on notice that we were terminating our license with them within 60 days of such notice.  The notice was prompted by ECTs insolvency and our inability to agree on an expanded license.  We intend to continue purchasing FEM-3 units directly from the Laboratory of Electrotechnology Ltd. (LET); however, we are currently negotiating for the purchase of replacement/backup technology to be utilized in place of the FEM-3 units from LET.



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Essential Oils Extraction Division:



Negotiations with the Coach House Group, UK, continue to be held relative to the costing and delivery of the extraction plant that I.E.T., Inc. undertook in the third quarter of 2004.  I.E.T., Inc. paid the Coach House Group $84,000 in the first quarter of 2004 for a 150-liter oil extraction plant that will be utilized by the company (2/3 capacity) and its university research partners (1/3 capacity).  I.E.T., Inc. had quotes for the plant prepared and submitted by United States companies in order to get the very best price for the equipment.  Discussions with the Coach House Group center on ordering this equipment.  We have stalled operations on this division due to our inability to work a deal with Coach House Group and until we receive adequate funding to operate this division.



Liquidity and Capital Resources



Liquidity is a measure of a companys ability to meet potential cash requirements.  We have historically met our capital requirements through the issuance of stock and by borrowings.  In the future we anticipate we will be able to provide the necessary liquidity we need by the revenues generated from the sales of our products, however, if we do not generate sufficient sales revenues we will continue to finance our operations through equity and/or debt financings.



In the first half of fiscal 2006 we used equity sales of $408,667 to provide the capital we needed to run the business.  What we need in the future to do is pretty basic in that we have to have enough revenue generated from the sales of our products in order for us to not have to sell additional stock or obtain additional loans.  Management is working on this and believes that we should be able to generate enough capital internally so we wont have to sell shares each quarter.



Financing.On February 1, 2005, we entered into a Promissory Note with United Capital Group, Inc. for the principal amount of $50,000. Pursuant to the note we promised to pay to the order of United Capital Group, Inc. the sum of $50,000 together with interest thereon at 6% per annum on any unpaid balance. According to the note the outstanding principal and accrued but unpaid interest was due and payable on February 16, 2005. On June 16, 2005, we entered into another promissory note to extend the maturity date to January 16, 2006. Pursuant to the new note, United Capital may convert the note into shares of our common stock. At the option of the holder any amounts owed under the promissory note that are not paid in full may be converted into shares of our common stock at the rate of one share for each $0.10 of indebtedness converted. We also agreed to issue
50,000 shares of our common stock to United Capital. The 50,000 shares were issued on July 13, 2005.  On July 26, 2006, United Capital converted its note, unpaid interest and fees of $40,500 into 540,000 shares of our restricted common stock at a conversion rate of $0.075 per share.  The 540,000 shares were issued on August 1, 2006.  We also paid additional interest of $326.



On March 27, 2006, we executed a Convertible Promissory Note with Hope Capital, a Company owned by one of our stockholders, for the principal amount of $75,000.  On March 27, 2006, we issued 1,000,000 shares of our restricted common stock to Hope Capital to be held as collateral, subsequent to the end of the quarter, Hope Capital converted the note and retained the 1,000,000 shares.



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On June 30, 2006, we executed a loan agreement with 3GC, Ltd., a Company owned by one of our stockholders, for the principal amount of $17,500.  Pursuant to the note we promised to pay to the order of 3GC, Ltd. the sum of $17,500 together with interest thereon at 6% per annum on or by August 31, 2006.



Satisfaction of our cash obligations for the next 12 months.



As of June 30, 2006, our cash balance was $65,639.  Our plan for satisfying our cash requirements for the next twelve months is through additional revenues from sales and barring that equity, third party financing, and/or traditional bank financing.  We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we intend to make appropriate plans to insure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.



Since inception, we have financed cash flow requirements through debt financing and the issuance of common stock for cash and services.  As we continue to expand operational activities, we may continue to experience net negative cash flows from operations, pending receipt of sales or development fees, and will be required to obtain additional financing to fund operations through common stock offerings and debt borrowings, giving consideration to loans and working diligently to move sales ahead to the extent necessary to provide working capital.



We anticipate incurring operating losses over the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving technology markets. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and continue to attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do
so can have a material adverse effect on our business prospects, financial condition and results of operations.



Going Concern



The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern. The Company's cash position may be inadequate to pay all of the costs associated with testing, production and marketing of products. Management intends to use borrowings and security sales to mitigate the effects of its cash position, however no assurance can be given that debt or equity financing, if and when required will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence.



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Summary of product and research and development that we have accomplished and that we will continue to perform for the term of our plan.



EcaFlo Division



Product development within this division has moved ahead at a rapid pace.  As a result of positive laboratory test results from the Water Quality Lab at Coastal Carolina University, in combination with internal profit margin comparisons between prototype EcaFlo devices and their respective markets, we have been able to make decisions regarding market entry with our own specifically designed and engineered devices. We have passed the design/engineering stage for specific 4-, 8-, 16-, 24- and 32-FEM EcaFlo devices and our engineering department has finalized vendor relations with strategic suppliers while moving forward with NSF-61 and UL certification. Our administrative service department has finalized credit relations with these vendors in order to receive ordered parts by purchase order, and, as these device components have been received, the engineering department has
assembled the 4-, 8-, 16-, 24- and 32-FEM units and tested the devices in our own shop.   Vital testing results have significantly improved our ability to complete our goals ahead of time and enter our markets with specific EcaFlo devices with a firm confidence level, in addition to allowing us the opportunity to modify existing EcaFlo equipment to meet customer demand.



On January 24, 2006, we issued a press release announcing that we entered into a two year supply agreement for our EcaFlo devices with Layne Christensen Company, a water services provider.  On January 26, 2006, we sold our first EcaFlo Model 080 to Layne Christensen.  We have delivered our equipment to Laynes associated labs in Ottawa, Kansas, where empirical data continues to be compiled for Laynes use in developing effective sales strategies for furthering EcaFlo equipment applications and sales



On January 31, 2006, we issued a press release announcing the sale of our first EcaFlo Model 240 to Consolidated Oil Well Services, Inc., a wholly-owned subsidiary of Infinity Energy Resources, Inc.



On March 2, 2006, we issued a press release announcing the sale of an EcaFlo Model 080 to Petrol Oil and Gas, Inc.



On March 7, 2006, we issued a press release announcing the sale of four (4) EcaFlo Model 160 LP devices to Unitherm Food Systems, Inc. of Bristow, Oklahoma.



On March 15, 2006, we issued a press release announcing the sale of two (2) EcaFlo Model 160 MLPs to a company specializing in the introduction of Electro-Chemical Activation solutions into food processing applications.





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Current research initiatives are centered on providing specific water quality regulatory agencies with toxicity testing reports that will serve to quell any question that may arise regarding the potential of negative impact on the environment (i.e.: estuary) associated with the use of ECA solutions.  We are finding that, through the use of test data and technical expertise, we are able to better educate environmental regulators and gain their support and endorsement for certain ECA applications within the storm water treatment arena, the petroleum industry, and with food and beverage safety control agencies. At petroleum industry trade shows, our marketing and sales department personnel were able to produce test results showing potential customers that aliquots of petroleum well frac waters that were treated with a 1% EcaFlo device-generated anolyte solution showed total bacteria kill in less than 10 minutes.  Furthering that data, our approach is to point out that these kinds of results eliminate the need for voluminous regulatory compliance paperwork to be
submitted, in addition to costing less than the use of traditional biocidal chemicals that are currently put into frac water.  The petroleum industry market continues to develop as a result of our strategic alliance with Pentagon Technical Services, a small consulting firm with ties into this industry, which has contracted with us as a manufacturers representative/sales and distribution agent.



On May 1, 2006, we received an official Phase I award from the United States Department of Agriculture, Small Business Innovation Research program, for specific research relative to the potential for commercialization of EcaFlo equipment for use in the agricultural industry for environmentally-responsible fungi management of fruit crops.  In addition, we are engaged with UL for obtaining certifications (UL and NSF-61) of our EcaFlo equipment for use in the water treatment industry.



We are continuing our research to identify opportunities where we can provide our innovative technology in value-added services within the food and beverage production and processing industry, medical and healthcare markets, the hospitality industry, as well as in homeland defense applications.



We are working together with Coastal Carolina University and Clemson University to develop a more comprehensive approach to documenting test results that pertain to the use of EcaFloin a plethora of applications.



Further research and development efforts will be implemented with our strategic university partners, going concerns within the petroleum and wine industries, and possibly, with nationally accredited research labs.  We view research and development as an integral portion of our product development plan and will use the measurable outcomes from research projects as catalysts for market development. The results of this research guide us in determining what to design and build and who will buy it.



Essential Oils Division



We are currently working on a strategic plan intended to address the best method for establishing a wholly owned subsidiary company for this division.  In order to fully focus on the momentum we have built in the EcaFlo Division, we believe it prudent to hold the intellectual property contained in the Essential Oils Extraction Division in a separate company whereby our current stockholders will benefit by distributing shares in both technology companies.  We are in the early stages of investigating the best structure for this division, and will continue exploring options.  As a result of our current financial position, we are focusing on our Ecaflo Division and have delayed implementation of structuring the Essential Oils Division.



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Expected Purchase or sale of plant and significant equipment.



We continue to be involved in negotiations with the Coach House Group, UK, our joint venture partner, who provide us with the Naturol essential oils extraction technology.   These discussions are centered on the $84,000 deposit we paid for this extraction equipment to SPDG Naturol - the Coach House Group - in January of 2004.  Discussions with Coach House Group continue in anticipation of developing a strategy to move the technology forward in the future.



Significant changes in the number of employees.



We currently employ 9 full time employees, 5 part time employees, and 2 sales representatives.  The 9 full time employees are engaged in management, marketing and sales, engineering, production and administrative services; our part time employees are within our production department; and one of our consultants provides technical/scientific support to the EcaFlo Division of our Company.  We continue to anticipate an increase in employees in the next twelve months as we add assembly personnel, shipping and receiving personnel and additional administrative support personnel.



Consultants



EGR International.On June 22, 2005, we entered into a consulting agreement with EGR International, Ltd., wherein EGR agreed to provide our Executive Vice President and Vice President of Operations with assistance in marketing our EcaFloTM devices, assistance in establishing a network of interested and qualified clientele, and promotional activities such as advertising, sales and marketing efforts.  We agreed to compensate EGR $2,500 per month.  The term of the agreement commenced on June 22, 2005 and was originally scheduled to terminate on September 30, 2005.  On September 7, 2005, by mutual consent in addendum form, the agreement was extended through October 18, 2005 with no further compensation in order to obtain agreed upon hours of consulting expertise.  Subsequently on October 17, 2005, we
executed another addendum extending the termination date to October 31, 2005.  On November 28, 2005, we executed another addendum extending the termination date to December 31, 2005 and on January 5, 2006 we again extended the termination date to June 30, 2006 and on June 30, 2006 it was once again extended to July 31, 2006.  Compensation remained at $2,500 per month.



JJ Viljoen.On March 15, 2006, we entered into a consulting agreement with JJ Viljoen wherein JJ Viljoen agreed to provide us with services which include imparting technical and scientific expertise to our management; engineering and sales/marketing departments; research and development activities as they relate to the continued development of our EcaFlo Division, including working closely with other scientists, university interns and research assistants, as well as research funding sources and customers.  The term of the agreement was for 3 months terminating on June 30, 2006.  We agreed to compensate JJ Viljoen with $5,000 a month, paid on the 1st of each month in advance of services rendered and to include the remainder of March in a pro-rated manner totaling $2,580.80.  In addition, we agreed to issue 50,000 shares of our common stock to JJ Viljoen as a sign-on bonus.  As of the date of this filing the 50,000 shares have not been issued.



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Ocean Avenue Advisors, LLC.On March 27, 2006, we executed a Financial Consulting Agreement with Ocean Avenue Advisors, LLC. (OAA), wherein OAA agreed to serve as our financial consultant.  We agreed to compensate OAA with $6,250 upon execution of the agreement and $6,250 every two weeks for sixty days, to total $25,000.  In the event that OAA introduces the Company to a lender or equity purchaser, which ultimately finances or causes the completion of such financing, OAA shall be entitled to a finders fee in the amount of 10% of the total gross of the funding by such lender or equity purchaser.  The term of the agreement is for 90 days from the date of execution.



Valgene L. Dunham, Ph.D.On July 1, 2006, we executed a consulting agreement with Valgene L. Dunham, Ph.D., a Director of the Company, wherein Dr. Dunham agreed to serve as our Science, Research and Administrative Consultant.  We agreed to compensate Dr. Dunham with $2,500 per month, paid at the beginning of each month.  The term of the agreement is for six (6) months, terminating on December 31, 2006.



Supply Agreement



On January 19, 2006, we entered into a supply agreement with Layne Christensen Company, wherein Layne agreed to purchase our products (certain water treatment equipment) for resale to its customers.  The term of the agreement commenced on January 19, 2006 and will terminate on December 31, 2007.



Letter Agreement with Red River Capital Partners



On June 14, 2006, we executed a letter agreement with Red River Capital Partners, wherein Red River agreed to act in the capacity of an independent contractor, as our financial advisor, investment banker and capital markets agent, where appropriate, in connection with:



| | 1. | advising the Company as to our current capital structure, pre-money valuation and approach to the capital markets;
| | -- | ------------------------------------------------------------------------------------------------------------------

| | 2. | the placement by the Company of revolving lines of credit, short-term loans and/or other types of short-term credit facilities in the amount of up to approximately $1,000,000 (individually and collectively, the Bridge Loans);
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | the placement by the Company of securities associated with, (a) a debt financing in the amount of up to approximately $10,000,000 of bonds and/or bank debt (the Debt Securities) and/or (b) an equity financing in the amount of up to $10,000,000 of common and/or preferred stock (the Equity Securities, and collectively with the Debt Securities, the Securities); and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | the execution by the Company of any transaction pursuant to which our business is combined through a merger, joint venture, consolidation, reorganization or other business combination and/or the acquisition of interest in the Company by way of an exchange offer, tender offer, negotiated purchase or any other means (individually and collectively, a Business Combination).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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As compensation for Red Rivers services, we agreed to pay Red River the following fees:



| | a) | A retainer fee, payable in two parts: 1) the first part, a non-cash payment of our common stock equal to one percent (1%) of the fully-diluted shareholder interest of the Company as of the date of the agreement (396,978 shares), payable no later than fifteen (15) days from the date of execution of the agreement.  As of the date of this filing the 396,978 shares have not been issued.  Also, we agreed to use commercially reasonable efforts to file a registration statement under the Securities Act of 1933, as amended, registering the 396,978 shares of common stock.  2) The second part of the retainer fee, payable in cash, of $7,500 per month for six months.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | A bridge loan financing fee, payable in cash upon the closing of the placement of the Bridge Loan.  The amount payable will be determined pursuant to certain terms and conditions listed in the agreement.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | A debt financing fee, payable in cash upon the closing of the placement of the Debt Securities. The amount payable will be determined pursuant to certain terms and conditions listed in the agreement.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) | An equity financing fee, payable in cash upon the closing of the placement of the Equity Securities and/or Debt Securities and/or the Bridge Loan, if such Debt Securities and/or the Bridge Loan is convertible into equity.  The amount payable will be determined pursuant to certain terms and conditions listed in the agreement.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e) | An equity financial advisory fee, payable in warrants upon the Equity Closing, consisting of warrants to acquire shares of our common stock.  The amount payable will be determined pursuant to certain terms and conditions listed in the agreement.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f) | A business combination fee, payable in cash upon the closing of a Business Combination.  The amount payable will be determined pursuant to certain terms and conditions listed in the agreement.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Red River will also be reimbursed for any expenses incurred in connection with their services.  The term of the agreement is for 270 days commencing on June 14, 2006.



Critical Accounting Policies and Estimates



Our discussion of financial condition and results of operations is based upon the information reported in our financial statements. The preparation of these statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities at the date of our financial statements. We base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes in circumstances, weather, politics, global economics, mechanical problems, general business conditions and other factors. Our significant estimates are related to the valuation of warrants and options and our ability to realize revenue that would allow us to not impair our license agreement asset.  In the second
quarter of 2006 we had no issuances of warrants or options.  Based on our analysis of future cash flow we believe that there are no impairments of any assets at June 30, 2006.



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Off-Balance Sheet Arrangements.



As of June 30, 2006, we did not have any off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.



FACTORS THAT MAY AFFECT OUR PLAN OF OPERATION



Our auditors report reflects the fact that without realization of additional capital, it would be unlikely for us to continue as a going concern.



As a result of our deficiency in working capital at December 31, 2005, our auditors have included a paragraph in their report regarding substantial doubt about our ability to continue as a going concern. Our plans in this regard are to seek additional funding through future equity private placements or debt facilities.



The Laboratory of Electrotechnology Ltd. (LET) is currently our supplier of patented flow-through electrolytic modules (FEMs) which is a core component of the EcaFlow units which are manufactured by us. If LET is unable or unwilling to provide us with the FEMs, we will be required to secure another source for the purchase of FEMs.



We currently purchase FEM units pursuant to a license with Electro-Chemical Technologies, Ltd. (ECT) and LET as the supplier. In July of 2006, we notified ECT of our intention to terminate our license agreement with ECT due to their insolvency and other license issues. In the event we are unable to acquire FEM units from LET, we may experience an interruption or failure in the delivery of FEMs, which would cause us to cease operations until a replacement source of FEMs were acquired. This cessation or interruption would have a material effect on our financial condition and results of operations.



We have minimal operating history, which raises substantial doubt as to our ability to successfully develop profitable business operations.



We have a limited operating history.  However, our management team has extensive experience in project development and managing corporate assets.  A highly successful professional who brings more than three decades of business development experience to us from the environmental engineering industry heads our marketing and sales department.  The Companys engineering department is staffed by former military personnel and an experienced mechanical engineer who have expertise that center on the primary mechanical and electrical aspects of our technologies.  Of course, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a business in our intended industries.  Outside of the high levels of expertise noted above and our concentrated effort to be the leading provider in our industries, there is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably.



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Our future operating results will depend upon many factors, including:



| |  | The continuation of our efforts to raise adequate working capital through equity investment and the generation of sales revenues;
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| |  | The continued success of lab testing that supports the development of our EcaFlo technology product lines;
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| |  | Demand for our EcaFlo technology;
| | - | ----------------------------------

| |  | The level of our competition;
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| |  | Our ability to maintain key management and technical support staff, and to attract more employees with similar characteristics; and
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| |  | The continuation of our efforts to efficiently develop products to commercialize while maintaining quality and controlling costs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



To achieve profitable operations, we must, alone or with others, successfully act on the factors stated above, along with continually developing ways to enhance our production efforts, now that we are commencing production in the EcaFlo Division.



As we move forward in production stage business operations, even with our good faith efforts, potential investors have a high possibility of losing their investment.



Due to the intrinsic nature of our business, we expect to see growth in competition and the development of new and improved technologies within the realm of electro-chemical activation processes and products.  While we will always keep a close eye on technological advancement in these areas, management forecasts are not necessarily indicative of our ability to compete with newer technology, as they may develop.  Management forecasts should not be relied upon as an indication of future performance.  While management believes its estimates of projected occurrences and events are within the timetable of its business plan, our actual results may differ substantially from those that are currently anticipated.



We will need additional capital in the future to finance our planned growth, which we may not be able to raise or it may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.



Based on our current proposed plans and assumptions, we anticipate that we will need additional capital to fund our operations.  Furthermore, the commercialization expenses of our two technologies will be very substantial, i.e., well in excess of the amount of cash that we currently have.  Accordingly, we will have to (i) obtain additional debt or equity financing in order to fund the further development of our products and working capital needs, and/or (ii) enter into a strategic alliance with a larger company to provide our required funding.



Because our common stock is deemed a low-priced Penny stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.



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Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10.  Those rules require broker-dealers, before effecting transactions in any penny stock, to:

> Deliver to the customer, and obtain a written receipt for, a disclosure document;
> 		Disclose certain price information about the stock;
> 		Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
> 		Send monthly statements to customers with market and price information about the penny stock; and
> 		In some circumstances, approve the purchasers account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.



Our stock is thinly traded, as a result you may be unable to sell at or near ask prices or at all if you need to liquidate your shares.



The shares of our common stock are thinly-traded on the OTC Bulletin Board, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent.  This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable.  As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or
non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  We cannot give you any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.  Due to these conditions, we can give investors no assurance that they will be able to sell their shares at or near ask prices or at all if you need money or otherwise desire to liquidate their shares.



We are subject to significant competition from large, well funded companies.



The industries we intend to compete in are characterized by intense competition and rapid and significant technological advancements. Many companies, research institutions and universities are working in a number of areas similar to our primary fields of interest to develop new products, some of which may be similar and/or competitive to our products.  Furthermore, many companies are engaged in the development of water purifying products and methods for extracting oil from botanicals of which may be similar and/or competitive to our products and technology.  Most of the companies with which we compete have substantially greater financial, technical, manufacturing, marketing, distribution and other resources than us.



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We are highly dependent on William E. Prince, our CEO, president and chairman. The loss of Mr. Prince, whose knowledge, leadership and technical expertise upon which we rely, would harm our ability to execute our business plan.



Our success depends heavily upon the continued contributions of William E. Prince, whose knowledge, leadership and technical expertise would be difficult to replace, and on our ability to retain and attract technical and professional staff.  If we were to lose his services, our ability to execute our business plan would be harmed and we may be forced to cease operations until such time as we could hire a suitable replacement for Mr. Prince.  We also have other key employees who manage our operations and perform critical engineering and design functions, as well as direct the overall marketing and sales of our products. If we were to lose their services, senior management would be required to expend time and energy to replace and train their replacements.  To the extent that we are smaller than our competitors and have fewer resources we may not be able to attract the sufficient number and
quality of staff.



Potential issuance of additional common stock could dilute existing stockholders.



We are authorized to issue up to 200,000,000 shares of common stock.  To the extent of such authorization, our board of directors has the ability, without seeking stockholder approval, to issue additional shares of common stock in the future for such consideration as the board of directors may consider sufficient.  We are currently seeking additional equity and/or debt financing, which may result in additional shares of our common stock being issued.  The issuance of additional common stock in the future will reduce the proportionate ownership and voting power of the common stock held by our existing stockholders.



Item 3. Controls and Procedures.



We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods.  As of the end of the period covered by this report, William E. Prince, our Chief Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, Mr. Prince, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting him to material information required to be included in our periodic SEC filings. There were no changes in our internal control over financial
reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------



| | None.
| | -----



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.



Between April and June 2006, we sold 3,000,000 shares of our restricted common stock at $0.08 per share to 12 accredited investors for a total purchase price of $240,000, all of which was paid in cash.  We believe that the issuance and sale of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule 506. The shares were sold directly by us and did not involve a public offering or general solicitation. The recipients of the shares were afforded an opportunity for effective access to files and records of the Company that contained the relevant information needed to make their investment decision, including the financial statements and 34 Act reports. We reasonably believed that the recipients, immediately prior to the sale of the shares, had such knowledge and experience in our financial
and business matters that they were capable of evaluating the merits and risks of their investment. The recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the shares.  As of the date of this report all of the 3,000,000 shares have been issued.



On June 14, 2006, we executed a letter agreement with Red River Capital Partners, wherein Red River agreed to act in the capacity of an independent contractor, as our financial advisor, investment banker and capital markets agent.  As compensation for Red Rivers services, we agreed to pay Red River the following fees a retainer fee, payable in two parts: 1) the first part, a non-cash payment of our common stock equal to one percent (1%) of the fully-diluted shareholder interest of the Company as of the date of the agreement (396,978 shares), payable no later than fifteen (15) days from the date of execution of the agreement.  As of the date of this filing the 396,978 shares have not been issued.  Also, we agreed to use commercially reasonable efforts to file a registration statement under the Securities Act of 1933, as amended, registering the 396,978 shares of common stock.  2) The
second part of the retainer fee, payable in cash, of $7,500 per month for six months.



Subsequent Issuances



On July 26, 2006, United Capital Group, Inc. converted its note (dated June 16, 2005), unpaid interest and fees of $40,500 into 540,000 shares of our restricted common stock.  The 540,000 shares were issued on August 1, 2006.  We believe that the issuance of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule 506. The shares were issued directly by us and did not involve a public offering or general solicitation. The recipient of the shares was afforded



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an opportunity for effective access to files and records of the Company that contained the relevant information needed to make its investment decision, including the financial statements and 34 Act reports. We reasonably believed that the recipient, immediately prior to the issuance of the shares, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of its investment. The recipient had the opportunity to speak with our management on several occasions prior to its investment decision.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------



| | None.
| | -----



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------



On May 17, 2006, Paul Branagan, one of our Directors at the time informed us he will not be standing for reelection as a Director at our next annual meeting.  Mr. Branagans decision not to stand for reelection was not the result of any disagreement with management or our board of directors.



We held our annual meeting of stockholders on June 21, 2006. Business conducted at the meeting included the following proposals:



| | 1. | To elect new directors to serve until the next annual meeting or until their successors are elected and qualified; William E. Prince, Marion C. Sofield, James Pate and Dr. Valgene Dunhum were re-elected;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | To confirm the reaffirmation of Weaver & Martin LLC as our independent auditors; and
| | -- | ------------------------------------------------------------------------------------

| | 3. | To schedule the next annual meeting of stockholders.
| | -- | ----------------------------------------------------



Each share of Common Stock was entitled to one vote. Only stockholders of record at the close of business on April 24, 2006, were entitled to vote.  The number of outstanding shares at the time was 36,697,793 held by approximately 136 stockholders. The required quorum of stockholders was present at this meeting.



Votes on the election of a new director were as follows:



| | Director           | For        | Against | Broker Non-Votes
| | ------------------ | ---------- | ------- | ----------------
| | William E. Prince  | 25,750,314 | 0       | 10,947,479      
| | Marion C. Sofield  | 25,750,314 | 0       | 10,947,479      
| | Dr. Valgene Dunham | 25,750,314 | 0       | 10,947,479      
| | James C. Pate      | 25,750,314 | 0       | 10,947,479      



|Item 5. | Other Information.
|------- | ------------------



None.







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|Item 6. | Exhibits and Reports on Form 8-K.
|------- | ---------------------------------



Exhibits



|10* | Agreement with Red River Capital Partners dated June 14, 2006  
|--- | ---------------------------------------------------------------
|31* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act
|32* | Certification pursuant to Section 906 of the Sarbanes-Oxley Act

* Filed herewith.



Reports on Form 8-K



Form 8-K filed on May 11, 2006; Sale of Securities.

Form 8-K filed April 5, 2006; Press Releases dated March 22 & 29, 2006.



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.

(Registrant)





By:/s/
William E. Prince

| | William E. Prince, President &            
| | ------------------------------------------
| | Chief Executive Officer (On behalf of     
| | the registrant and as principal accounting
| | officer)                                  



Date: August 10, 2006



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