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, 2007



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).YesoNox



The number of shares of Common Stock, $0.001 par value, outstanding on August 13, 2007, was 65,238,409 shares.



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






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PART I  FINANCIAL INFORMATION



Item 1. Financial Statements.



Integrated Environmental Technologies, Ltd.

Condensed Consolidated Balance Sheets



June 30,
        
        December 31,2007
        
        2006(Unaudited)
        
        AuditedAssetsCurrent Assets:Cash
        
        
        
        $     306,834
        
        $       22,187Cash, restricted
        
        
        
        -
        
        50,000Accounts receivable
        
        
        
        112,920
        
        4,282Note receivable
        
        
        
        20,000
        
        -Inventory
        
        
        
        265,261
        
        170,940Deposits and prepaid assets
        
        
        
        5,942
        
        5,942Total current assets
        
        
        
        710,957
        
        253,351Equipment
        
        
        
        13,045
        
        13,045Accumulated depreciation
        
        
        
        (7,412)
        
        (6,272)Total building and equipment
        
        
        
        5,633
        
        6,773$     716,590
        
        $     260,124Liabilities and Shareholders' Equity (Deficit)Current liabilities:Accounts payable
        
        
        
        $     191,090
        
        $     175,158Accrued liabilities
        
        
        
        159,315
        
        173,780Notes payable
        
        
        
        289,100
        
        274,783Total current liabilities
        
        
        
        639,505
        
        623,721Convertible notes
        
        
        
        476,000
        
        125,000Shareholders' (Deficit)Common stock 200,000,000 shares authorizedpar value $.001, 58,322,633 and 47,142,383 shares issuedand outstanding at 6/30/07 and 12/31/06
        
        58,323
        
        47,142Stock bought not issued 1,900,000 and 268,000 sharesat 6/30/07 and 12/31/06
        
        
        
        1,900
        
        268Unaccreted loan interest
        
        
        
        (272,791)
        
        (86,490)Paid-in capital
        
        
        
        6,095,746
        
        4,584,956Unamortized cost of stock & warrants issued for consulting
        
        (22,917)
        
        -Retained earnings (deficit)
        
        
        
        (6,259,176)
        
        (5,034,473)Total shareholders' (deficit)
        
        
        
        (398,915)
        
        (488,597)Total liabilities and shareholders' equity (deficit)
        
        $     716,590
        
        $     260,124






See notes to condensed consolidated financial statements



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Integrated Environmental Technologies, Ltd.

Condensed Consolidated Statement of Operations

Unaudited



Six Months Ended June 30,
        
        Three  Months Ended June 30,2007
        
        2006
        
        2007
        
        2006Sales
        
        
        
        $        195,572
        
        $      232,373
        
        $     118,289
        
        $     119,397Cost of sales
        
        
        
        95,372
        
        114,419
        
        45,801
        
        76,737Gross profit
        
        
        
        100,200
        
        117,954
        
        72,488
        
        42,660Professional and administrative fees
        
        
        
        454,048
        
        254,846
        
        320,620
        
        108,744Salary
        
        
        
        388,695
        
        262,392
        
        153,387
        
        127,774Depreciation and amortization
        
        
        
        1,140
        
        4,277
        
        570
        
        1,923Office & miscellaneous expense
        
        
        
        228,283
        
        233,096
        
        92,061
        
        127,9811,072,166
        
        754,611
        
        566,638
        
        366,422Loss from operations
        
        
        
        (971,966)
        
        (636,657)
        
        (494,150)
        
        (323,762)Other income (expense):Interest income
        
        
        
        -
        
        862
        
        -
        
        444Interest expense
        
        
        
        (252,737)
        
        (6,496)
        
        (213,172)
        
        (1,894)(252,737)
        
        (5,634)
        
        (213,172)
        
        (1,450)Net loss
        
        
        
        $  (1,224,703)
        
        $    (642,291)
        
        $  (707,322)
        
        $  (325,212)Net loss per share basic and diluted
        
        
        
        $           (0.02)
        
        $          (0.02)
        
        $        (0.01)
        
        $        (0.01)Weighted average shares outstanding
        
        
        
        51,918,350
        
        35,915,433
        
        50,474,665
        
        38,654,630






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 30,2007
        
        2006Cash flows from operating activities:Net loss
        
        
        
        $ (1,224,703)
        
        $   (642,291)Adjustments to reconcile net loss to net cashused in operating activities -Depreciation and amortization
        
        
        
        1,140
        
        4,277Accretion of interest on convertible notes
        
        41,495
        
        -Stock issued for loan or interest costs
        
        800
        
        -Stock, options and warrants issued for services
        
        467,990
        
        2,275Beneficial conversion
        
        
        
        78,600
        
        -Changes in operating assets and liabilities:Cash, restricted
        
        
        
        50,000
        
        50,000Accounts receivable
        
        
        
        (108,638)
        
        (2,724)Notes receivable
        
        
        
        (20,000)
        
        -Inventory
        
        
        
        (94,321)
        
        23,139Deposits and prepaid assets
        
        
        
        -
        
        8,489Accounts payable
        
        
        
        15,932
        
        105,104Accrued liabilities
        
        
        
        (14,465)
        
        (30,532)Cash used in operating activities
        
        
        
        (806,170)
        
        (482,263)Cash flows from investing activities:Purchase of building and equipment
        
        
        -
        
        (1,650)Cash (used in) investing activities
        
        
        
        -
        
        (1,650)Cash flows from financing activities:Note payable, net
        
        
        
        14,317
        
        18,015Proceeds from the exercising of warrants
        
        237,500
        
        -Proceeds from the sale of convertible notes
        
        114,438
        
        -Proceeds from the sale of common stock
        
        724,562
        
        408,667Cash provided by financing activities
        
        
        1,090,817
        
        426,682Increase in cash
        
        
        
        284,647
        
        (57,231)Cash beginning of period
        
        
        
        22,187
        
        122,870Cash end of period
        
        
        
        $     306,834
        
        $       65,639Supplemental disclosure of cash flow information:Cash paid for interest
        
        
        
        $        34,214
        
        $         1,795Cash paid for income taxes
        
        
        
        -
        
        -Noncash financing activities:Stock and warrants issued for services
        
        $     482,941
        
        $       43,668






See notes to condensed consolidated financial statements



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Integrated Environmental Technologies, Ltd.

Notes To Condensed Consolidated Financial Statements



Note 1 - Basis of Presentation



The unaudited condensed consolidated 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, 2006.



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 $25,000 from an individual on January 23, 2007 at an interest rate of 12% due on February 6, 2007.  The note was convertible into 400,000 of our shares if it was not repaid by the due date.  As of June 30, 2007, the note remained in default.  In July, 2007 the note and interest were paid by issuing 537,500 shares of our stock.



We borrowed $40,000 on January 31, 2007 from an individual at an interest rate of 12%.  There was a dispute over the timing of the attempted repayment of this loan.  In July, 2007 the note and interest were repaid by issuing 1,070,900 shares of our stock.



We borrowed $40,000 on March 12, 2007 from 3GC, Ltd., a shareholder at an interest rate of 30% due April 12, 2007.  A penalty of 200,000 of our shares is owed if the loan is not repaid.  We issued 800,000 shares of our stock to be held by a third party to secure a loan 3GC owed to an unaffiliated third party as collateral.  This loan was repaid on April 20, 2007.  A stop was placed on the collateral shares, and they will be cancelled when they are returned; however, there is currently a dispute with the person who was issued the shares as to the validity of issuance and the return of the shares.



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Integrated Environmental Technologies, Ltd.

Notes To Condensed Consolidated Financial Statements



We borrowed $2,200 from William Prince, our CEO at an interest rate of 18% due March 27, 2007.  This loan was repaid in full as of June 30, 2007.  Interest and fees were waived by Mr. Prince.



Note 4  Common stock and warrants



We sold 130,000 shares of our stock on March 26, 2007 to a shareholder for $13,000.  The stock was not issued at March 31, 2007 and we have recorded $130 that represents the par value as stock bought or earned not issued.  The shares were issued on April 11, 2007.



We issued 2,000,000 shares of our common stock to United Capital Group in connection with consulting services on February 1, 2007.  The value of the services was $100,000.  Professional fee expense will be recognized over the period of the contract and for the period ended June 30, 2007 we recognized $71,428 as professional fee expense.



On March 12, 2007, our Board approved 5,000,000 Series D Warrants.



We issued 1,000,000 Series D warrants on March 13, 2007 to 3GC, Ltd. with an exercise price of $0.10 per share for consulting services.  The warrants expire on December 31, 2007.  The fair market value of the warrants based on the Black Scholes model is $57,162 using the following assumptions: Strike Price $0.10; Stock Price $0.11; Volatility 151%; Term .75 of a year; Dividend Yield 0%; Interest Rate 4.48%.  We also issued 600,000 shares of our common stock to 3GC, Ltd. in connection with the consulting agreement.  The value of the stock based on the closing price of our stock on the day of the contract was $66,000.  As of June 30, 2007, we recorded $123,162 in professional fees.



We issued 1,200,000 Series D warrants on March 23, 2007 to Ace Trading and Joel Brownstein with an exercise price of $0.10 per share for consulting services.  The warrants expire on December 31, 2007.  The fair market value of the warrants based on the Black Scholes model is $68,594 using the following assumptions Strike Price $0.10; Stock Price $0.11; Volatility 151%; Term .75 of a year; Dividend Yield 0%; Interest Rate 4.48%.  As of June 30, 2007, we have recorded professional fee expense in the amount of $68,594.  These warrants were subsequently cancelled May 2, 2007, pursuant to the cancellation of the Agreement.



On April 3, 2007, we issued 250,000 shares of our restricted common stock to DaVinci-Franklin Fund I, LLC pursuant to its note agreement as liquidated damages for the failure to repay the loan within 90 days from the December 21, 2006 origination date. We recorded a loan interest expense in the amount of $55,000 as of June 30, 2007.



On April 3, 2007, we issued a total of 263,000 shares of our restricted common stock that was unissued at the beginning of the year.



In the second quarter of 2007, we sold 652 units consisting of 10% Convertible Debentures (conversion price of $0.40, convertible until January 2, 2009), 1,956,000 shares of common stock and 1,304,000 Series C Warrants ($0.25 per share, exercisable until December 31, 2008) for a total purchase price of $326,000.  We allocated the proceeds from the units between the



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Integrated Environmental Technologies, Ltd.

Notes To Condensed Consolidated Financial Statements



convertible note, common stock and warrant based on the fair market value of each instrument.  The allocation was $114,438 to convertible notes, $157,924 to common stock and $53,638 to warrants.  We will accrete interest between the date of sale of the units to maturity for the convertible notes to reflect the difference between what we received for the notes and what we will pay at maturity.  At June 30, 2007 we had accreted additional interest of $18,459 and had unaccreted interest of $193,109.  We had a beneficial conversion on the convertible notes based on the conversion price and the price of our stock at the date of sale.  The expense of the beneficial conversion was $73,000.



On May 29, 2007 we entered into a consulting agreement with John Sanders.  The period of the agreement was for 1 year.  We agreed to pay Mr. Sanders by issuing 50 units consisting of 50 10% Convertible Debentures (conversion price of $0.40, convertible until January 2, 2009), 150,000 shares of common stock and 100,000 Series C Warrants ($0.25 per share, exercisable until December 31, 2008).  These units were issued June 28, 2007.  The value assigned to the instruments was based on the fair market value of each and consisted of $8,766 for the convertible notes, $12,097 for the stock and $4,137 for the warrants.  At June 30, 2007 we had accreted additional interest of $1,416 and had unaccreted interest of $14,818.  We had a beneficial conversion and that expense was $5,600.  We are amortizing the cost of the services over the next year and expensed $2,083 in the period ended June 30, 2007 and have
unamortized cost of consulting services of $22,917.



We entered into a consulting agreement with Mr. Joel Brown and Mr. Peter Gianoukas which was cancelled by us in the second quarter.  We issued 7,813 shares to each person and recorded a consulting expense of $2,813 based on the fair market value of our shares on the date of the agreement.



On June 20, 2007, we entered into a Stock Acquisition Agreement with Benchmark Performance Group, Inc. (Benchmark).  Pursuant to the agreement, Benchmark agreed to purchase 35,000,000 shares of our common stock for a total purchase price of $3,500,000 or $0.10 per share.  On June 27, 2007, we issued 5,000,000 shares pursuant to the agreement for cash of $188,000 and the conversion of $312,000 that was a deposit for equipment to be purchased for a total of $500,000.  The remaining 30,000,000 shares will be issued pursuant to the agreement terms as follows:  (1) Benchmark will issue four equal payments in the amount of $500,000 every six months beginning on or before October 31, 2007 and continuing through April 30, 2009.  Upon receipt of each payment we will cause to be issued 5,000,000 shares of our common stock.  Upon issuance of each 10,000,000 shares, we will initiate a
registration of the shares; (2) On or before October 31, 2009, Benchmark will issue final payment in the amount of $1,000,000.  Upon receipt we will cause to be issued 10,000,000 shares of our common stock and initiate a final registration for the remaining unregistered shares.



Pursuant to the Agreement, Benchmark shall have the right to maintain an equity position in the Company equal to the equity position it would own upon the issuance of all shares due under the agreement.  If at any time during the Anti-Dilution Period, we issue any shares of our common stock which would impair the equity position of Benchmark, then we shall issue a warrant to purchase shares of our common stock at an exercise price of $0.10 per share, which would upon



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Integrated Environmental Technologies, Ltd.

Notes To Condensed Consolidated Financial Statements



exercise, reinstate their equity position.  The warrants will be exercisable at any time through October 31, 2009.



In addition, Benchmark can acquire from us additional shares of our common stock whereby the purchase would give Benchmark 51% of our total outstanding equity.  Benchmark will be able to purchase these additional shares at any time through October 31, 2009, at an exercise price equal to the weighted average per share price of our common stock over the 22 trading days prior plus a 15% per share control premium to the date we receive written notice of their desire to make this purchase.



On May 30, 2007, our board of directors authorized an offer to the Series C Warrant Holders wherein they would be entitled to exercise up to 3,000,000 Series C Warrants for $0.125 (50% discount in original exercise price) per share with notification of intent by June 18, 2007.  In the second quarter of 2007, 1,900,000 series C options were exercised at a price of $0.125 per share.  These shares were unissued at June 30, 2007.



At June 30, 2007, we had the following options and warrants outstanding:



C Warrants-
        5,504,000 to purchase stock at $0.25 per shareD Warrants-
        1,000,000 to purchase stock at $0.10 per shareOther Warrants-
        50,000 to purchase stock at $0.20 per shareOptions
        325,000 to purchase stock at $0.11 per share750,000 to purchase stock at $0.12 per share




Note 5-Related party transactions



We have consulting agreements with a shareholder and a Director with payments of $2,500 a month for each person.  Some of our borrowings are from shareholders and interest accrued on loans from shareholders for the period ended June 30, 2007 was $73,607.



On May 30, 2007, we entered into an amended employment agreement with two of our executives whereby the original terms were extended from December 9, 2009 to March 30, 2012. Further the agreement increased each Executives annual compensation from $72,000 to $110,000 and $74,400 to $130,000. As of June 30, 2007, the future minimum payments are as follows:



Related-party compensation requirements2007
        $
        180,0002008
        
        240,0002009
        
        240,000Thereafter
        
        300,000Total
        $
        960,000








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Integrated Environmental Technologies, Ltd.

Notes To Condensed Consolidated Financial Statements



Note 6- Commitments and contingencies



On June 20, 2007, in connection with the Stock Acquisition Agreement with Benchmark we entered into an Exclusive License and Distribution Agreement, wherein we granted the exclusive, world-wide right, license and authority to market, manufacture, sell and distribute EcaFlo® fluids and solutions for use in Oilfield Applications to Benchmark Energy Products.  The agreement provides for special pricing of equipment to Benchmark  and per gallon technology fees, paid to IET on the EcaFlo® fluids sold by Benchmark, for a five-year period consistent with the license period.



Note 7- Subsequent events



In July, 2007, 350,000 Series C Warrants were exercised.



The 1,900,000 unissued shares at June 30, 2007 were issued.



We issued 2,500,000 shares of our stock to be held as collateral for a note payable.



We issued 537,500 shares of our stock in payment of a note and interest.



We issued 1,070,900 shares of our stock in payment of a note and interest.



We issued 573,000 shares of our stock in payment of services.



On July 3, 2007, we sold 50 units consisting of 50 10% Convertible Debentures (conversion price of $0.40, convertible until January 2, 2009), 150,000 shares of common stock and 100,000 Series C Warrants ($0.25 per share, exercisable until December 31, 2008) to 1 accredited investor for a total purchase price of $25,000.  As of the date of this filing the 150,000 shares have not been issued.



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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 of 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:



o
        our current lack of working capital;


o
        implementation of our business plan within the oil and gas industry with Benchmark;


o
        increased competitive pressures from existing competitors and new entrants;


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


o
        the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;


o
        substantial dilution to our stockholders as the result of the issuance of our common stock in exchange for debt and/or equity financing;


o
        potential change in control upon completion of financing agreements;


o
        deterioration in general or regional economic conditions;


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


o
        loss of customers or sales weakness;




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o
        excessive product failure and related warranty expenses;


o
        inability to achieve future sales levels or other operating results;


o
        the unavailability of funds for capital expenditures and/or general working capital; and


o
        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, 2006.



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 from a development stage company to an income-generating original equipment manufacturing company.  We have focused our attentions on several critical issues:




        Raising equity capital;



        Developing our abilities to construct EcaFlo® equipment;



        Developing and enhancing our testing protocol with Coastal Carolina University, Clemson University, and independent laboratories;



        Developing a relationship and entering into an agreement with Benchmark;



        Developing a relationship with Clemson University for research assistance on the agricultural side of the EcaFlo® applications; and



        Furthering the process of building a brand identity and sales track record through the appearance at various trade and professional shows and conferences.




We have incurred losses since inception.  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.



Management intends to closely monitor the costs associated with the production of EcaFlo®devices in an attempt to minimize capital shortages.  As we continue to expand operational activities and execute our business plan for oilfield operations with our industry partner and licensee, Benchmark Energy Products, we anticipate experiencing positive cash flows from operations in future quarters.  Debt borrowings may be considered from time to time if needed.



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On June 20, 2007, we executed a Stock Acquisition Agreement with Benchmark Performance Group, Inc. (Benchmark).  Pursuant to the Stock Acquisition Agreement, Benchmark agreed to purchase 35,000,000 shares of our common stock for a total purchase price of $3,500,000 (Purchase Price) or $0.10 per share.  The purchase price will be paid in seven (7) installments as listed under Item 5 on page 33.



In connection with the Stock Acquisition Agreement we entered into an Exclusive License and Distribution Agreement with Benchmark, wherein we granted the exclusive, world-wide right, license and authority to market, sell and distribute for use in the manufacture of fluids and solution for use in Oilfield Applications to Benchmark.



Results of Operations for the Three Months Ended June 30, 2007 and 2006



The following table summarizes selected items from the statement of operations at June 30, 2007 compared to June 30, 2006.



SALES AND COST OF GOODS SOLD:



Three Months Ended
June 30,
        
        Increase (Decrease)2007
        
        2006
        
        $
        
        %Sales
        
        $118,289
        
        $119,397
        
        $(1,108)
        
        (1%)Cost of Goods Sold
        
        45,801
        
        76,737
        
        (30,936)
        
        (40%)Gross Profit
        
        72,488
        
        42,660
        
        29,828
        
        70%Gross Profit Percentage of Sales
        
        61%
        
        36%
        
        --
        
        25%




Sales



Our sales for the three months ended June 30, 2007 were $118,289 compared to sales of $119,397 in the three months ended June 30, 2006.  This resulted in a decrease in sales of $1,108, or 1%, from the same period a year ago.  We believe that our products are gaining recognition in the marketplace which will result in increased sales for the remaining quarters of fiscal 2007.  Finalizing and executing oilfield industry equipment needs and sales should provide an increase in sales.



Cost of goods sold / Gross profit percentage of sales



Our cost of goods sold for the three months ended June 30, 2007 was $45,801, a decrease of $30,936, or 40% from $76,737 for the three months ended June 30, 2006.  The decrease in our cost of goods sold is as a result of redesigning and building EcaFlo® equipment to incorporate new C-100 electrolytic cells in a more efficient assembly format.  We are continuing to update and upgrade our product line and we closely monitor the cost of all of our products.  We believe



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the cost of sales will increase slightly less as a percentage of sales when we have additional sales.  Gross profit margins increased by 25% from the prior fiscal year because of the product mix of our sales and our FEM-3 cell replacement program.



EXPENSES:



Three Months Ended
June 30,
        Increase (Decrease)2007
        2006
        $
        %Expenses:Professional and
administrative fees
        $320,620
        $108,744
        $211,876
        195%Salary
        153,387
        127,774
        25,613
        20%Depreciation and amortization
        570
        1,923
        (1,353)
        (70%)Office and miscellaneous
        92,061
        127,981
        (35,920)
        (28%)Total operating expenses
        566,638
        366,422
        200,216
        55%Loss from operations
        (494,150)
        (323,762)
        170,388
        53%Other income (expense):Interest income
        --
        444
        (444)
        --Interest expense
        (213,172)
        (1,894)
        211,278
        --Total other expense
        (213,172)
        (1,450)
        211,722
        --Net loss
        $(707,322)
        $(325,212)
        $382,110
        117%




Professional and Administrative Fees



Professional and administrative fees for the three months ended June 30, 2007 were $320,620, an increase of $211,876, or 195%, from $108,744 for the three months ended June 30, 2006.  The increase in professional and administrative fees was the result of the increased number and amounts of consulting contracts.  Whenever possible we are trying to reduce outside consultants but we will still need some assistance as we do not have sufficient in-house expertise for areas of our business.



Salary Expenses



Salary expenses for the three months ended June 30, 2007 was $153,387, an increase of $25,613, or 20%, from $127,774 for the three months ended June 30, 2006.  The increase in salary expenses was the result of employing additional personnel and expanded hours worked.  We expect salary expense to increase in the future as the Company grows and as sales volume increases.  In addition, during the three months ended June 30, 2007, we increased the salaries of our Chief Executive Officer and our Executive Vice President by 57% and 65%, respectively.  We may need to continue issuing stock and stock options in exchange for services and adequate personnel compensation.



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Depreciation and Amortization Expenses



Depreciation and amortization expenses for the three months ended June 30, 2007 was $570, a decrease of $1,353, or 70%, from $1,923 for the three months ended June 30, 2006.



Office and Miscellaneous



Office and miscellaneous expenses for the three months ended June 30, 2007 was $92,061, a decrease of $35,920, from $127,981 for the three months ended June 30, 2006.  The decrease in office and miscellaneous expenses was as a result of having well-stocked our office and the lack of need for one-time equipment purchases during this period of time.



Loss from Operations



The loss from operations for the three months ended June 30, 2007 was $494,150, versus a loss from operations of $323,762 for the three months ended June 30, 2006, a change in loss from operations of $170,388.  The increase in the loss from operations in 2007 was the result of additional operating expenses, such as replacing FEM-3 EcaFlo® equipment, as compared to 2006.



Interest Expense



Interest expense for the three months ended June 30, 2007 was $213,172 as compared to $1,894 for the same period in 2006.  Our interest expense in 2007 was high because of temporary working capital loans that had high interest rates and fees.



Net Loss



Our net loss for the three months ended June 30, 2007 was $707,322, an increase of $382,110, or 117%, from $325,212 for the three months ended June 30, 2006.  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, 2007 and 2006



The following table summarizes selected items from the statement of operations at June 30, 2007 compared to June 30, 2006.



SALES AND COST OF GOODS SOLD:



Six Months Ended
June 30,
        
        Increase (Decrease)






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2007
        
        2006
        
        $
        
        %Sales
        
        $195,572
        
        $232,373
        
        $ (36,801)
        
        (16%)Cost of Goods Sold
        
        95,372
        
        114,419
        
        (19,047)
        
        (17%)Gross Profit
        
        100,200
        
        117,954
        
        (17,754)
        
        (15%)Gross Profit Percentage of Sales
        
        51%
        
        51%
        
        --
        
        --




Sales



Our sales for the six months ended June 30, 2007 were $195,572 compared to sales of $232,373 in the six months ended June 30, 2006.  This resulted in a decrease in sales of $36,801, or 16%, from the same period a year ago.  We believe that our products are gaining recognition in the marketplace which may result in increased sales for the remaining quarters of fiscal 2007.  Oilfield industry sales should increase in future quarters as a result of our recent agreement with Benchmark.



Cost of goods sold / Gross profit percentage of sales



Our cost of goods sold for the six months ended June 30, 2007 was $95,372, a decrease of $19,047, or 17% from $114,419 for the six months ended June 30, 2006.  The decrease in cost of goods sold was as a result of redesigning and building EcaFlo® equipment to incorporate new C-100 electrolytic cells in a better assembly format.  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 margins decreased from the prior fiscal year because of the product mix of our sales and our FEM-3 cell replacement program.



EXPENSES:



Six Months Ended
June 30,
        Increase (Decrease)2007
        2006
        $
        %Expenses:Professional and administrative fees
        $454,048
        $254,846
        $199,202
        78%Salary
        388,695
        262,392
        126,303
        48%Depreciation and amortization
        1,140
        4,277
        (3,137)
        (73%)Office and miscellaneous
        228,283
        233,096
        (4,813)
        (2%)Total operating expenses
        1,072,166
        754,611
        317,555
        42%Loss from operations
        (971,966)
        (636,657)
        335,309
        53%






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Other income (expense):Interest income
        --
        862
        (862)
        --Interest expense
        (252,737)
        (6,496)
        246,241
        --Total other expense
        (252,737)
        (5,634)
        247,103
        --Net loss
        $(1,224,703)
        $(642,291)
        $582,412
        91%




Professional and Administrative Fees



Professional and administrative fees for the six months ended June 30, 2007 were $454,048, an increase of $199,202, or 78%, from $254,846 for the six months ended June 30, 2006.  The increase in professional and administrative fees was the result of the increased number and amounts of consulting contracts.  Whenever possible we are trying to reduce outside consultants but we will still need some assistance as we do not have sufficient in-house expertise to handle all aspects of our business.



Salary Expenses



Salary expenses for the six months ended June 30, 2007 was $388,695, an increase of $126,303, or 48%, from $262,392 for the six months ended June 30, 2006.  The increase in salary expenses was the result of employing additional personnel and expanded hours worked.  We expect salary expense to increase in the future as the Company grows and as sales volume increases.  In addition, we have increased the salaries payable to our executives.  We may need to continue issuing stock and stock options in exchange for services and adequate personnel compensation.



Depreciation and Amortization Expenses



Depreciation and amortization expenses for the six months ended June 30, 2007 was $1,140, a decrease of $3,137, or 73%, from $4,277 for the six months ended June 30, 2006.  Depreciation and amortization expenses decreased because we are no longer amortizing a license fee.



Office and Miscellaneous



Office and miscellaneous expenses for the six months ended June 30, 2007 was $228,283, a decrease of $4,813, from $233,096 for the six months ended June 30, 2006.  The decrease in office and miscellaneous expenses was a result of having well-stocked our office and the lack of need for one-time equipment purchases during this period of time.



Loss from Operations



The loss from operations for the six months ended June 30, 2007 was $971,966, versus a loss from operations of $636,657 for the six months ended June 30, 2006, an increase in loss from operations of $335,309.  The increase in the loss from operations in 2007 was the result of



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additional operating expenses as compared to 2006.  A significant portion of this increase is directly related to replacing FEM-3s with C-100 cells in our new EcaFlo® equipment.





Interest Expense



Interest expense for the six months ended June 30, 2007 was $252,737 as compared to $6,496 for the same period in 2006.  Our interest expense in 2007 was high because of temporary working capital loans that had high interest rates and fees.



Net Loss



Our net loss for the six months ended June 30, 2007 was $1,224,703, an increase of $582,412, or 91%, from $642,291 for the six months ended June 30, 2006.  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.



Operation Plan



The technology that drives our short-term and long-term plans is electro-chemical activation (ECA), which is the center point of our EcaFlo® technology.  Our plan of operation focuses on continuing the process of commercialization of EcaFlo®equipment and EcaFlo® solutions, known as anolyte and catholyte.



Our direct attention continues to be focused on providing our EcaFlo® devices to the markets at-hand:  oil and gas industry, food safety and agricultural applications, storm-water treatment, wastewater treatment, and other hard surface sanitation opportunities.



Liquidity and Capital Resources



The following table summarizes total current assets, total current liabilities and working capital at June 30, 2007 compared to December 31, 2006.



June 30,
2007
        December 31,
2006
        Increase / (Decrease)$
        %Current Assets
        $       710,957
        $        253,351
        $   457,606
        181%Current Liabilities
        $       639,505
        $        623,721
        $     15,784
        3%Working Capital (deficit)
        $         71,452
        $     (370,370)
        $441,822
        119%




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.



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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 and the incremental equity investment, by contract from Benchmark Performance Group, Inc.  We will continue to consider financing opportunities with strategic industry partners outside of the oil and gas industry.



As of June 30, 2007, we continue to use equity sales and debt financing to provide the capital we need to run the business.  In the future we need to generate enough revenues from the sales of our products in order for us to not have to sell additional stock or obtain additional loans.  On June 20, 2007 we entered into an investment agreement and contract with Benchmark Performance Group, Inc.  The contract provides for an equity investment of $3,500,000 over a period of 30 months and for technology fees, paid to IET per gallon of EcaFlo® fluids sold by Benchmark within the oil and gas industry.



Financing.On August 15, 2006, we entered into a Promissory Note with Defense Technology Systems, Inc. (DFS) for the principal amount of $50,000.  Pursuant to the note we promised to pay to the order of DFS the sum of $50,000 together with interest thereon at 10% per annum on any unpaid balance.  According to the note the outstanding principal and accrued but unpaid interest was due and payable on September 30, 2006.  The note has been extended to a date to be determined, due to DFS non-performance on a financing contract with the Company and the Companys inability to reach, by phone or e-mail, DFS.



Pursuant to the business agreement dated August 15, 2006 with Robert Lucas, Mr. Lucas loaned us $25,000, which we agreed to repay as certain convertible debentures are sold.  The note is still valid and the Company is paying interest while continuing to sell debentures.  The interest is approximately 18%.  We also agreed to issue 100,000 shares of our common stock if we did not repay the loan in 90 days.  As of the date of the report, the loan was not repaid in full and on April 3, 2007, we issued the 100,000 shares to Mr. Lucas.



On September 27, 2006, we entered into a loan agreement with Michael Burstein for the principal amount of $50,000.  Pursuant to the loan agreement we promised to pay Mr. Burstein the sum of $50,000 plus interest of $5,000 within 14 days of September 27, 2006.  We agreed to issue 1,000,000 shares to Mr. Burstein as a late payment penalty if the note was not paid in 30 days.  On November 17, 2006, the parties renewed the loan agreement wherein Mr. Burstein agreed to accept 510,590 shares of our common stock and $5,000 as complete and full satisfaction of penalties associated with our non-performance on the loan agreement.  We further agreed to pay Mr. Burstein $55,000 on or before close of business on December 15, 2006.  We also agreed to pay an additional $2,000 for each or any 30-day period for which the loan balance remains outstanding.  The note balance remained unpaid as of June 30, 2007.



On December 21, 2006, we entered into a loan agreement with DaVinci-Franklin Fund I, LLC for the principal amount of $75,000.  Pursuant to the loan agreement we promised to pay to the order of DaVinci-Franklin Fund I, LLC the principal sum of $75,000 plus interest of $5,000 per month on March 21, 2007.  We also agreed to issue 2,500,000 shares of our restricted common stock to DaVinci as collateral (issued on July 12, 2007).  The loan agreement had a provision wherein if we did not repay the principal sum plus interest on March 21, 2007, we agreed to issue 250,000 shares of common stock as liquidated damages.  We issued the 250,000



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shares on April 3, 2007.  As of the date of this filing, the remaining principal sum of $50,000 has not been repaid and is due and payable on or before August 22, 2007.



On January 23, 2007, we entered into a promissory note with Edward Marucci for the principal amount of $25,000.  Pursuant to the promissory note, we promised to pay Mr. Marucci the principal sum of $25,000 together with interest of 12% per annum on the maturity date of February 6, 2007.  We did not repay the note when due; consequently the interest rate increased to eighteen percent (18%) per annum.  Mr. Marucci may at his option convert any amounts owing under the promissory note into shares of our common stock at the rate of one share for each $0.05 of indebtedness converted.  On July 12, 2007, we issued 537,500 shares of our restricted common stock to Mr. Marucci to satisfy the promissory note in full.



On January 30, 2007, we entered into a promissory note with Sherri Hotton for the principal amount of $40,000.  On July 12, 2007, we issued 1,070,900 shares of our restricted common stock to Ms. Hotton to satisfy the promissory note in full.



On February 7, 2007 and March 12, 2007, we entered into loan agreements with 3GC, Ltd. for the principal amounts of $10,000 and $40,000.  Pursuant to the loan agreements, we promised to pay 3GC, Ltd. the principal sum of $10,000 on or before April 6, 2007 and the principal sum of $40,000 plus a flat interest fee of $1,000 on or before April 12, 2007.  Additionally, we agreed to issue 200,000 shares of our common stock to 3GC, Ltd. if we did not repay the entire loan amount of $41,000 by April 12, 2007.  As of April 30, 2007, the principal amounts and interest were repaid to 3GC, Ltd. and as of the date of this report we have not issued the 200,000 shares to 3GC, Ltd.



On February 26, 2007 and March 5, 2007, we entered into loan agreements with William E. Prince, President of the Company, for the principal amounts of $2,000 and $200.  Pursuant to the loan agreements we promised to pay Mr. Prince the principal sum of $2,000 on or before March 27, 2007 and the principal amount of $200 on or before March 30, 2007.  Interest accrued at a rate of 18% per annum.  Mr. Prince was repaid $200 on May 7, 2007, and $2,000 on May 23, 2007.  Interest and fees were waived by Mr. Prince.



Satisfaction of our cash obligations for the next 12 months.



As of June 30, 2007, our cash balance was $306,834.  Our plan for satisfying our cash requirements for the next twelve months is primarily from our agreement with Benchmark, through additional sales of our common stock, 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



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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 may continue to incur operating losses over the majority or some portion of 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.



As a result of our cash requirements and our lack of working capital, although not anticipated, we may continue to issue stock in exchange for loans and/or equity, which may have a substantial dilutive impact on our existing stockholders.



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.  The Company received $80,000 in government funding from its Phase I USDA SBIR grant during 2006.  Management will consider 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.



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



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, utilizing the recently secured new United States source of electrolytic cells, and their respective markets, we have been able to make decisions regarding market entry with our own specifically designed and engineered devices.  Due to securing a new source of electrolytic cells for our EcaFlo® equipment, our engineering department has worked with AquaStel, our new supplier, in order to develop prototype EcaFlo® equipment that features the



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larger volume cells.  Equipment design and building on several EcaFlo® models is complete and pricing has been developed to reflect the upgrades we have made in our equipment.  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.



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 present 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 oil and gas 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.



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 continuing to work together with Coastal Carolina University and Clemson University, as well as other universities associated with several of our customers specific research requirements, 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 oil and gas and food safety industries, and 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 further implement into our EcaFlo® equipment designs.



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On February 14, 2007, we announced that Yates Petroleum Company, of Artesia, New Mexico, has purchased additional EcaFlo® equipment due to successes realized in the fall of 2005.



On March 22, 2007, we announced that we have developed the most advanced EcaFlo® system ever designed and sold.  We also announced that our new Command and Control EcaFlo® system meets the requirements of a specific market area customers order for precision monitoring, automated responses and consistent properties of the environmentally-responsible biocide solutions produced by the equipment.



On April 4, 2007, we announced that our wholly-owned subsidiary, I.E.T., Inc., has entered into a sales contract with Benchmark Energy Products, L.P. for over $300,000 dollars of EcaFlo® equipment.



On April 25, 2007, we announced that we entered into an exclusive agreement for our proprietary EcaFlo® devices and EcaFlo® fluids with Benchmark Energy Products, L.P.



On June 21, 2007, we announced that we are moving forward in the sanitation and janitorial distribution area, through our most recent subsequent sale to a supplier in this market.



Significant changes in the number of employees.



We currently employ 10 full-time, permanent, employees; 1 part-time employee (research assistant and technician), 1 special projects consultant (EGR International, LLC), 1 scientific and ECA consultant and 1 sales representative organization (Pentagon Technical Services).  The 10 full-time employees are engaged in management, marketing and sales, engineering, production and administrative services; our part-time employee is 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.



Amended Employment Agreements



William E. Prince.On May 30, 2007, we executed an amendment to the President and CEO of the Company, William E. Princes employment agreement, wherein we extended the termination date from December 31, 2009 to March 30, 2012.  Additionally, we increased Mr. Princes annual salary from $74,400 to $130,000, which shall be paid in equal, bi-weekly installments retroactive to April 1, 2007.



Marion C. Sofield.On May 30, 2007, we executed an amendment to the Executive Vice President of the Company, Marion C. Sofields employment agreement, wherein we extended the termination date from December 31, 2009 to March 30, 2012.  Additionally, we increased Ms. Sofields annual salary from $72,000 to $110,000, which shall be paid in equal, bi-weekly installments retroactive to April 1, 2007.



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Consultants



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 was for six (6) months, terminating on December 31, 2006.  On January 1, 2007, we entered into a new consulting agreement with Dr. Dunham with the same terms set forth above.  The agreement terminated on June 30, 2007.



EGR International, Ltd.On September 1, 2006, we entered into an Independent Marketing Contractor Agreement with EGR International, Ltd., wherein EGR agreed to work together with the Companys President and CEO and Executive Vice President of Operations for special project development.  The term of the agreement commenced on September 1, 2006 and terminated on December 31, 2006.  We agreed to pay EGR $2,500 per month and in addition we agreed to issue 5,000 shares of our common stock as an incentive for completion of certain pre-determined goals, on a quarterly basis.  As of the date of this report, we did not issue any stock to EGR pursuant to this agreement.  On January 1, 2007, we entered into a new Independent Marketing Contractor Agreement with EGR with the same terms set forth above.  The agreement terminated on June 30, 2007.



United Capital Group, Inc.On January 29, 2007, we entered into a consulting agreement with United Capital Group, Inc., wherein United Capital agreed to provide the Company with services of an advisory or consultative nature to provide a plan for various investor and public relations services.  The term of the agreement is for six months terminating on August 29, 2007.  We agreed to compensate United Capital with 2,000,000 shares of our common stock with registration rights (issued on February 2, 2007).



Gary J. Grieco.On March 13, 2007, we entered into a consulting agreement with Gary J. Grieco, wherein Mr. Grieco agreed to continue the development of legal and proper stock sales for the Company.  We agreed to compensate Mr. Grieco with $2,500 per month, 600,000 shares of our restricted common stock (issued on March 15, 2007), 1,000,000 Series D Warrants to purchase shares of our restricted common stock at $0.10 per share, exercisable until December 31, 2007, and pay for travel and expenses incurred in the performance of the agreement.  The term of the agreement began on January 1, 2007 and terminated on June 30, 2007.



Peter Gianoukas and Joel Brownstein.On March 22, 2007, we entered into a consulting agreement with Messrs. Gianoukas and Brownstein, wherein Messrs. Gianoukas and Brownstein agreed to provide the Company with expertise in the matter of raising capital for the Company.  The term of the agreement began on March 22, 2007 and was to terminate on June 22, 2007.  This agreement was cancelled on May 1, 2007.



John Sanders.On May 29, 2007, we entered into a consulting agreement with John Sanders, wherein Mr. Sanders agreed to assist the Company with corporate development in order to enhance the Companys shareholder value.  The term of the agreement began on May 29, 2007 and will terminate on May 28, 2008.  We agreed to pay Mr. Sanders the equivalent of



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$2,500 per month by issuing 50 units of our 10% convertible debenture (includes 150,000 restricted shares of common stock and 100,000 Series C Warrants, exercisable at $0.25 per share through December 31, 2008) and pay for mutually agreed upon travel and expenses incurred in the performance of the agreement.  The 50 units were issued to Mr. Sanders on June 28, 2007.



Supply Agreement with Layne Christensen Company



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.



Sales Contract



On March 16, 2007, we executed a sales contract with Benchmark Energy Products, LP, wherein we agreed to sell and Benchmark agreed to purchase six (6) EcaFlo® Model C104 units for a total purchase price of $312,000.  We received a deposit of $312,000 that was subsequently used for the purchase of shares of our stock.



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.



Concentration of Credit Risk



We sell products to customers in diversified industries and geographical regions.  In 2006, three customers represented 35%, 16% and 14% of our revenues, respectively and in 2005 three customers represented 46%, 28% and 19% of our revenues, respectively.  We continually evaluate the creditworthiness of our customers.  We typically require 40-50% deposit with an EcaFlo® equipment order and we have not required collateral other than deposits.



We evaluate the collectibility of accounts receivable on a combination of factors.  Our policies require us to record a specific reserve if we become aware of anything that would cause us to question a specific customers inability to meet their financial obligations to us.  We will record a specific reserve for bad debts to reduce a related receivable when we believe an amount is not collectible.  We do not have any reserves for bad debt at March 31, 2007.



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Revenue Recognition



We recognize sales revenue when title passes and all significant risks of ownership change, which occurs either upon shipment or delivery based on contractual terms.



Off-Balance Sheet Arrangements.



As of June 30, 2007, 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 are material to investors.



FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS



We are required to make accounting and estimates and judgments in preparing our consolidated financial statements.



In preparing our consolidated financial statements in accordance with accounting principles generally accepted in the United States, we make certain estimates and assumptions that affect the accounting for and recognition of assets, liabilities, revenues and expenses.  These estimates and assumptions must be made because certain information that is used in the preparation of our consolidated financial statements is dependent on future events, or cannot be calculated with a high degree of precision from data available.  In some cases, these estimates are particularly difficult to determine and we must exercise significant judgment.  The estimates and the assumptions having the greatest amount of uncertainty, subjectivity and complexity are related to our accounting for bad debts, returns and allowances, warranty and repair costs, derivatives, and asset impairments.  Actual results could
differ materially from the estimates and assumptions that we use, which could have a material adverse effect on our financial condition and results of operations.



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, 2006, 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, with traditional financing firms and/or with an industry partner, or debt facilities.



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



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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.  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.



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;



        The continued success of lab testing that supports the development of our EcaFlo® technology product lines;



        Demand for our EcaFlo® equipment and solutions;



        The level of our competition;



        Our ability to maintain key management and technical support staff, and to attract more employees with similar characteristics; and



        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 it 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 EcaFlo® Division will be substantial, i.e., 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



26



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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.  As a result of our low-priced stock, and our continuous need for additional capital, we anticipate issuing significant amounts of our common stock in exchange for either debt or equity.  This continued issuance of our common stock will have a substantial dilutive impact on our current stockholders.  If we are unable to obtain additional equity or debt financing, in the near future, we may be forced to terminate operations.



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.



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 have historically been 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



27



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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 they 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 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.



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 not currently seeking additional equity financing, which if sought our or obtained 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.



Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.



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Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.



We have a limited number of personnel that are required to perform various roles and duties as well as be responsible for monitoring and ensuring compliance with our internal control procedures.  As a result, our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.  Investors relying upon this misinformation may make an uninformed investment decision.



If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.



Companies trading on the OTC Bulletin Board, such as us, generally must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.  More specifically, NASD has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission.  Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period, then we will be ineligible for quotation on the OTC Bulletin Board.  As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.  As of the date of this filing, we have no late filings reported by NASD.



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



29



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pursuant to Exchange Act Rule 13a-15.  Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, Mr. Prince 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.



It should be noted, however, that no matter how well designed and operated, a control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.  Because of these and other inherent limitations of control systems (including faulty judgments in decision making or breakdowns resulting from simple errors or mistakes), there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions.  Additionally, controls can be circumvented by individual acts, collusion or by management override of the controls in place.



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.



PART II  OTHER INFORMATION



Item 1.
        Legal Proceedings.




None.




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



On April 3, 2007, we issued 100,000 shares of our restricted common stock to Robert Lucas pursuant to Mr. Lucas business agreement dated August 15, 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).The recipient of the shares was afforded 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 Companys financial statements and 34 Act reports.  We reasonably believe that the recipient, immediately prior to issuing the shares, had such knowledge and experience in our financial and business matters that he was capable of evaluating the merits and risks of his investment.  The recipient had the
opportunity to speak with our president and directors on several occasions prior to his investment decision.



On April 3, 2007, we issued 250,000 shares of our restricted common stock to DaVinci-Franklin Fund I, LLC pursuant to its note agreement, as liquidated damages for the failure to repay the loan within 90 days from the December 21, 2006 origination date.  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).The recipient of the shares was afforded 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 Companys financial statements and 34 Act reports.  We reasonably believe that the recipient, immediately prior to



30



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issuing the shares, had such knowledge and experience in our financial and business matters that it was capable of evaluating the merits and risks of its investment.  The recipient had the opportunity to speak with our president and directors on several occasions prior to its investment decision.

On April 3, 2007, we issued a total of 163,000 shares of our restricted common stock as contract compensation in lieu of salary to the following employees:



Name
        Number of SharesWilliam E. Prince
        100,000Marion C. Sofield
        50,000S. Larry Jones
        10,000Stuart Emmons
        3,000




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 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 believe that the recipients, 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 their investment.  The recipients had the opportunity to speak with our management on several occasions prior to their
investment decision.



On May 2, 2007, we cancelled the 600,000 Series D Warrants granted to Joel Brownstein and the 600,000 Series D Warrants granted to Ace Trading Company on March 23, 2007 as a result of termination of the March 23, 2007 Service Agreement.



On May 18, 2007, we inadvertently issued 15,625 shares of our restricted common stock to Joel Brownstein and 15,625 shares of our restricted common stock to Peter Gianoukas and on July 9, 2007, the total 31,250 shares were cancelled.  Additionally, on July 9, 2007, we issued the correct amount of shares (7,813 shares of restricted common stock each) to Joel Brownstein and Peter Gianoukas pursuant to their consulting agreement dated March 22, 2007.  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 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 believe that the recipients, 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 their investment.  The recipients had the opportunity to speak with our management on several occasions prior to their investment decision.



Pursuant to the terms of the Stock Acquisition Agreement, we agreed to issue a total of 35,000,000 shares to Benchmark in exchange for $3,500,000.  The 35,000,000 shares of common



31



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stock will be issued in six installments as described in Item 5 below.  Of the 35,000,000 shares, the first 5,000,000 shares were issued on June 27, 2007 for cash consideration of $188,000 and the conversion of equipment deposits totaling $312,000.



Between April and June 2007, we sold 652 units consisting of 652 10% Convertible Debentures (conversion price of $0.40, convertible until January 2, 2009), 1,956,000 shares of common stock and 1,304,000 Series C Warrants ($0.25 per share, exercisable until December 31, 2008) to 22 accredited investors for a total purchase price of $326,000.  On June 28, 2007, the 1,956,000 shares of common stock were issued.  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 issued 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 believe that the recipients, 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 their investment.  The recipients had the opportunity to speak with our management on several occasions prior to their investment decision.



On May 30, 2007, our board of directors authorized an offer to the Series C Warrant Holders wherein they would be entitled to exercise up to 3,000,000 Series C Warrants for $0.125 (50% discount in original exercise price) per share with notification of intent to exercise by June 18, 2007.  On July 13, 2007, 16 Series C Warrant Holders exercised 2,250,000 Series C warrants at a price of $0.125 per share for a total purchase price of $281,250.  The 2,250,000 shares were issued on July 13, 2007.  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 issued 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 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 their investment.  The recipients had the opportunity to speak with our management on several occasions prior to their investment decision.



On June 28, 2007, we issued 50 units consisting of 50 10% Convertible Debentures (conversion price of $0.40, convertible until January 2, 2009), 150,000 shares of common stock and 100,000 Series C Warrants ($0.25 per share, exercisable until December 31, 2008) to John Sanders for payment in full for our annual consulting agreement, dated May 29, 2007, with him.  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 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



32



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investment decision, including the financial statements and 34 Act reports.  We reasonably believe that the recipient, immediately prior to the issuance of the shares, had such knowledge and experience in our financial and business matters that he was capable of evaluating the merits and risks of his investment. The recipients had the opportunity to speak with our management on several occasions prior to his investment decision.



Subsequent Issuances



On July 3, 2007, we sold 50 units consisting of 50 10% Convertible Debentures (conversion price of $0.40, convertible until January 2, 2009), 150,000 shares of common stock and 100,000 Series C Warrants ($0.25 per share, exercisable until December 31, 2008) to 1 accredited investor for a total purchase price of $25,000.  As of the date of this filing the 150,000 shares have not been issued.  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 issued directly by us and did not involve a public offering or general solicitation.  The recipient of the shares was afforded an opportunity for effective access to files and records of the Company that contained the relevant information needed to make his investment
decision, including the financial statements and 34 Act reports.  We reasonably believe that the recipient, immediately prior to the issuance of the shares, had such knowledge and experience in our financial and business matters that he was capable of evaluating the merits and risks of his investment.  The recipient had the opportunity to speak with our management on several occasions prior to his investment decision.



On July 12, 2007, we issued 537,500 shares of our restricted common stock to Edward Marucci pursuant to the conversion of Mr. Maruccis promissory note dated January 23, 2007 to satisfy the note in full.  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).The recipient of the shares was afforded 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 Companys financial statements and 34 Act reports.  We reasonably believe that the recipient, immediately prior to issuing the shares, had such knowledge and experience in our financial and business matters that it was capable of evaluating the merits and
risks of its investment.  The recipient had the opportunity to speak with our president and directors on several occasions prior to its investment decision.



On July 12, 2007, we issued 1,070,900 shares of our restricted common stock to Sherri Hotton pursuant to the conversion of Ms. Hottons promissory note dated January 30, 2007 to satisfy the note in full.  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).The recipient of the shares was afforded 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 Companys financial statements and 34 Act reports.  We reasonably believe that the recipient, immediately prior to issuing the shares, had such knowledge and experience in our financial and business matters that it was capable of evaluating the merits and risks
of its investment.  The recipient had the opportunity to speak with our president and directors on several occasions prior to its investment decision.



33



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On July 12, 2007, we issued 2,500,000 shares of our restricted common stock to DaVinci-Franklin Fund to be held as collateral in accordance with the December 21, 2006 note agreement.  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).The recipient of the shares was afforded 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 Companys financial statements and 34 Act reports.  We reasonably believe that the recipient, immediately prior to issuing the shares, had such knowledge and experience in our financial and business matters that it was capable of evaluating the merits and risks of its investment.  The
recipient had the opportunity to speak with our president and directors on several occasions prior to its investment decision.



On July 27, 2007, we issued 573,000 shares of common stock to Stoecklein Law Group for services rendered to the Company.  The shares issued were registered in a Registration Statement on Form S-8 filed on July 23, 2007.



Issuer Purchases of Equity Securities



The Company did not repurchase any of its equity securities during the quarter covered by this report.



Item 3.
        Defaults Upon Senior Securities.




As of June 30, 2007, we were in default on the following loans or notes:




Payee
        Due Date
        Amount DueDefense Technology Systems, Inc.
        September 30, 2006
        $50,000Robert Lucas
        April 2007 (1)
        $25,000Michael Burstein
        December 15, 2006
        $55,000


(1)
        We agreed to repay the loan to Mr. Lucas as certain convertible debentures were sold.  Between April and June 2007 we sold convertible debentures and as of the date of this report the loan to Mr. Lucas remains unpaid.




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




None.




Item 5.
        Other Information.




Stock Acquisition Agreement



On June 20, 2007, we executed a Stock Acquisition Agreement with Benchmark Performance Group, Inc. (Benchmark).  Pursuant to the Stock Acquisition Agreement, Benchmark agreed to purchase 35,000,000 shares of our common stock for a total purchase price



34



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of $3,500,000 (Purchase Price) or $0.10 per share.  The purchase price will be paid in seven (7) installments as listed below:



(1)
        First Installment  The previously invoiced $312,000 to Benchmark for the purchase of 6 EcaFlo® Model C-104 units shall be converted to an equity investment toward the purchase of 5,000,000 shares of common stock and applied to the Purchase Price.


(2)
        Second Installment  Within three days of the execution of the Stock Acquisition Agreement, Benchmark paid the Company $188,000.  Upon receipt of the second installment, the Company issued 5,000,000 shares of our common stock to Benchmark and caused E. Wayne Kinsey, III and David N. Harry to be elected as members to our Companys Board of Directors.


(3)
        Third Installment  On or before October 31, 2007, Benchmark will pay to the Company $500,000.  Upon receipt of the third installment, the Company will issue an additional 5,000,000 shares of our common stock to Benchmark and initiate a registration of the 10,000,000 shares of our common stock issued to Benchmark pursuant to the second and third installments.


(4)
        Fourth Installment  On or before April 30, 2008, Benchmark will pay to the Company $500,000.  Upon receipt of the fourth installment, the Company will issue an additional 5,000,000 shares of our common stock to Benchmark.


(5)
        Fifth Installment  On or before October 31, 2008, Benchmark will pay to the Company $500,000.  Upon receipt of the fifth installment, the Company will issue an additional 5,000,000 shares of our common stock to Benchmark and initiate a registration of the 10,000,000 shares of our common stock issued to Benchmark pursuant to the fourth and fifth installments.


(6)
        Sixth Installment  On of before April 30, 2009, Benchmark will pay to the Company via wire transfer $500,000.  Upon receipt of the sixth installment, the Company will issue an additional 5,000,000 shares of our common stock to Benchmark.


(7)
        Seventh Installment  On or before October 31, 2009, Benchmark will pay the Company $1,000,000.  Upon receipt of the seventh installment, the Company will issue 10,000,000 shares of our common stock to Benchmark and the Company will initiate a registration of the 15,000,000 shares of our common stock issued pursuant to the sixth and seventh installments to Benchmark.




Anti-dilution Period.Pursuant to the Stock Acquisition Agreement, we agreed that throughout the period commencing with the closing date and ending October 31, 2009, Benchmark shall have the right and ability to maintain an equity position in the Company equal to the equity position it would own upon the issuance of shares to it following payment of the seventh installment if, between the date of closing and the date of such payment and issuance of shares, we were to issue no additional shares of our common stock (approximately 40.61%) to any other party.  If at any time during the Anti-Dilution Period, we:



a.
        issue any shares of our common stock (other than the shares to be issued to Benchmark pursuant to the Stock Acquisition Agreement) or any note, debenture, or other evidence of indebtedness, or any option, right, warrant or other instrument of security convertible into or exchangeable for shares of our common stock;




35



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b.
        declare a dividend on our common stock payable in our common stock;


c.
        subdivide or split the outstanding shares of our common stock;


d.
        authorize and issue any new class or series of equity securities or any note, debenture, or other evidence of indebtedness, or any option, right, warrant or other instrument or security convertible into or exchangeable for shares of such other class or series; or


e.
        issue any shares of our common stock to any holder, transferee or assignee of a currently outstanding note, debenture, or other evidence of indebtedness, or any option, right, warrant or other instrument or security convertible into or exchangeable for shares of our common stock upon the holders exercise or its conversion or exchange rights thereunder, other than shares of common stock issued pursuant to any option granted to any officer, director or employee of the Company.




(any of the foregoing being a Warrant Right Event), then we shall issue to Benchmark a warrant entitling it to purchase, at $0.10 per share, such additional number of shares of our common stock as would, upon exercise, make Benchmark the holder of the same total percentage of all our outstanding equity securities as it held prior to the Warrant Right Event.  The warrants will be exercisable at any time through October 31, 2009.



Option to Purchase Additional Control Shares.In addition we granted Benchmark, the right and option to purchase such additional number of shares of our common stock as shall, at the time of issuance, make Benchmark the holder of 51% of our total outstanding equity securities (Control Share Option).  Such Control Share Option shall be exercisable at any time through October 31, 2009, and the per share price shall be the weighted average per share price of our common stock over the 22 trading days prior to the date we receive written notice from Benchmark that it intends to exercise its option, based upon the closing prices and trades posted on the Over the Counter Bulletin Board, plus a 15% per share control premium.



Board Representation.Additionally, we agreed to take such action to elect E. Wayne Kinsey, III and David N. Harry as directors of the Company.





Exclusive License and Distribution Agreement



On June 20, 2007, in connection with the Stock Acquisition Agreement the Company and Benchmark also entered into an Exclusive License and Distribution Agreement, wherein we granted the exclusive, world-wide right, license and authority to market, sell and distribute for use in the manufacture of fluids and solution for use in Oilfield Applications to Benchmark.



Registration Rights Agreement




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On June 21, 2007, in connection with the Stock Acquisition Agreement the Company and Benchmark entered into a Registration Rights Agreement.  Pursuant to the terms of the Registration Rights Agreement, we are obligated to file three registration statements registering the 35,000,000 shares of common stock to be issued to Benchmark.  The first two registration statements will each register 10,000,000 shares of common stock.  The third registration statement will register the remaining 15,000,000 shares of common stock.



We are required to file the three registration statements as follows:




        The first registration statement must be initiated immediately following our receipt of $500,000, the third installment, for 10,000,000 shares of our common stock due on or before October 31, 2007 and must have the registration statement declared effective within five (5) days of SEC clearance.



        The second registration statement must be initiated immediately following our receipt of $500,000, the fifth installment, for 10,000,000 shares of our common stock due on or before October 31, 2008 and must have the registration statement effective within five (5) days of SEC clearance.



        The third registration statement must be initiated immediately following our receipt of $1,000,000, the seventh installment, for 15,000,000 shares of our common stock due on or before October 31, 2009 and must have the registration statement effective within five (5) days of SEC clearance.






Election of New Directors



Pursuant to the Stock Acquisition Agreement described above, our Board of Directors appointed E. Wayne Kinsey, III and David N. Harry to serve on the Board of Directors for the Company effective June 21, 2007.  Mr. Kinseys and Mr. Harrys term will continue until the next annual stockholders meeting or until their successors are duly appointed.



E. Wayne Kinsey, III.Since 1981, Mr. Kinsey has served as President and CEO of Benchmark Performance Group, Inc.  He began his career in the oilfield pumping services industry in 1975 as an equipment operator in Seagraves, Texas.  By 1981, Mr. Kinsey had become Distribution Manager for Benchmarks materials procurement, specialty blending and transportation and distribution facility in Odessa, Texas.  More importantly, he had concluded by 1981 that running a successful chemicals management and supply organization - especially one serving the demanding oil and gas service industry - required much more than just an inventory of chemicals.  Thus, Chemical Blending Services, Inc. was born.  In the ensuing 25 years, Benchmark has grown under Mr. Kinsey's leadership from a simple service first chemical supplier into one of the worlds
foremost developers and manufacturers of industrial and specialty chemicals, with an emphasis on chemical products and chemical solutions for the oil well pressure pumping service industry.  One thing has remained constant however - a determination and commitment to provide the customer with a level of service and technical support it can find from no other chemical supplier.  In 2004, Mr. Kinsey was appointed to the



37



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board of directors of the Texas Enterprise Fund by Texas Speaker of the House Tom Craddick.  In 1993, Mr. Kinsey worked in support of the founding of the Hillcrest School (for children with learning differences) in Midland, Texas, and he served for several years as a member of the School's Board of Directors.  In 1997, Mr. Kinsey was appointed by then Governor George W. Bush to the Continuing Advisory Committee for Special Education.  In 2001, he was appointed to the Advisory Board of Directors of Houston Achievement Place.  A number of the patents held by Benchmark bear Mr. Kinseys name as an inventor.



David N. Harry.Mr. Harry is the Executive Vice President and Chief Technical Officer of Benchmark.  He received his BS and MS from Stephen F. Austin State University and conducted work toward his doctoral in limnology and hydrology at Texas A&M University.  Mr. Harry began his career as an analytical chemist in 1977.  After spending two years in testing laboratories, Mr. Harry joined a major oilfield pressure pumping services company, where he served between 1979 and 1982 as a field chemist, District Engineer and then Regional Sales Engineer.  After another two years as Technical Manager for an independent pressure pumping services company, Mr. Harry joined Benchmark in 1984 to assist it with its growing dry and liquid chemical blending business.  Mr. Harry has been Benchmark's Chief Technical Officer since 1990, and
directs all of Benchmarks quality control, technical support and product development activities.  Under his technical leadership, over 35 patents have been issued to Benchmark, nine of which bear his name as inventor.  Mr. Harry is a member of the Society of Petroleum Engineers and the American Society of Quality Control.



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




Exhibits



Incorporated by referenceExhibit
number
        
        Exhibit description
        
        Filed
herewith
        
        Form
        
        Period
ending
        
        Exhibit No.
        
        Filing
date31
        
        Certification pursuant to Section 302 of the Sarbanes-Oxley Act
        
        X32
        
        Certification pursuant to Section 906 of the Sarbanes-Oxley Act
        
        X99.1
        
        Press Release on Exclusive Agreement with Benchmark, dated April 25, 2007
        
        
        
        10-QSB
        
        3/31/07
        
        99.1
        
        5/21/0799.2
        
        Press Release on Exposure and Sales in Sanitation, dated June 21, 2007
        
        X99.3
        
        Press Release on New Board of Directors, dated June 28, 2007
        
        X








38



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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, Chief Executive Officer


And Principal Financial Officer (On behalf of

the registrant and as principal accounting


officer)




Date: August 20, 2007



39



---



EXHIBIT 31

CERTIFICATION



I, William E. Prince, certify that:



1.
        I have reviewed this quarterly report on Form 10-QSB of Integrated Environmental Technologies, Ltd.;




2.
        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;




3.
        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;




4.
        I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:




(a)
        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;




(b)
        Evaluated the effectiveness of the small business issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and




(c)
        Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting.




5.
        I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):




(a)
        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and




(b)
        Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.




Date: August 20, 2007



/s/William E. Prince


William E. Prince,

Chief Executive Officer and

Principal Financial Officer







40



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EXHIBIT 32



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Quarterly Report of Integrated Environmental Technologies, Ltd. (the "Company") on Form 10-QSB for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William E. Prince, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



(1)
        The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and




(2)
        The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.






/s/William E. Prince


William E. Prince


Chief Executive Officer and


Principal Financial Officer


August 20, 2007








41