**UNITED
      STATES**





**SECURITIES
      AND EXCHANGE COMMISSION**





WASHINGTON,
      D.C. 20549





**FORM
      10-QSB/A**




**x  QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**




For
      the
      quarterly period ended January 31, 2006




**o  TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





For
      the
      transition period from __________ to ____________





*Commission
      file number 0-23268*




**AMERICAN
                TECHNOLOGIES GROUP, INC.**(Name of small business issuer in its charter)





Nevada
            P.O.
                BOX 90, MONROVIA, CA 91016
            95-4307525(State
                or other jurisdiction of incorporation or organization)
            (Address
                of principal executive offices) (zip code)
            (IRS
                Employer Identification No.)








Issuer's
      telephone number: (626) 357-5000








Check
      whether the issuer (1) filed all reports 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. Yes x No o








**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**





**PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS**




Check
      whether the registrant filed all documents and reports required to be filed
      by
      Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
      under a plan confirmed by a court. Yes o No o







**APPLICABLE
      ONLY TO CORPORATE ISSUERS**




State
      the
      number of shares outstanding of each of the registrant's classes of common
      equity, as of the latest practicable date: As of March 17 , 2006 the registrant
      had 2,775,064 shares of Common Stock outstanding.




Transitional
      Small Business Disclosure Format (Check one): Yes o No x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act) Yes o No xx











TABLE
                OF CONTENTSPART
                I
            FINANCIAL
                INFORMATIONITEM
                1
            Financial
                StatementsCondensed
                Consolidated Balance Sheet as of January 31, 2006 (unaudited)
            1Condensed
                Consolidated Statements of Operations (unaudited) for the three months
                and
                six months ended January 31, 2006 and January 31, 2005
            2Condensed
                  Consolidated Statements of Cash Flows (unaudited) for the three
                and six
                months ended January 31, 2006 and January 31, 2005
            3Condensed
                Consolidated Statement of Stockholders' Equity (unaudited) for the
                six months ended January 31, 2006
            4Notes
                to Condensed Consolidated Financial Statements (unaudited)
            5ITEM
                2
            Management's
                Discussion and Analysis or Plan of Operation
            14ITEM
                3
            Controls
                and Procedures
            21PART
                II
            OTHER
                INFORMATIONITEM
                1
            Legal
                Proceedings
            22ITEM
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            22ITEM
                3
            Defaults
                Upon Senior Securities
            23ITEM
                4
            Submission
                of Matters to a Vote of Security Holders
            23ITEM
                5
            Other
                Information
            23ITEM
                6
            Exhibits
            23SIGNATURES
            24













IN
      ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS
      FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS REPORT
      REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
      PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS
      AND
      UNCERTAINTIES, INCLUDING THOSE DISCUSSED HEREIN AND IN OTHER REPORTS FILED
      WITH
      THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD CAUSE ACTUAL RESULTS TO
      DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN THIS REPORT,
      THE WORDS "ANTICIPATES", "BELIEVES", "INTENDS", "FUTURE", AND SIMILAR
      EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK
      ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
      REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES
      THAT
      MAY ARISE AFTER THE DATE HEREOF.




This
      Amendment No. 1 on Form 10-QSB/A (“Amendment No. 1”) amends the Current Report
      of American Technologies Group, Inc. on Form 10-QSB for the quarter ended
      January 31, 2006, as filed with the Securities and Exchange Commission on March
      22, 2006 (the “Original Filing”). This Amendment No. 1 is being filed for the
      purpose of correcting the discount attributed to our September 2005 convertible
      debt financings. The reduction in the discount resulted from the recalculation
      of the fair value of warrants issued with the debt. We previously valued the
      warrants at full fair value. In accordance with EITF 00-27, we have now valued
      the warrants based on relative fair value. As a result, the warrant value was
      reduced by $5,177,064. Due to the reduction in the warrant value, we have now
      recorded a beneficial conversion feature in the amount of $2,173,455. The net
      effect of these adjustments is to reduce the discount by
      $3,003,609.





Because
      of the reduction in the discount, interest expense for the three and six month
      periods ended January 31, 2006 was reduced by $252,357 and $400,481,
      respectively.





We
      have
      additionally corrected the weighted average shares outstanding for the three
      and six month periods ended January 31, 2006 to include option shares
      deemed outstanding due to the nominal consideration associated with their
      potential exercise.





We
      have
      not updated the information contained herein for events occurring subsequent
      to
      March 22, 2006, the filing date of the Original Filing.











**PART
      I. FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**


AMERICAN
                  TECHNOLOGIES GROUP, INC.
                CONDENSED
                    CONSOLIDATED BALANCE SHEET
                  JANUARY
                      31, 2006
                    (Unaudited)
                      (Restated)
  ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              3,846,529Accounts
                  receivable, net of allowance for doubtfulaccounts
                  of $52,292
              
              
              5,668,334Inventory
              
              
              2,036,056Cost
                  and estimated earnings in excess of billings
              
              
              122,093Prepaid
                  expenses
              
              
              225,089Deferred
                  tax assets
              
              
              83,324Total
                  current assets
              
              
              11,981,425Cash
                  surrender value of officers' life insurance
              
              
              101,412Property
                  and equipment, net
              
              
              2,520,195Prepaid
                  pension cost
              
              
              1,325,635Goodwill
              
              
              1,366,637Total
                  assets
              
              $
              17,295,304LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              2,918,353Accrued
                  expenses
              
              
              10,997,205Billings
                  in excess of costs and estimated earnings
              
              
              2,470,617Notes
                  payable, current portion, net ofdiscount
                  of $7,830,692
              
              
              4,619,308Payable
                  to related parties
              
              
              130,800Income
                  taxes payable
              
              
              3Total
                  current liabilities
              
              
              21,136,286Deferred
                  income taxes
              
              
              484,856Total
                  liabilities
              
              
              21,621,142Stockholders'
                  equity:Preferred
                  stock, series A
              
              
              378Preferred
                  stock, series E
              
              
              2Common
                  Stock
              
              
              2,788Stock
                  subscription
              
              
              6,750Additional
                  paid-in capital
              
              
              67,137,909Accumulated
                  deficit
              
              
              (71,473,665
              )Total
                  stockholders' equity
              
              
              (4,325,838
              )Total
                  liabilities and stockholders' equity
              
              $
              17,295,304
  The
        accompanying footnotes are an integral part of these unaudited condensed
        financial statements.
   1
 AMERICAN
                    TECHNOLOGIES GROUP, INC.CONDENSED CONSOLIDATED STATEMENTS OF
                    OPERATIONSFOR THE THREE AND SIX MONTH PERIODS ENDED JANUARY 31, 2006
                    AND 2005(Unaudited)Three
                    Months ended January 31,
                
                Six
                    Months ended January 31,2006
                
                2005
                
                2006
                
                2005(Restated)
                
                
                
                (Restated)Net
                    sales
                
                $
                6,313,535
                
                $
                2,761
                
                $
                10,306,040
                
                $
                6,372Cost
                    of sales
                
                
                5,561,793
                
                
                593
                
                
                9,113,357
                
                
                2,242Gross
                    profit
                
                
                751,742
                
                
                2,168
                
                
                1,192,683
                
                
                4,130Selling,
                    general and administrative expenses
                
                
                1,376,837
                
                
                26,476
                
                
                8,708,884
                
                
                52,850Operating
                    income
                
                
                (625,095
                )
                
                (24,308
                )
                
                (7,516,201
                )
                
                (48,720
                )Other
                    income (expense)Interest
                    income
                
                
                36,557
                
                
                —
                
                
                59,308
                
                
                —Interest
                    expense
                
                
                (1,340,812
                )
                
                (87,724
                )
                
                (2,329,106
                )
                
                (174,866
                )Financing
                    costs
                
                
                —
                
                
                —
                
                
                (3,450,150
                )
                
                —Total
                    other income (expense)
                
                
                (1,304,255
                )
                
                (87,724
                )
                
                (5,719,948
                )
                
                (174,866
                )Loss
                    before income taxes
                
                
                (1,929,350
                )
                
                (112,032
                )
                
                (13,236,149
                )
                
                (223,586
                )Provision
                    for income taxes
                
                
                7,500
                
                
                —
                
                
                11,905
                
                
                —Net
                    loss
                
                
                (1,936,850
                )
                
                (112,032
                )
                
                (13,248,054
                )
                
                (223,586
                )Preferred
                    dividend
                
                
                3,000
                
                
                —
                
                
                154,800
                
                
                —Net
                    loss attributable to common shareholders
                
                $
                (1,939,850
                )
                $
                (112,032
                )
                $
                (13,402,854
                )
                $
                (223,586
                )Loss
                    per share, basic and diluted
                
                
                (0.52
                )
                
                (0.34
                )
                
                (4.67
                )
                
                (0.67
                )Weighted
                    average shares outstanding
                
                
                3,723,783
                
                
                332,589
                
                
                2,833,931
                
                
                332,589
  The
                    accompanying footnotes are an integral part of these unaudited
                    condensed
                    consolidated financial statements.
  2


AMERICAN
          TECHNOLOGY GROUP, INC.
 CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
          THE
          SIX MONTH PERIODS ENDED JANUARY 31, 2006 AND 2005
 (Unaudited)
 2006
                
                2005(Restated)CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    (loss) income
                
                $
                (13,248,054
                )
                $
                (223,586
                )Adjustments
                    to reconcile net loss to net cashused
                    in operating activities:Depreciation
                    and amortization
                
                
                69,645
                
                
                —Amortization
                    of discount
                
                
                1,665,699
                
                
                —Interest
                    paid through debt financing
                
                
                58,500
                
                
                —Stock
                    issued for services
                
                
                12,995
                
                
                —Changes
                    in operating assets and liabilities:(Increase)
                    decrease in:Accounts
                    receivable
                
                
                (2,326,298
                )
                
                —Inventory
                
                
                (285,121
                )
                
                1,859Costs
                    and earnings in excess of billings
                
                
                1,489,569
                
                
                —Prepaid
                    expenses
                
                
                20,888
                
                
                —Increase
                    (decrease) in:Accounts
                    payable and accrued expenses
                
                
                10,046,986
                
                
                174,866Billings
                    in excess of costs
                
                
                859,210
                
                
                —Net
                    cash used in operating activities
                
                
                (1,635,981
                )
                
                (46,861
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Cash
                    paid for acquisition
                
                
                (204,570
                )
                
                —Cash
                    received through acquisition
                
                
                5,587,017
                
                
                —Purchases
                    of property and equipment
                
                
                (38,601
                )
                
                —Net
                    cash provided by investing activities
                
                
                5,343,846
                
                
                —CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from sale of common stockProceeds
                    from issuance of notes
                
                
                200,000
                
                
                —Proceeds
                    of loans
                
                
                3,731
                
                
                52,090Payments
                    on notes
                
                
                (78,020
                )
                
                —Net
                    cash provided by financing activities
                
                
                125,711
                
                
                52,090Net
                    increase in cash
                
                
                3,833,576
                
                
                5,229Cash
                    and cash equivalents, beginning of year
                
                
                12,953
                
                
                5,531Cash
                    and cash equivalents, end of year
                
                $
                3,846,529
                
                $
                10,760Cash
                    paid for:Interest
                
                $
                435,527
                
                $
                —Income
                    taxes
                
                
                —
                
                
                —SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:Purchase
                    price for the North Texas Steel acquisition paid directly to
                    the North
                    Texas Steel stockholders by our lenders
                
                $
                11,000,000
                
                $
                —
  The acompanying footnotes are an intergral part of these unaudited condensed consolidated financial statements.


3




AMERICAN
        TECHNOLOGIES GROUP, INC.
 CONDENSED
        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 FOR
        THE SIX MONTHS ENDED JANUARY 31, 2006
 (Unaudited)
 (Restated)
 Preferred
                      StockSeries
                      A
                  
                  Preferred
                      StockSeries
                      E
                  
                  CommonStock
                  
                  Common
                        Stock
                      To
                        be IssuedShares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Additional
                    Paid
                      in Capital
                  
                  Stock
                      Subscriptions
                  
                  Accumulated
                      Deficit
                  
                  Total**Balance,
                      July 31, 2005**
                  
                  
                  378,061
                  
                  $
                  378
                  
                  
                  —
                  
                  $
                  —
                  
                  
                  332,589
                  
                  $
                  332
                  
                  
                  13,719
                  
                  $
                  14
                  
                  $
                  53,044,913
                  
                  $
                  6,750
                  
                  $
                  (58,070,811
                  )
                  $
                  (5,018,424
                  )Sale
                      of series E preferred stock
                  
                  
                  —
                  
                  
                  
                  
                  
                  150,000
                  
                  
                  2
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  149,998
                  
                  
                  —
                  
                  
                  —
                  
                  
                  150,000Shares
                      issued in settlement of payables
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  75,143
                  
                  
                  75
                  
                  
                  
                  
                  
                  
                  
                  
                  537,549
                  
                  
                  
                  
                  
                  
                  
                  
                  537,624Shares
                      issued in settlement of debt andaccrued
                      interest
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,364,124
                  
                  
                  2,364
                  
                  
                  
                  
                  
                  
                  
                  
                  3,746,066
                  
                  
                  
                  
                  
                  
                  
                  
                  3,748,430Shares
                      issued for services
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,208
                  
                  
                  3
                  
                  
                  
                  
                  
                  
                  
                  
                  12,992
                  
                  
                  
                  
                  
                  
                  
                  
                  12,995Warrants
                      issued with debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  7,322,936
                  
                  
                  
                  
                  
                  
                  
                  
                  7,322,936Beneficialconversionfeature
                      of convertible
                      debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,173,455
                  
                  
                  
                  
                  
                  
                  
                  
                  2,173,455Beneficialconversionfeature
                      ofpreferredstock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  150,000
                  
                  
                  
                  
                  
                  
                  
                  
                  150,000Preferred
                      dividend
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  (154,800
                  )
                  
                  (154,800
                  )Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (13,248,054
                  )
                  
                  (13,248,054
                  )**Balance,
                      January 31, 2006**
                  
                  
                  378,061
                  
                  $
                  378
                  
                  
                  150,000
                  
                  $
                  2
                  
                  
                  2,775,064
                  
                  $
                  2,774
                  
                  
                  13,719
                  
                  $
                  14
                  
                  $
                  67,137,909
                  
                  $
                  6,750
                  
                  $
                  (71,473,665
                  )
                  $
                  (4,325,838
                  )
  The
              acompanying footnotes are an intergral part of these unaudited condensed
              consolidated financial statements.
  4




**AMERICAN
      TECHNOLOGIES GROUP, INC.**





**NOTES
      TO FINANCIAL STATEMENTS**





**JANUARY
      31, 2006**





**(Unaudited)**





**NOTE
      1 - ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS**




**General**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with the instructions to Form 10-QSB, and therefore,
      do
      not include all the information necessary for a fair presentation of financial
      position, results of operations and cash flows in conformity with generally
      accepted accounting principles.





In
      the
      opinion of management, all adjustments (consisting of normal recurring accruals)
      considered necessary for a fair presentation have been included. Accordingly,
      the results from operations for the three and six month periods ended January
      31, 2006 are not necessarily indicative of the results that may be expected
      for
      the year ended July 31, 2006. The unaudited consolidated financial statements
      should be read in conjunction with the consolidated July 31, 2005 financial
      statements and footnotes thereto included in the Company's SEC Form 10-KSB.





**Organization
      and Line of Business**





American
      Technologies Group, Inc. (the "Company" or "ATG"), a Nevada corporation, was
      engaged in the development, commercialization and sale of products and systems
      using its patented and proprietary technologies. The resulting products are
      intended to offer cost-effective solutions to reduce, and in some cases
      eliminate, hazardous chemical by-products or emissions resulting from industrial
      and combustion processes. The Company's proprietary catalyst technology may
      improve many commercial products including detergents and cosmetics.





The
      Company largely ceased operations during 2001 and had begun focusing efforts
      on
      restructuring and refinancing. In fiscal year ended July 31, 2005, the Company
      successfully continued these efforts to settle various pending lawsuits, reduce
      outstanding liabilities, acquire an equity funding facility to finance
      acquisition of new products, entities and technologies, and otherwise strengthen
      the business.





To
      date,
      the Company has been unable to generate significant cash flows from its business
      operations. As a result, they have funded their operations through investor
      financing, including sales of common stock and the exercise of warrants and
      options. The Company has also used debt to fund their operations. Until such
      time as they are able to generate significant cash flows from operations through
      increased sales of their products, they will be required to continue their
      reliance on investor financing and debt to fund their operations.





On
      September 7, 2005, the Company, through a newly formed wholly owned subsidiary,
      Omaha Holdings Corp. ("Omaha"), entered into a Share Purchase Agreement
      ("Agreement") with the stockholders of North Texas Steel Company, Inc. ("North
      Texas"), a privately-held company. Effective with the Agreement, all previously
      outstanding common stock owned by North Texas's shareholders was exchanged
      for
      $11,000,000. The transaction is accounted for using the purchase method of
      accounting in accordance with SFAS No.141, “Business Combinations.” The results
      of operations for North Texas have been included in the unaudited condensed
      consolidated statements of operations since the date of acquisition.





North
      Texas fabricates structural steel from two locations in Fort Worth, Texas.
      It
      contracts with and grants credit to customers in the southwest.


**Restatement**
  The
        financial statements for the three and six months ended January 31, 2006
        have
        been restated as a result of the discount attributed to our September 2005
        convertible debt financings. The reduction resulted from the recalculation
        of
        the fair value of warrants issued with the debt. We previously valued the
        warrants at full fair value. In accordance with EITF 00-27, we have now valued
        the warrants based on relative fair value. As a result, the warrant value
        was
        reduced by $5,177,064. Due to the reduction in the warrant value, we have
        now
        recorded a beneficial conversion feature in the amount of $2,173,455. The
        net
        effect of these adjustments is to reduce the discount by
        $3,003,609.
 
 Because
        of the reduction in the discount, interest expense for the three and nine
        month
        periods ended January 31, 2006 was reduced by $252,357 and $400,481
        respectively.
 
 We
        have
        additionally corrected the weighted average shares outstanding for the three
        and six month periods ended January 31, 2006 to include option shares
        deemed outstanding due to the nominal consideration associated with their
        potential exercise.
 
 The
        effects of the above adjustments are summarized as follows:
 
 Three
                  Months
              
              Six
                  MonthsEnded
              
              EndedJanuary
                  31, 2006
              
              January
                  31, 2006Net
                  loss- as reported
              
              
              (2,189,207
              )
              
              (13,648,535
              )Net
                  loss- as restated
              
              
              (1,936,850
              )
              
              (13,248,054
              )Net
                  loss attributable to common shareholders - as reported
              
              
              (2,192,207
              )
              
              (13,803,335
              )Net
                  loss attributable to common shareholders - as restated
              
              
              (1,939,850
              )
              
              (13,402,854
              )Loss
                  per common share - as reported
              
              
              (0.79
              )
              
              (6.54
              )Loss
                  per common share - as restated
              
              
              (0.52
              )
              
              (4.67
              )Weighted
                  average shares outstanding - as reported
              
              
              2,788,783
              
              
              2,086,947Weighted
                  average shares outstanding - as restated
              
              
              3,723,783
              
              
              2,833,931Notes
                  payable current portion - as reported
              
              
              
              
              
              2,016,180Notes
                  payable current portion - as restated
              
              
              
              
              
              4,619,308Notes
                  payable long term portion - as reported
              
              
              
              
              
              18,533,158Notes
                  payable long term portion - as restated
              
              
              
              
              
              21,136,286Total
                  liabilities - as reported
              
              
              
              
              
              19,018,014Total
                  liabilities - as restated
              
              
              
              
              
              21,621,142Additional
                  paid-in capital - as reported
              
              
              
              
              
              70,141,518Additional
                  paid-in capital - as restated
              
              
              
              
              
              67,137,909Accumulated
                  deficit - as reported
              
              
              
              
              
              (71,874,146
              )Accumulated
                  deficit - as restated
              
              
              
              
              
              (71,473,665
              )Total
                  stockholders' equity - as reported
              
              
              
              
              
              (1,722,710
              )Total
                  stockholders' equity - as restated
              
              
              
              
              
              (4,325,838
              )


**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Recognition
      of Income on Long-term Construction Contracts**





For
      financial reporting purposes, the Company uses the percentage of completion
      method of reporting profits on major construction contracts. Under this method,
      revenues are recognized based on the percentage of costs incurred to date to
      estimated total cost for each contract. Revisions in estimated contract profits
      are made in the period in which circumstances requiring the revisions become
      known. These estimates are subject to change in the near-term and could
      significantly impact the financial statements. Provision for estimated losses
      on
      uncompleted contracts is made in the period in which such losses are determined.
      Contract costs include all direct material and labor costs and those indirect
      costs related to contract performance, such as indirect labor, supplies, tools
      and repairs. Selling, general and administrative costs are charged to expense
      as
      incurred.





On
      contracts where costs and estimated earnings are in excess of billings, the
      excess is treated as a current asset. Where billings are in excess of costs
      and
      estimated earnings, the excess is treated as a current liability.





5


These
      amounts are reflected in the accompanying balance sheet as follows:





January
                31,
              2006Costs
                and estimated earnings onuncompleted
                contracts in excess of billings
            
            $
            122,093Billings
                on uncompleted contracts inexcess
                of costs and estimated earnings
            
            
            (2,470,617
            )$
            (2,348,524
            )





**Inventory**





Inventory,
      consisting of raw materials not yet included in contracts in process, is valued
      at the lower of cost or market on average cost basis.





**Income
      Taxes**





In
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
      deferred income taxes are the result of the expected future tax consequences
      of
      temporary differences between the financial statement and tax bases of assets
      and liabilities. Generally, deferred income taxes are classified as current
      or
      non-current in accordance with the classification of the related asset or
      liability. Those not related to an asset or liability are classified as current
      or non-current depending on the periods in which the temporary differences
      are
      expected to reverse. A valuation allowance is provided against deferred income
      tax assets in circumstances where management believes the recoverability of
      a
      portion of the assets is not reasonably assured.





**Long-Lived
      Assets**





The
      Company reviews, as circumstances dictate, the carrying amount of its property
      and equipment and patents. The purpose of these reviews is to determine whether
      the carrying amounts are recoverable. Recoverability is determined by examining
      and comparing respective carrying amounts versus expected revenue streams from
      the related businesses. The amount of impairment, if any, is measured based
      on
      the excess of the carrying value over the fair value.


**Property
      and Equipment**





Property
      and equipment are stated at cost. Depreciation is computed principally by the
      straight-line and accelerated methods at rates based on estimated useful lives
      as follows:




Transportation
                  equipment
              3
                  -
                  6 yearsOffice
                  furniture and equipment
              5
                  -
                  10 yearsBuildings
                  and improvements
              5
                  -
                  40 yearsMachinery
                  and equipment
              3
                  -
                  12 years


**Cash
      Flows Presentation**





For
      purposes of the statement of cash flows, time deposits that mature in three
      months or less are considered cash and cash equivalents.





**Use
      of Estimates**





In
      the
      normal course of preparing financial statements in conformity with accounting
      principles generally accepted in the United States of America, management is
      required to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Significant estimates made by management
      include the collectibility of accounts receivable, the realizability of
      inventories, the amounts due under accounts payable and the valuation allowance
      of deferred tax assets. Actual results could differ from those estimates.





**Research
      and Development Activities**





All
      costs
      of new technology acquisition and research and development are charged to
      operations as incurred.





**Non-Monetary
      Exchanges**





Accounting
      for the transfer or distribution of non-monetary assets or liabilities is based
      on the fair value of the assets or liabilities received or surrendered,
      whichever is more clearly evident. Where the fair value of the non-monetary
      asset received or surrendered cannot be determined with reasonable accuracy,
      the
      recorded book value of the non-monetary assets are used.





**Basic
      and Diluted Income (Loss) Per Share**





Basic
      and
      diluted loss per common share is based upon the weighted average number of
      common shares outstanding during the fiscal year under the provisions of SFAS
      No. 128, Earnings Per Share. Common share equivalents totaling 30,523,640 and
      1,631,407 at January 31, 2006 and 2005, respectively, were not considered as
      they would be anti-dilutive and had no impact on earnings per share for any
      periods presented. The number of shares outstanding in the computation of loss
      per share is comprised of the following:





6


Three
                  Months Ended
              
              
              
              Six
                  Months EndedJanuary
                  31,
              
              
              
              January
                  31,2006
              
              2005
              
              2006
              
              2005Common
                  shares outstanding
              
              
              2,788,783
              
              
              332,589
              
              
              2,086,947
              
              
              332,589Options
                  shares deemed outstanding
              
              
              935,000
              
              
              -
              
              
              746,984
              
              
              -Total
                  shares outstanding for computation
              
              
              3,723,783
              
              
              332,589
              
              
              2,833,931
              
              
              332,589




**Stock-Based
      Compensation**





The
      Company accounts for non-employee stock-based compensation under SFAS No. 123,
      Accounting For Stock-Based Compensation. SFAS No. 123 defines a fair value
      based
      method of accounting for stock-based compensation. However, SFAS No. 123 allows
      an entity to continue to measure compensation cost related to stock and stock
      options issued to employees using the intrinsic method of accounting prescribed
      by Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock
      Issued to Employees. Under APB 25, compensation cost, if any, is recognized
      over
      the respective vesting period based on the difference, on the date of grant,
      between the fair value of the Company's common stock and the grant price.
      Entities electing to remain with the accounting method of APB 25 must make
      pro
      forma disclosures of net income and earnings per share, as if the fair value
      method of accounting defined in SFAS No.123 had been applied.





In
      December 2002, SFAS No. 148, Accounting for Stock-Based Compensation -
      Transition and Disclosure, was issued. SFAS No. 148 amends SFAS No. 123 to
      provide alternative methods of transition for a voluntary change to the fair
      value based method of accounting for stock-based employee compensation. In
      addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
      require prominent disclosures in both annual and interim financial statements
      about the method of accounting for stock-based employee compensation and the
      effect of the method used on reported results. The provisions of SFAS No. 148
      are effective for financial statements for fiscal years ending after December
      15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 in
      these
      financial statements. The Company does not anticipate adopting the fair value
      based method of accounting for stock-based compensation.





In
      December 2004, the FASB issued SFAS No.123 (revised 2004), “ *Share-Based
      Payment* ”.
      SFAS
      123(R) will provide investors and other users of financial statements with
      more
      complete and neutral financial information by requiring that the compensation
      cost relating to share-based payment transactions be recognized in financial
      statements. That cost will be measured based on the fair value of the equity
      or
      liability instruments issued. SFAS 123(R) covers a wide range of share-based
      compensation arrangements including share options, restricted share plans,
      performance-based awards, share appreciation rights, and employee share purchase
      plans. SFAS 123(R) replaces FASB Statement No. 123, “ *Accounting
      for Stock-Based Compensation* ”,
      and
      supersedes APB Opinion No. 25, “ *Accounting
      for Stock Issued to Employees* ”.
      SFAS
      123, as originally issued in 1995, established as preferable a fair-value-based
      method of accounting for share-based payment transactions with employees.
      However, that statement permitted entities the option of continuing to apply
      the
      guidance in Opinion 25, as long as the footnotes to financial statements
      disclosed what net income would have been had the preferable fair-value-based
      method been used. Public entities (other than those filing as small business
      issuers) will be required to apply SFAS 123(R) as of the first interim or annual
      reporting period that begins after June 15, 2005. SFAS 123(R) is applicable
      for
      the Company effective the first interim period that starts after December 15,
      2005. The Company has evaluated the impact of the adoption of SFAS 123(R),
      and
      believes that the impact may be significant to the company's future overall
      results of operations and financial position.





At
      January 31, 2006, the Company has two stock-based employee compensation plans.
      The Company accounts for those plans under the recognition and measurement
      principles of APB 25, and related interpretations. During the three and six
      month periods ended January 31, 2006 and 2005, no stock-based employee
      compensation cost is reflected in the accompanying statements of operations,
      as
      all options granted under those plans had exercise prices equal to or greater
      than the market value of the underlying common stock on the date of grant.
      Had
      compensation cost for the Company's plans been determined consistent with the
      provisions of SFAS No. 123, the Company's net loss would not have changed.





**Derivative
      Instruments**





The
      Company accounts for freestanding derivative financial instruments potentially
      settled in its own common stock under Emerging Issues Task Force ("EITF") Issue
      No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company's Own Stock.





7


**Fair
      Value of Financial Instruments**





The
      carrying amounts of the Company's cash, trade payables, accrued expenses, and
      notes payable approximate their estimated fair value due to the short-term
      nature of those financial instruments. The estimated fair value of amounts
      due
      related parties is not ascertainable as the underlying transactions were between
      related parties. Also, the estimated fair value of convertible debentures is
      not
      determinable as equivalent financial instruments are not easily identifiable.





**Segment
      Information**





Statement
      of Financial Accounting Standards No. 131, "Disclosures about Segments of an
      Enterprise and Related Information" ("SFAS 131") establishes standards for
      reporting information regarding operating segments in annual financial
      statements and requires selected information for those segments to be presented
      in interim financial reports issued to stockholders.  SFAS 131 also
      establishes standards for related disclosures about products and services and
      geographic areas.  Operating segments are identified as components of an
      enterprise about which separate discrete financial information is available
      for
      evaluation by the chief operating decision maker, or decision-making group,
      in
      making decisions how to allocate resources and assess performance.  The
      information disclosed herein materially represents all of the financial
      information related to the Company's principal operating segment.





**Reclassifications**





Certain
      reclassifications have been made in prior year's financial statements to conform
      to classifications used in the current year.





**NOTE
      3 - ACQUISITION**





On
      September 7, 2005, the Company, through a newly formed wholly owned subsidiary,
      Omaha Holdings Corp. ("Omaha"), entered into a Share Purchase Agreement
      ("Agreement") with the stockholders of North Texas Steel Company, Inc. ("North
      Texas"), a privately-held company. Effective with the Agreement, all previously
      outstanding common stock owned by North Texas's shareholders was exchanged
      for
      $11,000,000 in cash. The Company also incurred costs directly attributable
      to
      the acquisition of $1,593,370. The transaction is accounted for using the
      purchase method of accounting in accordance with SFAS No.141, “Business
      Combinations.” The results of operations for North Texas have been included in
      the unaudited condensed consolidated statements of operations since the date
      of
      acquisition. The total acquisition price of $12,593,370 has been allocated
      as
      follows:




Cash
            
            $
            5,587,017Other
                current assets
            
            
            7,032,333Property
                and equipment
            
            
            2,551,239Other
                assets
            
            
            1,427,048Goodwill
            
            
            1,366,637Current
                liabilities
            
            
            (4,886,048
            )Other
                liabilities
            
            
            (484,856
            )Total
            
            $
            12,593,370





The
      Company is in the process of completing third party valuations of certain
      tangible and intangible assets acquired with North Texas. Therefore the
      allocation of the purchase price to the acquisition is subject to revision.





Pro
      forma
      unaudited financial information, assuming that the acquisition had occurred
      as
      of August 1, 2004 is as follows:








Six
                months ended
              January
                31,
            
            Three
                months ended
              January
                31,2006
            
            2005
            
            2006
            
            2005Revenues
            
            $
            15,805,323
            
            $
            12,080,393
            
            $
            6,313,535
            
            $
            5,883,590Net
                (Loss) income
            
            
            (13,188,830
            )
            
            8,216
            
            
            (1,936,850
            )
            
            50,321(Loss)
                income per Share
            
            $
            (4.65
            )
            $
            0.02
            
            $
            (0.52
            )
            $
            $0.15





The
      unaudited pro forma amounts are not necessarily indicative of the results that
      would have accrued in the acquisition of North Texas had been completed on
      the
      date indicated.


8
 **NOTE
      4 - CONTRACT RECEIVABLES**





At
      January 31, 2006 trade accounts receivable consist of the following :





2005Currently
                receivable on contracts
            
            $
            4,297,568Retainage
                on uncompleted contracts
            
            
            1,423,0585,720,626Less
                allowance for doubtful accounts
            
            
            (52,292
            )$
            5,668,334





**NOTE 5
      - PROFIT SHARING PLAN**





The
      Company has a profit sharing and savings plan covering substantially all
      employees of North Texas. The Company's contribution to the plan is determined
      annually by the Board of Directors. The Company made no contributions to the
      plan for the three and six month periods ended January 31, 2006 and 2005,
      respectively.





**NOTE 6
      - PENSION PLAN**





In
      connection with the acquisition of North Texas, the Company has elected to
      close
      the non contributing defined benefit plan to new participants and benefit
      accruals have been discontinued. Management is currently in the process of
      terminating the pension plan pursuant to the terms of the North Texas
      Steel/Omaha Holdings Pension Plan Joint Account Agreement dated September 7,
      2005.





**NOTE 7
      - CONCENTRATIONS**





Financial
      instruments which potentially subject the Company to concentrations of credit
      risk consist principally of cash, cash investments and accounts receivable.





The
      Company maintains its cash and cash equivalents in bank deposit accounts which,
      at times, exceed federally insured limits. The Company has not experienced
      any
      losses in these accounts. The Company believes it is not exposed to any
      significant credit risk on cash and cash equivalents.





Concentration
      of credit risk with respect to accounts receivable is limited due to the
      geographic distribution of the entities comprising the Company's customer base.
      The Company's revenues earned on contracts for the six month periods ended
      January 31, 2006 and 2005 were comprised of 83% (five customers) and 82% (four
      customers), respectively. The Company purchases materials from major suppliers
      totaling 37% (six suppliers) and 32% (eleven suppliers) for the six month
      periods ended January 31, 2006 and 2005, respectively.





**NOTE 8
      - ACCOUNTS PAYABLE AND ACCRUED PAYROLL LIABILITIES**





During
      2002 through 2005, the Company entered into settlement agreements with certain
      employees, note holders and vendors. During the six months ended January 31,
      2006, $289,045 and $248,579 of liability was settled through the issuance of
      31,770 and 43,372 shares of common stock related to accounts payable and
      accrued payroll liabilities, respectively.





**NOTE 9
      - CONVERTIBLE DEBENTURES**





In
      connection with the consummation of the North Texas acquisition, Keshet Fund,
      L.P., Keshet L.P., Nesher Ltd. and Talbiya B. Investment Ltd. (collectively,
      the
      "Existing Debt Holders"), converted all indebtedness including interest to
      the
      Existing Debt Holders in the approximate amount of $1,405,236
      into 1,884,902 shares of common stock. Further, Dr. Gary Fromm, the
      Company's Chairman of the Board of Directors agreed to exchange
      indebtedness owed to him by the Company in the amount of $1,162,732 in
      consideration for the issuance of 479,221shares of the Company’s common stock
      and the transfer from Existing Debt Holders 702,840 shares of the Company’s
      common stock.





9


**Laurus
      Financings**





In
      connection with the acquisition of North Texas, the Registrant entered into
      agreements with Laurus Master Funds, Ltd., a Cayman Islands corporation
      ("Laurus"), pursuant to which the Company issued convertible debt, a warrant
      and
      an option to purchase shares of the Company’s Common Stock to Laurus in a
      private offering pursuant to exemption from registration under Section 4(2)
      of
      the Securities Act of 1933, as amended. The securities sold to Laurus include
      the following:





·
            Secured
                revolving note in the original principal amount of
                $7,000,000;


·
            Secured
                convertible term note A in the original principal amount of
                $3,000,000;


·
            Secured
                convertible term note B in the original principal amount of
                $2,000,000;


·
            Common
                stock purchase warrant to purchase 2,865,116 shares of the Company’s
                Common Stock at a purchase price of $.99 per share, exercisable until
                September 6, 2012; and


·
            Option
                to purchase 10,340,000 shares of the Company’s Common Stock, at a purchase
                price of $.003 per share





Each
      of
      the securities issued to Laurus are convertible into shares of Series D
      Preferred Stock, and the Series F Preferred Stock with respect to the secured
      convertible term note B, until such time that we amend our certificate of
      incorporation to provide for available shares of common stock and the shares
      of
      Series D Convertible Preferred Stock and the Series F Convertible Preferred
      Stock are only convertible into shares of common stock as long as there are
      no
      available shares for conversion.





The
      Company is permitted to borrow an amount based upon its eligible accounts
      receivable, as defined in the agreements with Laurus. The Company must pay
      certain fees for any unused portion of the credit facility or in the event
      the
      facility is terminated prior to expiration. The Company's obligations under
      all
      notes are secured by all of the assets of the Company, including but not limited
      to inventory, accounts receivable and a pledge of the stock of Omaha and North
      Texas. The minimum borrowing notes, the secured revolving notes and the secured
      convertible term note A mature on September 6, 2008. Annual interest on the
      minimum borrowing notes, the secured revolving notes and the secured convertible
      term note A is equal to the "prime rate" published in The Wall Street Journal
      from time to time, plus 2.0%, provided, that, such annual rate of interest
      may
      not be less than 8.25%, subject to certain downward adjustments resulting from
      certain increases in the market price of the Company's common stock. Interest
      on
      the minimum borrowing notes, the secured revolving notes and the secured
      convertible term note A is payable monthly in arrears on the first day of each
      month, commencing on October 1, 2005.





The
      principal amount of the secured convertible minimum borrowing note, together
      with accrued interest thereon is payable on September 7, 2008. The secured
      convertible minimum borrowing note may be redeemed by the Company in cash by
      paying the holder 120% of the principal amount, plus accrued interest. The
      holder of the secured convertible minimum borrowing note may require the Company
      to convert all or a portion of the term note, together with interest and fees
      thereon at any time. The number of shares to be issued shall equal the total
      amount to be converted, divided by $.333, subject to adjustment as described
      below.





The
      principal amount of the secured convertible term note A is repayable at the
      rate
      of $50,000 per month together with accrued but unpaid interest, commencing
      on
      January 1, 2006, which such principal payment increases to $98,275 on April
      1,
      2006. The monthly amounts shall automatically convert into shares of common
      stock in the event that there is an effective registration statement, the
      average market price for the five days preceding the payment date is equal
      to or
      greater than 120% of the fixed conversion price and the amount of such
      conversion does not exceed 25% of the aggregate dollar trading volume of the
      Company's common stock for the 22 trading days immediately preceding the
      prepayment date (the "Laurus Trading Volume Limit"). In the event that the
      conversion exceeds the Laurus Trading Volume Limit, then Laurus will only be
      required to convert the portion of the secured convertible term note A up to
      the
      Laurus Trading Volume Limit and the Company will be required to pay off the
      remaining balance of the monthly amount. The secured convertible term note
      A may
      be redeemed by the Company in cash by paying the holder 120% of the principal
      amount, plus accrued interest. The holder of the term note may require the
      Company to convert all or a portion of the secured convertible term note A,
      together with interest and fees thereon at any time. If paid in shares of common
      stock the number of shares to be issued shall equal the total amount due,
      divided by $.99, subject to adjustment as described below.





The
      principal amount of the secured convertible term note B is repayable in full
      on
      March 6, 2007. Interest on the secured convertible term note B accrues at the
      rate of 12% during the first year outstanding and 18% thereafter until maturity.
      On the maturity date, all principal and interest shall automatically convert
      into shares of common stock in the event that there is an effective registration
      statement, the average market price for the five days preceding the payment
      date
      is equal to or greater than 120% of the fixed conversion price and the amount
      of
      such conversion does not exceed 25% of the Laurus Trading Volume Limit. In
      the
      event that the conversion exceeds the Laurus Trading Volume Limit, then Laurus
      will only be required to convert the portion of the secured convertible term
      note A up to the Laurus Trading Volume Limit and the Company will be required
      to
      pay off the remaining balance of the monthly amount. The secured convertible
      term note B may be redeemed by the Company in cash by paying the holder 100%
      of
      the principal amount, plus accrued interest. The holder of the secured
      convertible term note B may require the Company to convert all or a portion
      of
      the secured convertible term note B, together with interest and fees thereon
      at
      any time. If paid in shares of common stock the number of shares to be issued
      shall equal the total amount due, divided by $.333.





Upon
      an
      issuance of shares of common stock below the fixed conversion price, the fixed
      conversion price of the notes will be reduced accordingly. The conversion price
      of the secured convertible notes may be adjusted in certain circumstances such
      as if we pay a stock dividend, subdivide or combine outstanding shares of common
      stock into a greater or lesser number of shares, or take such other actions
      as
      would otherwise result in dilution.





**Gryphon
      Financing**





In
      connection with the acquisition of North Texas Steel, the Registrant entered
      into Security Agreements (the "Security Agreements") with GSSF Master Fund,
      L.P.
      ("GSSF") and Gryphon Master Fund L.P. ("GMF") for the sale of an aggregate
      of
      (i) $500,000 in convertible term notes (the "Gryphon Term Notes"), (ii) common
      stock purchase warrants to purchase 5,999,880 shares of common stock (the
      "Gryphon Warrants") and (iii) options to purchase 935,000 shares of common
      stock
      (the "Gryphon Options"). GSSF and GMF are hereinafter collectively referred
      to
      as "Gryphon". The Gryphon Notes, the Gryphon Warrants and the Gryphon Options
      are convertible into shares of Series F Preferred Stock until such time we
      amends our certificate of incorporation to provide for available shares of
      common stock and the shares of Series F Convertible Preferred Stock are only
      convertible into shares of common stock as long as there are available shares
      for conversion.





10


Each
      of
      the securities issued to GSSF and GMF are convertible into shares of Series
      E
      Preferred Stock until such time that the Company amends its certificate of
      incorporation to increase its authorized shares of common stock to
      15,000,000,000 and the shares of Series E Convertible Preferred Stock are only
      convertible into shares of common stock as long as there are available shares
      for conversion.





The
      Gryphon Notes bear interest at 12%, mature one year from the date of issuance,
      and are convertible into the Company's common stock, at Gryphon's option, at
      a
      conversion price of $.333. Based on this conversion price, the Gryphon Notes
      in
      the amount of $500,000 excluding interest, are convertible, upon the Company
      increasing its authorized shares of common stock, into 1,501,501 shares of
      the Company's common stock. On the maturity date of the Gryphon Notes, the
      Gryphon Notes shall automatically convert into shares of common stock in the
      event that the average market price for the five days preceding the maturity
      date is equal to or greater than 120% of the fixed conversion price and the
      amount of such conversion does not exceed 25% of the aggregate dollar trading
      volume of the Company's common stock for the 22 trading days immediately
      preceding the maturity date (the "Trading Volume Limit"). In the event that
      the
      conversion exceeds the Trading Volume Limit, then Gryphon will only be required
      to convert the portion of the Gryphon Notes up to the Trading Volume Limit
      and
      the Company will be required to pay off the remaining balance.




The
      Company may prepay the Gryphon Notes. In addition, the Company has granted
      Gryphon a security interest in substantially all of the Company's assets as
      well
      as registration rights. Gryphon's rights to any security interest are
      subordinated to that of Laurus Master Fund, Ltd.





The
      Gryphon Warrants are exercisable from the date of issuance through February
      28,
      2007 at an exercise price of $.333 per share. The Gryphon Options are
      exercisable at an exercise price of $.003 per share.





**Discount
      on Debt**


The
        Company has valued the warrants and options issued with the Laurus and Gryphon
        financings using the Black Sholes pricing model. The value has been recorded
        at
        $7,322,936, based on the warrants and options relative fair value. We have
        also
        recorded a beneficial conversion feature of $2,173,455 in connection with
        the
        convertible notes. The resulting discount of $9,496,391 is being amortized
        over
        the term of the related debt instruments.




**Pending
      Laurus Registration Rights Amendment:**




In
      connection with the Laurus financing, the Company entered into a Registration
      Rights Agreement with three investors in conjunction with the Company's
      acquisition of North Texas requiring the Company to register shares of the
      Company's Common Stock. Such Common Stock would be issuable to the holders
      of
      the Revolving Loans evidenced by a Minimum Borrowing Note and various term
      notes. The Agreements provide for a Registration Statement with respect to
      such
      shares to be filed with the Securities and Exchange Commission within 45 days
      of
      the issuance of the Minimum Borrowing Note and the term notes. The Registration
      Rights Agreement specified liquidated damages amounting to 1% of the outstanding
      balance for the initial 30 days, 1.5% for the second 30 days and 2% thereafter
      if the Registration Statement was not timely filed.




**Luther
      Consulting Agreement**





In
      connection with the acquisition of North Texas Steel, the Registrant entered
      into a consulting agreement with Luther Capital Management, Inc. ("Luther
      Capital"). Pursuant to the consulting agreement, in consideration for providing
      valuable services to our company in connection with the acquisition of North
      Texas, we have agreed to issue Luther Capital and its designees, an aggregate
      of 5,580,280 shares (the "Luther Shares") of common stock. The issuance of
      the Luther Shares are subject to the Company filing an amendment to its
      certificate of incorporation to provide for an adequate amount of authorized
      but
      un-issued shares of common stock. The Luther Shares have been valued at
      $6,863,745, are recorded as an accrued expense at January 31, 2006 and have
      been
      charged to operations during the six months ended January 31, 2006.




**Nite
      Capital Financing**





In
      connection with the acquisition of North Texas, Nite Capital LP ("Nite")
      purchased 1,500 shares of Series E Convertible Preferred Stock for an aggregate
      purchase price of $150,000. Each shares of Series E Convertible Preferred Stock
      shall be convertible into shares of common stock equal to the stated value
      of
      $100 divided by the conversion price of $.0011. The shares of Series E Preferred
      Stock are not convertible until such time that the Company has increased its
      authorized shares of common stock to 15,000,000,000. The holders of the Series
      E
      Preferred Stock are entitled to receive dividends upon the declaration of a
      dividend to the common stock holders. However, the payments of such dividend
      are
      subject to the payment of dividends on the Series D Convertible Preferred Stock.
      Upon any liquidation, dissolution or winding up of the Company, the holders
      of
      the Series E Preferred Stock shall be entitled to receive payments prior to
      any
      other securities except that the Series D Preferred Stock shall rank senior
      to
      that of the Series E Preferred Stock. The holders of Series E Preferred Stock
      have no voting rights unless such vote directly impacts the rights of the
      holders of the Series E Preferred Stock.




**Fromm
      Consulting Agreement**





In
      connection with the acquisition of North Texas, the Company entered into a
      consulting agreement with Dr. Fromm for a term of six months and which provides
      for a monthly fee of $15,000. The consulting arrangement shall automatically
      renew for six month periods unless either party provides notice 30 calendar
      days
      prior to the end of consulting period that it is terminating the consulting
      arrangement.




11


**NOTE
      10 - STOCKHOLDERS' EQUITY**





**Common
      Stock**





The
      Company has authorized 1,000,000,000 shares of common stock, with a par value
      of
      $.001 per share. On December 5, 2005 the Company effected a one (1) for three
      hundred (300) reverse stock split of its issued and outstanding shares of common
      stock, $.001 par value. Total authorized shares and par value remain unchanged.
      All references to the financial statements and notes for financial statements,
      numbers of shares and share amounts have been retroactively restated to reflect
      the reverse split.





**Luther
      Consulting Agreement**





In
      connection with the closing of the acquisition of North Texas, we entered into
      a
      consulting agreement with Luther Capital Management, Inc. ("Luther Capital")
      Pursuant to the consulting agreement, in consideration for providing valuable
      services to our company in connection with the acquisition of North Texas,
      we
      have agreed to issue Luther Capital and its designees, an aggregate
      of 5,580,280 shares (the "Luther Shares") of common stock. The issuance of
      the Luther Shares are subject to the Company filing an amendment to its
      certificate of incorporation to provide for an adequate amount of authorized
      but
      un-issued shares of common stock. The Luther Shares have been valued at
      $6,863,745 and have been recorded as an accrued expense in the financial
      statements at October 31, 2005.





**Collateral**





In
      connection with the provision of collateral utilized to secure the financing
      provided by Laurus, we agreed, upon amending our certificate of incorporation
      to
      provide for authorized but un-issued shares, to issue 420,750 shares of common
      stock to Thomas E. Durkin, III and 420,750 shares of common stock to Luther
      Capital Management, Inc. and 1,963,500 shares of common stock to Charles
      and Patricia Matteson. These shares have been valued at $3,450,150 and have
      been
      recorded as an accrued expense in the financial statements at October 31, 2005.





**Preferred
      Stock**





The
      Company authorized 50,000,000 shares of preferred stock with a par value of
      $0.001 per share. The preferred stock may be issued from time to time in series
      having such designated preferences and rights, qualifications and to such
      limitations as the Board of Directors may determine.





The
      Company has authorized 10,000,000 shares of Series A Convertible Preferred
      Stock
      ("Series A Stock"). The Series A Stock receives a 10% higher dividend than
      the
      common stock, is entitled to one vote per share, shares equally with the common
      stock upon liquidation and is convertible into one share of common stock at
      any
      time at least five years after issuance upon the payment of $3.00 per share.
      As
      of July 31, 2005, 378,061 shares of Series A Stock were outstanding with no
      shares having been converted.





The
      Company has authorized 500,000 shares of Series B Convertible Preferred Stock
      ("Series B Stock"). The Series B Stock has a liquidation preference of $8.00
      per
      share, is entitled to one vote per share and is convertible upon holders request
      without the payment of any additional consideration during the first year
      following issuance into the number of shares of common stock equal to the
      quotient of $8.00 per share and the market value per share for the ten trading
      days immediately preceding conversion and in subsequent years into one share
      of
      common stock for each share of Series B Stock. As of October 31, 2005,
      there is no Series B Stock issued and outstanding.





The
      Company has authorized 2,000 shares of Series C Convertible Preferred Stock
      ("Series C Stock"). The Series C Stock has a liquidation preference of $1,000
      per share, an eight percent coupon payable at the time of conversion, converts
      to common stock at a 30% discount from the fair market value at the date of
      conversion, is non-voting and is convertible upon holders request without the
      payment of any additional consideration. As of October 31, 2005, there is
      no Series C Stock issued and outstanding.





The
      Company has authorized 900,000 shares of Series D Convertible Preferred Stock
      ("Series D Stock"). The Series D Stock has a liquidation preference of $11.1111
      per share, an eight percent coupon payable at the time of conversion, converts
      to common stock at a 30% discount from the fair market value at the date of
      conversion, is non-voting and is convertible upon holders request without the
      payment of any additional consideration. As of October 31, 2005, there is no
      Series D Stock issued and outstanding.





The
      Company has authorized 25,000 shares of Series E Convertible Preferred Stock
      ("Series E Stock"). The Series E Stock has a liquidation preference of $100
      per
      share, an eight percent coupon payable at the time of conversion, converts
      to
      common stock at a 30% discount from the fair market value at the date of
      conversion, is non-voting and is convertible upon holders request without the
      payment of any additional consideration. As of October 31, 2005, there are
      1,500
      shares of Series E Stock issued and outstanding.





The
      Company has authorized 900,000 shares of Series F Convertible Preferred Stock
      ("Series F Stock"). The Series F Stock has a liquidation preference of $2.2223
      per share, an eight percent coupon payable at the time of conversion, converts
      to common stock at a 30% discount from the fair market value at the date of
      conversion, is non-voting and is convertible upon holders request without the
      payment of any additional consideration. As of October 31, 2005, there is no
      Series F Stock issued and outstanding.





12


On
      September 7, 2005, Nite Capital LP ("Nite") purchased 1,500 shares of Series
      E
      Convertible Preferred Stock for an aggregate purchase price of $150,000. Each
      shares of Series E Convertible Preferred Stock shall be convertible into shares
      of common stock equal to the stated value of $100 divided by the conversion
      price of $.0011. The shares of Series E Preferred Stock are not convertible
      until such time that the Company has increased its authorized shares of common
      stock to 15,000,000,000. The holders of the Series E Preferred Stock are
      entitled to receive dividends upon the declaration of a dividend to the common
      stock holders. However, the payments of such dividend are subject to the payment
      of dividends on the Series D Convertible Preferred Stock. Upon any liquidation,
      dissolution or winding up of the Company, the holders of the Series E Preferred
      Stock shall be entitled to receive payments prior to any other securities except
      that the Series D Preferred Stock shall rank senior to that of the Series E
      Preferred Stock. The holders of Series E Preferred Stock have no voting rights
      unless such vote directly impacts the rights of the holders of the Series E
      Preferred Stock.





**NOTE
      11 - RELATED PARTY TRANSACTIONS**





In
      November 2001, the Company signed an unsecured promissory note for borrowings
      of
      up to $400,000 with a third party who has since become the Company's Chairman
      of
      the Board of Directors, which was later amended and increased to $800,000.
      The
      note was due August 8, 2002. As of July 31, 2005, the Company has a balance
      of
      $959,121 under the promissory note. Borrowings bear interest at 9% per annum
      with interest payments due monthly. During the three months ended October 31,
      2005 an additional $9,117 of interest was accrued, and the Company received
      an
      additional $3,731 in advances and repaid $28,020 in cash. The remaining
      principal balance of $934,832 plus accrued interest of $263,671 was settled
      through the issuance of 1,182,062 shares of common stock.





The
      Company has $130,800 in unsecured non-interest bearing notes payable to
      related parties that are due on demand.





On
      March
      1, 1994, the Company entered into a license agreement with BWN Nuclear Waste
      Elimination Corporation ("NWEC"), a Nevada corporation partially owned by Robert
      W. Carroll, for the sublicense to exploit all rights to certain technologies
      relating to helium cluster beams and other coherent particle beams ("Baser")
      in
      their application to the rendering of nuclear waste non-radioactive. At such
      time as the Company receives an offer to purchase any application of the Baser
      technology for commercial use, the Company will issue up to 1,700,000 shares
      of
      Series A Convertible Preferred Stock to NWEC. NWEC will also be entitled to
      a
      ten percent royalty on the Company's net sales from exploitation of Baser
      technology. In the event the Company does not spend at least $100,000 on the
      development of Baser technology during each fiscal year, the agreement will
      terminate. There have been no shares granted under this agreement through
      October 31, 2005. On April 30, 2001, NWEC filed a lawsuit seeking unspecified
      damages alleging breach of contract relating to the license agreement. As of
      October 31, 2005, no provision has been made in the financial statements as
      the
      outcome is not probable or estimable.





During
      fiscal 1997, the Company completed payments of $150,000 to Dr. Lo (a former
      officer/shareholder) to purchase an option for the rights to certain Baser
      technology. Additionally, should the Company receive an offer to purchase the
      Baser technology for commercial use, the Company is required to issue 1,700,000
      shares of Series A Convertible Preferred Stock and pay quarterly royalties
      of 7
      1/2 % of net profits (as defined) to Dr. Lo. The exercise price for the option
      acquired by the Company is 10,000 shares of Common Stock, a royalty of five
      percent of the Company's net profits, if any, from the exploitation of Baser
      through July 21, 1999, and issuance of the Series A Convertible Preferred Stock
      as discussed above. There have been no options exercised or shares granted
      through October 31, 2005 in conjunction with this agreement. The acquired option
      expires one year after evidence of unencumbered title to the Baser technology
      is
      provided by the Company.





**NOTE
      12 - COMMITMENTS AND CONTINGENCIES**





**Litigation**





The
      Company is involved in various lawsuits arising in the normal course of
      business. Management believes that any financial responsibility that may be
      incurred in settlement of such claims and lawsuits would either be covered
      by
      insurance or would not be material to the Company's financial position or
      results of operations.





**Indemnities
      and Guarantees**





During
      the normal course of business, the Company has made certain indemnities and
      guarantees under which it may be required to make payments in relation to
      certain transactions. The duration of these indemnities and guarantees varies
      and, in certain cases, is indefinite. The majority of these indemnities and
      guarantees do not provide for any limitation of the maximum potential future
      payments the Company could be obligated to make. Historically, the Company
      has
      not been obligated to make significant payments for these obligations and no
      liabilities have been recorded for these indemnities and guarantees in the
      accompanying balance sheet.





13





**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION**








**MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF**





**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**








The
      following discussion and analysis should be read in conjunction with our
      financial statements. This discussion should not be construed to imply that
      the
      results discussed herein will necessarily continue into the future, or that
      any
      conclusion reached herein will necessarily be indicative of actual operating
      results in the future.




**SUMMARY
      of RECENT TRANSACTIONS**




**North
      Texas Transaction**





On
      September 7, 2005, through Omaha, our wholly owned subsidiary, we entered into
      the Agreement with the shareholders (the "North Texas Shareholders") of North
      Texas. Under the terms of the agreement, Omaha acquired 100% of the common
      stock
      of North Texas in exchange for the payment of the Purchase Price. North Texas
      is
      engaged in the business of steel fabrication and is based in Fort Worth, Texas.
      We completed the acquisition of North Texas on September 7, 2005. The Purchase
      Price was paid as follows:





·
            $9,150,000
                was paid to the North Texas Shareholders;


·
            $1,350,000
                was paid to an account designated pursuant to the terms of the North
                Texas
                Steel/Omaha Holdings Pension Plan Joint Account Agreement dated September
                7, 2005 (the "Pension Plan Agreement"); and


·
            $500,000
                was paid to an account designated pursuant to the terms of the North
                Texas
                Steel/Omaha Holdings Indemnity Joint Account Agreement dated September
                7,
                2005 (the "Indemnity Agreement").





Each
      of
      the North Texas Shareholders, in connection with the acquisition, has entered
      into standard non-compete/non-solicitation arrangements.





Concurrently
      with the acquisition of North Texas, we entered into the following agreements:





**Laurus
      Financings**








We
      entered into agreements with Laurus Master Funds, Ltd., a Cayman Islands
      corporation ("Laurus"), pursuant to which the Company sold convertible debt,
      an
      option and a warrant to purchase common stock to Laurus in a private offering
      pursuant to exemption from registration under Section 4(2) of the Securities
      Act
      of 1933, as amended. The securities sold to Laurus include the following:





·
            a
                secured revolving note with a principal amount of $7,000,000;


·
            a
                secured convertible term note A with a principal amount of $3,000,000;


·
            a
                secured convertible term note B with a principal amount of $2,000,000;


·
            a
                common stock purchase warrant to purchase 2,865,116 shares of common
                stock
                at a purchase price of $.90 per share, exercisable until September
                6,
                2012; and


·
            an
                option to purchase 10,340,000 shares of common stock, at a purchase
                price
                of $.003 per share.





Each
      of
      the securities issued to Laurus are convertible into shares of Series D
      Preferred Stock, and the Series F Preferred Stock with respect to the secured
      convertible term note B, until such time that we amend our certificate of
      incorporation to provide for available shares of common stock and the shares
      of
      Series D Convertible Preferred Stock and the Series F Convertible Preferred
      Stock are only convertible into shares of common stock as long as there are
      no
      available shares for conversion.




**Gryphon
      Financing**




On
      September 7, 2005, in connection with the acquisition of North Texas, we entered
      into Security Agreements (the "Security Agreements") with GSSF Master Fund,
      L.P.
      ("GSSF") and Gryphon Master Fund L.P. ("GMF") for the sale of an aggregate
      of
      (i) $500,000 in convertible term notes (the "Gryphon Term Notes"), (ii) common
      stock purchase warrants to purchase 5,999,880 shares of common stock (the
      "Gryphon Warrants") and (iii) options to purchase 935,000 shares of common
      stock
      (the "Gryphon Options"). GSSF and GMF are hereinafter collectively referred
      to
      as "Gryphon". The Gryphon Notes, the Gryphon Warrants and the Gryphon Options
      are convertible into shares of Series F Preferred Stock until such time we
      amends our certificate of incorporation to provide for available shares of
      common stock and the shares of Series F Convertible Preferred Stock are only
      convertible into shares of common stock as long as there are available shares
      for conversion.





14


**Nite
      Capital Financing**




On
      September 7, 2005, Nite Capital LP ("Nite") purchased 1,500 shares of Series
      E
      Convertible Preferred Stock for an aggregate purchase price of $150,000. Each
      share of Series E Convertible Preferred Stock shall be convertible into shares
      of common stock equal to the stated value of $100 divided by the conversion
      price of $.0011. The shares of Series E Preferred Stock are not convertible
      until such time that we have increased our authorized shares of common stock
      to
      provide for authorized but un-issued shares of common stock. The holders of
      the
      Series E Preferred Stock are entitled to receive dividends upon the declaration
      of a dividend to the common stock holders. However, the payments of such
      dividend are subject to the payment of dividends on the Series D Convertible
      Preferred Stock. Upon any liquidation, dissolution or winding up of the Company,
      the holders of the Series E Preferred Stock shall be entitled to receive
      payments prior to any other securities except that the Series D Preferred Stock
      shall rank senior to that of the Series E Preferred Stock. The holders of Series
      E Preferred Stock have no voting rights unless such vote directly impacts the
      rights of the holders of the Series E Preferred Stock.




**Existing
      Debt Conversions**




In
      connection with the closing of the North Texas acquisition, Keshet Fund, L.P.,
      Keshet L.P., Nesher Ltd. and Talbiya B. Investment Ltd. (collectively, the
      "Existing Debt Holders"), converted all debt owed including interest to the
      Existing Debt Holders in the approximate amount of $1,405,236 into 1,182,062
      shares of common stock. Further, Dr. Gary Fromm agreed to forgive debt owed
      to
      him by our company in the amount of $1,162,732 in consideration of our company
      issuing 479,221 shares of common stock and the Existing Debt Holders
      transferring 702,840 shares of common stock of our company to Dr. Fromm.




**Fromm
      Consulting Agreement**





On
      September 6, 2005, we entered into a consulting agreement with Dr. Fromm which
      is for a term of six months and which provides a monthly fee of $15,000. On
      November 15, 2005 William Plamondon became the CEO with Dr. Fromm remaining
      as
      Chairman of ATG as well as becoming Chairman of the Audit Committee (without
      change in his total compensation of $15,000 monthly).” The consulting
      arrangement shall automatically renew for six month periods unless either party
      provides notice 30 calendar days prior to the end of consulting period that
      it
      is terminating the consulting arrangement.




**Luther
      Consulting Agreement**





In
      connection with the closing of the acquisition of North Texas, we entered into
      a
      consulting agreement with Luther Capital Management, Inc. ("Luther Capital").
      Pursuant to the consulting agreement, in consideration for providing valuable
      services to our company in connection with the acquisition of North Texas,
      we
      have agreed to issue Luther Capital and its designees, an aggregate
      of 5,580,280 shares (the "Luther Shares") of common stock. The issuance of
      the Luther Shares are subject to our filing an amendment to our certificate
      of
      incorporation to provide for an adequate amount of authorized but un-issued
      shares of common stock. In addition to other designations, Luther Capital agreed
      to transfer 479,295 shares of common stock to Dr. Fromm, 794,361 shares of
      common stock to Thomas E. Durkin, III, 158,872 shares of common stock to
      D&D Investments, LLC, a limited liability company of which Mr. Durkin owns
      25% of the outstanding membership interests, and 794,361 shares of common
      stock to RI Heller Co. LLC, a limited liability company of which Mr.
      William N. Plamondon, III owns a majority of the outstanding membership
      interests. Messrs. Plamondon, Durkin and Fromm are executive officers and/or
      directors of our company.




**GENERAL
      OVERVIEW**




From
      February 2002 through its acquisition of North Texas in September 2005, the
      Company largely had ceased its historical operations and incurred nominal
      operating expenses, primarily related to the maintenance of its corporate
      existence.




The
      following analysis of the consolidated results of operations
      includes the Company and its wholly-owned subsidiaries Omaha
      Holdings Corporation and North Texas.





**Critical
      Accounting Policies**




The
      preparation of our financial statements in conformity with accounting principles
      generally accepted in the United States requires us to make estimates and
      judgments that affect our reported assets, liabilities, revenues, and expenses,
      and the disclosure of contingent assets and liabilities. We base our estimates
      and judgments on historical experience and on various others assumptions we
      believe to be reasonable under the circumstances. Future events, however, may
      differ markedly from our current expectations and assumptions. While there
      are a
      number of significant accounting policies affecting our consolidated financial
      statements; we believe the following critical accounting policies involve the
      most complex, difficult and subjective estimates and judgments:





15





**Revenue
      Recognition**




Significant
      portions of North Texas' revenues are derived from construction and service
      projects. Revenues from fixed-price, cost-plus-fee, time and material and
      unit-price contracts are recognized using the percentage-of-completion method
      of
      accounting which recognizes income as work on a contract progresses. Recognition
      of revenues and profits generally are related to costs incurred in providing
      the
      services required under the contract. Earned revenue is the amount of cost
      incurred on the contract in the period plus the proportional amount of gross
      profit earned during the same period. This method is used because management
      considers total cost to be the best available measure of completion of
      construction contracts in progress. Provisions for estimated losses on
      construction contracts in progress are made in their entirety in the period
      in
      which such losses are determined without reference to the percentage complete.
      Changes in job performance, job conditions and estimated profitability,
      including those arising from contract penalty provisions and final contract
      settlements, may result in revisions to revenue and costs, and are recognized
      in
      the period in which the revisions are determined. Claims for additional revenue
      are not recognized until the period in which such claims are allowed. Direct
      contract costs include all direct labor, direct materials and some estimating
      costs and shop and equipment costs. General and administrative costs are charged
      to expense as incurred. Revenue from discontinued operations was recognized
      when
      persuasive evidence of an arrangement existed, the price was fixed, title had
      transferred, collection of resulting receivables was probable, no customer
      acceptance requirements existed and there were no remaining significant
      obligations.




**Allowance
      For Doubtful Accounts**




We
      are
      required to estimate the collectibility of our trade receivables. A considerable
      amount of judgment is required in assessing the realization of these receivables
      including the current creditworthiness of each customer and related aging of
      the
      past due balances. In order to assess the collectibility of these receivables,
      we perform ongoing credit evaluations of our customers' financial condition.
      Through these evaluations we may become aware of a situation where a customer
      may not be able to meet its financial obligations due to deterioration of its
      financial viability, credit ratings or bankruptcy. The reserve requirements
      are
      based on the best facts available to us and are reevaluated and adjusted as
      additional information is received. Our reserves are also based on amounts
      determined by using percentages applied to certain aged receivable categories.
      These percentages are determined by a variety of factors including, but are
      not
      limited to, current economic trends, historical payment and bad debt write-off
      experience. We are not able to predict changes in the financial condition of
      our
      customers and if circumstances related to our customers deteriorate, our
      estimates of the recoverability of our receivables could be materially affected
      and we may be required to record additional allowances. Alternatively, if we
      provided more allowances than are ultimately required, we may reverse a portion
      of such provisions in future periods based on our actual collection experience




**Comparison
      of the Quarter Ended January 31, 2006 to the Quarter Ended January 31,
      2005**





**Results
      of Operations**





**North
      Texas Steel Corporation**





For
      the
      period up to the acquisition of North Texas on September 7, 2005, the Company
      had limited operations.  Since the acquisition was accounted for in
      accordance with the purchase method of accounting and its results of operations
      are included in the accompanying statements of operations from the date of
      acquisition.  As a result of the acquisition, the North Texas operations
      became the Company's primary operating segment.  Accordingly, period to
      period comparisons are not meaningful.





**Revenues**





Revenues
      for the quarter ended January 31, 2006 were heavily influenced by the
      acquisition of North Texas Steel and accordingly period to period comparisons
      are not meaningful. The Company’s revenues were approximately $ 6,314,000
      and resulted from North Texas’ operations.





**Cost
      of Sales**





The
      cost
      of sales for the quarter ended January 31, 2006 was approximately
      $5,562,000. The Company's gross margin was $752,000 or 11.9% of
      revenues.





The
      cost
      of sales predominantly consists of the cost of labor, raw materials, outsourcing
      costs and absorbed indirect manufacturing costs.





16


**Selling,
      General and Administrative Expenses**





For
      the
      quarter ended January 31, 2006 selling, general and administrative expenses
      were approximately $1,377,000, which consist primarily from administrative
      expenses. Included in these expenses were one time charges (aggregating
      $431,000) incurred in conjunction with potential acquisitions that were not
      consummated.





As
      a
      result of our recapitalization from a privately-held to publicly-held company,
      our future selling, general and administrative expenses will increase
      significantly as a result of complying with various federal and state regulatory
      filing requirements.





**Interest
      Expense**





As
      the
      result of acquiring North Texas in a highly leverage transaction the Company’s
      interest expenses increased significantly. Included in interest expense for
      the
      quarter ended January 31, 2006 is the periodic non-cash amortization of the
      discount ($1,050,000) related to the North Texas acquisition.





**Comparison
      of the Six Months Ended January 31, 2006 to the Six Months Ended January 31,
      2005**





**Results
      of Operations**





**North
      Texas Steel Corporation**





For
      the
      period up to the acquisition of North Texas on September 7, 2005, the Company
      had limited operations.  Since the acquisition was accounted for in
      accordance with the purchase method of accounting and its results of operations
      are included in the accompanying statements of operations from the date of
      acquisition.  As a result of the acquisition, the North Texas operations
      became the Company's primary operating segment.  Accordingly, period to
      period comparisons are not meaningful.





**Revenues**





Revenues
      for the six months ended January 31, 2006 were heavily influenced by the
      acquisition of North Texas Steel and accordingly period to period comparisons
      are not meaningful. The Company’s revenues were approximately $10,306,000 and
      resulted primarily from North Texas’ operations.





**Cost
      of Sales**





The
      cost
      of sales for the six months ended January 31, 2006 was approximately
      $9,113,000 and resulted in a gross margin of $1,193,000 or 11.5% of
      revenues.





The
      cost
      of sales predominantly consists of the cost of labor, raw materials, outsourcing
      costs and absorbed indirect manufacturing costs.





**Selling,
      General and Administrative Expenses**





For
      the
      six month period ended January 31, 2006 selling, general and administrative
      expenses were approximately $8,709,000, which consists primarily from
      administrative expenses and other expenses, such as non-employee equity
      compensation to consultants aggregating $6,900,000 and other non-recurring
      expenses (aggregating $431,000) incurred in conjunction with potential
      acquisitions that were not consummated.





As
      a
      result of our recapitalization from a privately-held to publicly-held company,
      our future selling, general and administrative expenses will increase
      significantly as a result of complying with various federal and state regulatory
      filing requirements.





**Interest
      Expense**





As
      the
      result of acquiring North Texas in a highly leverage transaction the Company’s
      interest expenses increased significantly. Included in interest expense for
      the
      quarter ended January 31, 2006 is the periodic non-cash amortization of the
      discount ($1,666,000) related to the notes issued in connection with the North
      Texas acquisition.





As
      the
      direct result of acquiring North Texas and the related financing the Company
      incurred the following non-operating charges in the six months ended January
      31,
      2006:





·
            Amortization
                of discount of $1,666,000. This non-cash charge is the periodic
                recognition of the discount related to the issuance of the convertible
                notes payable.


·
            Financing
                cost recognized in connection with the acquisition amounted to
                approximated $3,450,000. Such amount is the fair value of the warrants
                and
                options granted to advisors and consultants in connection with the
                acquisition of North Texas Steel.


·
            Consulting
                fee of approximately $6,900,000, to be paid in
                stock.





17


**Liquidity
      and Capital Resources**







As
      of
      January 31, 2006, the Company had $ 3.85 million in cash and equivalents but
      its
      current working capital was a deficiency of $9.15 million. While in prior
      periods, we have had sufficient cash on hand to meet its obligations, as a
      result of the recapitalization, we will not have funds to meet its future
      working capital and financing needs. As a result, additional financing will
      be
      required in order to meet our current and projected cash flow deficits from
      operations and development. Although the Company is seeking financing to support
      its working capital needs, the Company has no commitments or assurances that
      it
      will be successful in raising the funds required.





We
      believe that we will be successful in meeting the working capital needs to
      fund
      the current level of operating activities, capital expenditures and debt and
      other obligations through the next 12 months. However, if during that period
      or
      thereafter, the Company is not successful in generating sufficient capital
      resources, on terms acceptable to the Company, this could have a material
      adverse effect on the Company's business, results of operations liquidity and
      financial condition.





If
      in the
      future, if we are not capable of generating sufficient revenues from operations
      and its capital resources are insufficient to meet future requirements, we
      may
      have to raise funds to continue our operations.





While
      the
      Company has continued to raise capital to meet its working capital requirements,
      additional financing is required in order to meet future needs. There are no
      assurances the Company will be successful in raising the funds required and
      any
      equity raised would be substantially dilutive to existing shareholders.





The
      Company's independent certified public accountants have stated in their report
      included in the Company's July 31, 2005 Form 10-KSB, that the Company has
      incurred operating losses in the last two years, and that the Company is
      dependent upon management's ability to develop profitable operations. These
      factors among others may raise substantial doubt about the Company's ability
      to
      continue as a going concern.





Concurrent
      with our acquisition of North Texas in September 2005, we entered into
      a series of financing agreements, which are summarized as follows:





**Laurus
      Financings**





Concurrently
      with the closing of the acquisition of North Texas, we entered into agreements
      with Laurus pursuant to which we sold convertible debt, an option and a warrant
      to purchase common stock to Laurus in a private offering pursuant to exemption
      from registration under Section 4(2) of the Securities Act of 1933, as amended.
      The securities sold to Laurus include the following:





·
            a
                secured revolving note with a principal amount not to exceed
                $7,000,000;


·
            a
                secured convertible term note A with a principal amount of $3,000,000;


·
            a
                secured convertible term note B with a principal amount of $2,000,000;


·
            a
                common stock purchase warrant to purchase 2,865,116 shares of common
                stock, at a purchase price of $.99 per share, exercisable until September
                6, 2012; and


·
            an
                option to purchase 10,340,000 shares of common stock, at a purchase
                price
                of $.003 per share.





Each
      of
      the securities issued to Laurus are convertible into shares of Series D
      Preferred Stock, and the Series F Preferred Stock with respect to the secured
      convertible term note B, until such time that we amend our certificate of
      incorporation to provide authorized but un-issued shares of common stock and
      the
      shares of Series D Convertible Preferred Stock and the Series F Convertible
      Preferred Stock are only convertible into shares of common stock as long as
      there are available shares for conversion.





We
      are
      permitted to borrow an amount based upon its eligible accounts receivable,
      as
      defined in the agreements with Laurus. We must pay certain fees for any unused
      portion of the credit facility or in the event the facility is terminated prior
      to expiration. Our obligation under all notes are secured by all of the assets
      of our company, including but not limited to inventory, accounts receivable
      and
      a pledge of the stock of Omaha and North Texas. The minimum borrowing notes,
      the
      secured revolving notes and the secured convertible term note A mature on
      September 6, 2008. Annual interest on the minimum borrowing notes, the secured
      revolving notes and the secured convertible term note A is equal to the "prime
      rate" published in The Wall Street Journal from time to time, plus 2.0%,
      provided, that, such annual rate of interest may not be less than 8.25%, subject
      to certain downward adjustments resulting from certain increases in the market
      price of our common stock. Interest on the minimum borrowing notes, the secured
      revolving notes and the secured convertible term note A is payable monthly
      in
      arrears on the first day of each month, which commenced on October 1, 2005.





The
      principal amount of the secured convertible minimum borrowing note, together
      with accrued interest thereon is payable on September 6, 2008. The secured
      convertible minimum borrowing note may be redeemed by us in cash by paying
      the
      holder 120% of the principal amount, plus accrued interest. The holder of the
      secured convertible minimum borrowing note may require us to convert all or
      a
      portion of the term note, together with interest and fees thereon at any time.
      The number of shares to be issued shall equal the total amount to be converted,
      divided by $.99, subject to adjustment as described below.





The
      principal amount of the secured convertible term note A is repayable at the
      rate
      of $50,000 per month together with accrued but unpaid interest, commencing
      on
      January 1, 2006, which such principal payment increases to $98,275 on April
      1,
      2006. The monthly amounts shall automatically convert into shares of common
      stock in the event that there is an effective registration statement, the
      average market price for the five days preceding the payment date is equal
      to or
      greater than 120% of the fixed conversion price and the amount of such
      conversion does not exceed 25% of the aggregate dollar trading volume of the
      Company's common stock for the 22 trading days immediately preceding the
      prepayment date (the "Laurus Trading Volume Limit"). In the event that the
      conversion exceeds the Laurus Trading Volume Limit, then Laurus will only be
      required to convert the portion of the secured convertible term note A up to
      the
      Laurus Trading Volume Limit and we will be required to pay off the remaining
      balance of the monthly amount. The secured convertible term note A may be
      redeemed by our company in cash by paying the holder 120% of the principal
      amount, plus accrued interest. The holder of the term note may require our
      company to convert all or a portion of the secured convertible term note A,
      together with interest and fees thereon at any time. If paid in shares of common
      stock the number of shares to be issued shall equal the total amount due,
      divided by $0.0033, subject to adjustment as described below.





18


The
      principal amount of the secured convertible term note B is repayable in full
      on
      March 6, 2007. Interest on the secured convertible term note B accrues at the
      rate of 12% during the first year outstanding and 18% thereafter until maturity.
      On the maturity date, all principal and interest shall automatically convert
      into shares of common stock in the event that there is an effective registration
      statement, the average market price for the five days preceding the payment
      date
      is equal to or greater than 120% of the fixed conversion price and the amount
      of
      such conversion does not exceed 25% of the Laurus Trading Volume Limit. In
      the
      event that the conversion exceeds the Laurus Trading Volume Limit, then Laurus
      will only be required to convert the portion of the secured convertible term
      note A up to the Laurus Trading Volume Limit and we will be required to pay
      off
      the remaining balance of the monthly amount. The secured convertible term note
      B
      may be redeemed by our company in cash by paying the holder 100% of the
      principal amount, plus accrued interest. The holder of the secured convertible
      term note B may require our company to convert all or a portion of the secured
      convertible term note B, together with interest and fees thereon at any time.
      If
      paid in shares of common stock the number of shares to be issued shall equal
      the
      total amount due, divided by $.333.





Upon
      an
      issuance of shares of common stock below the fixed conversion price, the fixed
      conversion price of the notes will be reduced accordingly. The conversion price
      of the secured convertible notes may be adjusted in certain circumstances such
      as if we pay a stock dividend, subdivide or combine outstanding shares of common
      stock into a greater or lesser number of shares, or take such other actions
      as
      would otherwise result in dilution.





Laurus
      has contractually agreed to restrict its ability to convert the convertible
      notes would exceed the difference between the number of shares of common stock
      beneficially owned by the holder or issuable upon exercise of the warrant and
      the option held by such holder and 4.99% of the outstanding shares of common
      stock of our company which such restriction shall automatically become null
      and
      void following notice to us upon occurrence of an event of default under the
      agreements with Laurus or upon 75 days prior notice to our company.





We
      are
      obligated to file a registration statement registering the resale of shares
      of
      our common stock issuable upon conversion of the convertible notes, exercise
      of
      the warrant and exercise of the option. If the registration statement is not
      filed by October 21, 2005, or declared effective by January 4, 2006, or if
      the
      registration is suspended other than as permitted, in the registration rights
      agreement between us and Laurus, we are obligated to pay Laurus certain fees
      and
      the obligations may be deemed to be in default.





We
      may
      prepay the notes held by Laurus. In addition, we have granted Laurus a security
      interest in substantially all of our assets and our subsidiaries' assets.
      Further, Laurus has a first lien on North Texas' property located at 412 West
      Bolt Street, Fort Worth Texas and 4410 Marsalis Street, Forth Worth, Texas
      and
      Laurus has obtained a first lien on real property owned by Patricia and Charles
      Matteson located at 160 Rose Hill Road, Southport, Connecticut in connection
      with the secured convertible term note B.





**Gryphon
      Financing**





On
      September 7, 2005, in connection with the acquisition of North Texas, we entered
      into the Security Agreements with GSSF and GMF for the sale of an aggregate
      of
      the following:





·
            $500,000
                in the Gryphon Term Notes;


·
            Common
                stock purchase warrants to purchase 5,997,547 shares of common stock;
                and


·
            Options
                to purchase 935,000 shares of common stock (the "Gryphon Options").





The
      Gryphon Notes, the Gryphon Warrants and the Gryphon Options are convertible
      into
      shares of Series F Preferred Stock until such time that we amend our certificate
      of incorporation to provide for authorized and un-issued shares of common stock
      and the shares of Series F Convertible Preferred Stock are only convertible
      into
      shares of common stock as long as there are available shares for conversion.





The
      Gryphon Notes bear interest at 12%, mature one year from the date of issuance,
      and are convertible into our common stock, at Gryphon's option, at a conversion
      price of $.333. Based on this conversion price, the Gryphon Notes in the amount
      of $500,000 excluding interest, are convertible, upon our implementing the
      reverse stock split, into 1,501,501 shares of our common stock. On the
      maturity date of the Gryphon Notes, the Gryphon Notes shall automatically
      convert into shares of common stock in the event that the average market price
      for the five days preceding the maturity date is equal to or greater than 120%
      of the fixed conversion price and the amount of such conversion does not exceed
      25% of the aggregate dollar trading volume of our common stock for the 22
      trading days immediately preceding the maturity date (the "Trading Volume
      Limit"). In the event that the conversion exceeds the Trading Volume Limit,
      then
      Gryphon will only be required to convert the portion of the Gryphon Notes up
      to
      the Trading Volume Limit and we will be required to pay off the remaining
      balance.





We
      may
      prepay the Gryphon Notes. In addition, we have granted Gryphon a security
      interest in substantially all of our assets as well as registration rights.
      Gryphon's rights to any security interest are subordinated to that of Laurus
      Master Fund, Ltd.





The
      Gryphon Warrants are exercisable from the date of issuance through February
      28,
      2007 at an exercise price of $.333 per share. The Gryphon Options are
      exercisable at an exercise price of $.003 per share.





19


Gryphon
      has contractually agreed to restrict their ability to convert or exercise the
      Gryphon Notes, the Gryphon Warrants and Gryphon Options and receive shares
      of
      our common stock such that the number of shares of our common stock held by
      them
      and their affiliates after such conversion or exercise does not exceed 4.99%
      of
      our then issued and outstanding shares of common stock.





In
      accordance with Emerging Issues Task Force Issue 98-5, Accounting for
      Convertible Securities with a Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios ("EITF 98-5") and Emerging Issues Task Force Issue
      00-27, Application of Issue No. 98-5 to Certain Convertible Instruments ("EITF
      -
      0027"), we shall recognize an imbedded beneficial conversion feature present
      in
      the Laurus and Gryphon financings, along with the values attributed to the
      warrants issued . We will allocate a portion of the proceeds equal to the
      intrinsic value of that feature and the warrants to additional paid-in capital.
      We will recognize and measure an aggregate of approximately $9,496,000 of the
      proceeds, which is equal to the intrinsic value of the imbedded beneficial
      conversion feature, to additional paid-in capital and a discount against the
      Convertible Notes. The debt discount attributed to the beneficial conversion
      feature will amortize over the Convertible Notes' maturity period (12 to 30
      months) as interest expense, approximating $924,000 per quarter.





**Nite
      Capital Financing**





On
      September 7, 2005, Nite purchased 1,500 shares of Series E Convertible Preferred
      Stock for an aggregate purchase price of $150,000. Each shares of Series E
      Convertible Preferred Stock shall be convertible into shares of common stock
      equal to the stated value of $100 divided by the conversion price of $.0011.
      The
      shares of Series E Preferred Stock are not convertible until such time that
      the
      Company has increased its authorized shares of common stock to 15,000,000,000.
      The holders of the Series E Preferred Stock are entitled to receive dividends
      upon the declaration of a dividend to the common stock holders. However, the
      payments of such dividend are subject to the payment of dividends on the Series
      D Convertible Preferred Stock. Upon any liquidation, dissolution or winding
      up
      of our company, the holders of the Series E Preferred Stock shall be entitled
      to
      receive payments prior to any other securities except that the Series D
      Preferred Stock shall rank senior to that of the Series E Preferred Stock.
      The
      holders of Series E Preferred Stock have no voting rights unless such vote
      directly impacts the rights of the holders of the Series E Preferred Stock.





**Existing
      Debt Conversions**





In
      connection with the closing of the North Texas acquisition, Keshet Fund, L.P.,
      Keshet L.P., Nesher Ltd. and Talbiya B. Investment Ltd. (collectively, the
      "Existing Debt Holders"), converted all debt owed including interest to the
      Existing Debt Holders in the approximate amount of $1,405,236
      into 1,884,902 shares of common stock. Further, Dr. Gary Fromm agreed to
      forgive debt owed to him by our company in the amount of $1,162,732 in
      consideration of our company issuing 479,221 shares of common stock and the
      Existing Debt Holders transferring 702,840 shares of common stock of our
      company to Dr. Fromm.





**Off-
      Balance Sheet Arrangements**





We
      do not
      maintain off-balance sheet arrangements nor do we participate in non-exchange
      traded contracts requiring fair value accounting treatment.





**Inflation**





The
      effect of inflation on our revenue and operating results was not significant.
      Our operations are located in North America and there are no seasonal aspects
      that would have a material effect on our financial condition or results of
      operations.





**Recent
      Accounting Pronouncements**





SFAS
      123R. On March 31, 2004 the Financial Accounting Standards Board ("FASB") issued
      its exposure draft, "Share-Based Payments", which is a proposed amendment to
      SFAS 123. The exposure draft would require all share-based payments to
      employees, including grants of employee stock options and purchases under
      employee stock purchase plans, to be recognized in the statement of operations
      based on their fair value. The FASB issued the final standard in December 2004
      that is effective for public companies for interim and annual periods beginning
      after December 15, 2005. The Company has not yet assessed the impact of adopting
      this new standard.





FAS
      129-1. In April 2004, the FASB issued FASB Staff Position (FSP) 129-1,
      "Disclosure Requirements under SFAS 129, "Disclosure of Information about
      Capital Structure," Relating to Contingently Convertible Securities." The FSP
      interprets how the disclosure provisions of SFAS 129 apply to contingently
      convertible securities and their potentially dilutive effect on earnings per
      share. We are in a loss position for the three and nine months ended October
      2,
      2004, therefore, adoption of this FSP did not have a material effect on the
      Company's financial position, results of operations, or cash flows.





EITF
      04-08. In September 2004, the Emerging Issues Task Force issued EITF 04-08
      "The
      Effect of Contingently Convertible Debt on Diluted Earnings Per Share." EITF
      04-08 requires companies to include in diluted earnings per share, on the
      if-converted method, any shares of our common stock into which debt of the
      Company may be converted, regardless of whether the conversion threshold has
      been met. We adopted this standard as of September 2004. We have reported per
      share losses for all periods contained in this report. Since inclusion of
      additional shares would be anti-dilutive, no change to our historical results
      is
      required, therefore, adoption of this EITF did not have a material effect on
      our
      financial position, results of operations, or cash flows.





20


SFAS
      151.
      In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      151, Inventory Costs-- an amendment of ARB No. 43, Chapter 4. This Statement
      amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
      the accounting for abnormal amounts of idle facility expense, freight, handling
      costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
      previously stated that ". . . under some circumstances, items such as idle
      facility expense, excessive spoilage, double freight, and re-handling costs
      may
      be so abnormal as to require treatment as current period charges. . . ." This
      Statement requires that those items be recognized as current-period charges
      regardless of whether they meet the criterion of "so abnormal." In addition,
      this Statement requires that allocation of fixed production overheads to the
      costs of conversion be based on the normal capacity of the production
      facilities. This Statement is effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. We do not anticipate that the
      implementation of this standard will have a material impact on its financial
      position, results of operations or cash flows.





SFAS
      152.
      In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
      Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
      152) The amendments made by Statement 152 This Statement amends FASB Statement
      No. 66, Accounting for Sales of Real Estate, to reference the financial
      accounting and reporting guidance for real estate time-sharing transactions
      that
      is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
      Estate Time-Sharing Transactions. This Statement also amends FASB Statement
      No.
      67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
      to state that the guidance for (a) incidental operations and (b) costs incurred
      to sell real estate projects does not apply to real estate time-sharing
      transactions. The accounting for those operations and costs is subject to the
      guidance in SOP 04-2. This Statement is effective for financial statements
      for
      fiscal years beginning after June 15, 2005. with earlier application encouraged.
      The Company does not anticipate that the implementation of this standard will
      have a material impact on its financial position, results of operations or
      cash
      flows.





SFAS
      153.
      On December 16, 2004, FASB issued Statement of Financial Accounting Standards
      No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No.
      29,
      Accounting for Non-monetary Transactions (" SFAS 153"). This statement amends
      APB Opinion 29 to eliminate the exception for non-monetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      non-monetary assets that do not have commercial substance. Under SFAS 153,
      if a
      non-monetary exchange of similar productive assets meets a commercial-substance
      criterion and fair value is determinable, the transaction must be accounted
      for
      at fair value resulting in recognition of any gain or loss. SFAS 153 is
      effective for non-monetary transactions in fiscal periods that begin after
      June
      15, 2005. We do not anticipate that the implementation of this standard will
      have a material impact on its financial position, results of operations or
      cash
      flows.






**ITEM
      3. CONTROLS AND PROCEDURES**





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our chief executive officer and chief
      financial officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our chief executive officer and chief financial officer concluded that our
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is recorded, processed, summarized and reported, within the time
      periods specified in the Commission's rules and forms. There was no change
      in
      our internal controls or in other factors that could affect these controls
      during our last fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.





21


**PART
      II**





**OTHER
      INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**




From
      time
      to time, the Company may become involved in various lawsuits and legal
      proceedings which arise in the ordinary course of business. However, litigation
      is subject to inherent uncertainties, and an adverse result in these or other
      matters may arise from time to time that may harm the Company’s business. Except
      for the following, the Company is currently not aware of nor has any knowledge
      of any such legal proceedings or claims that we believe will have, individually
      or in the aggregate, a material adverse affect on our business, financial
      condition or operating results:





On
      November 17, 2005, Lawrence J. Brady, filed a complaint with the Superior Court
      of the State of California, County of Los Angeles. Mr. Brady is alleging a
      breach of contract and a breach of statutory duty. Mr. Brady is seeking damages
      in the approximate amount of $312,000 in connection with the alleged breach
      of
      his employment agreement and the related termination agreement. The Company
      believes it has meritorious defenses and intends to vigorously defend against
      this action.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**








**Laurus
      Financings**





On
      September 7, 2005, in connection with the acquisition of North Texas, we entered
      into agreements with Laurus Master Funds, Ltd., a Cayman Islands corporation
      ("Laurus"), pursuant to which the Company sold convertible debt, an option
      and a
      warrant to purchase common stock to Laurus in a private offering pursuant to
      exemption from registration under Section 4(2) of the Securities Act of 1933,
      as
      amended. The securities sold to Laurus include the following:





·
            a
                secured revolving note with a principal amount of
                $7,000,000;


·
            a
                secured convertible term note A with a principal amount of $3,000,000;


·
            a
                secured convertible term note B with a principal amount of
                $2,000,000;


·
            a
                common stock purchase warrant to purchase 2,865,116 shares of common
                stock
                at a purchase price of $0.99 per share, exercisable until September
                6,
                2012; and


·
            an
                option to purchase 10,340,000 shares of common stock, at a purchase
                price
                of $0.003 per share.





**Gryphon
      Financing**





On
      September 7, 2005, in connection with the acquisition of North Texas, we entered
      into Security Agreements (the "Security Agreements") with GSSF Master Fund,
      L.P.
      ("GSSF") and Gryphon Master Fund L.P. ("GMF") for the sale of an aggregate
      of
      (i) $500,000 in convertible term notes (the "Gryphon Term Notes"), (ii) common
      stock purchase warrants to purchase 5,999,880 shares of common stock (the
      "Gryphon Warrants") and (iii) options to purchase 935,000 shares of common
      stock
      (the "Gryphon Options"). GSSF and GMF are hereinafter collectively referred
      to
      as "Gryphon".





**Nite
      Capital Financing**





On
      September 7, 2005, Nite Capital LP ("Nite") purchased 1,500 shares of Series
      E
      Convertible Preferred Stock for an aggregate purchase price of $150,000. Each
      share of Series E Convertible Preferred Stock shall be convertible into shares
      of common stock equal to the stated value of $100 divided by the conversion
      price of $0.33. The holders of the Series E Preferred Stock are entitled to
      receive dividends upon the declaration of a dividend to the common stock
      holders. However, the payments of such dividend are subject to the payment
      of
      dividends on the Series D Convertible Preferred Stock. Upon any liquidation,
      dissolution or winding up of the Company, the holders of the Series E Preferred
      Stock shall be entitled to receive payments prior to any other securities except
      that the Series D Preferred Stock shall rank senior to that of the Series E
      Preferred Stock. The holders of Series E Preferred Stock have no voting rights
      unless such vote directly impacts the rights of the holders of the Series E
      Preferred Stock.





22


**Existing
      Debt Conversions**





In
      connection with the closing of the North Texas acquisition, Keshet Fund, L.P.,
      Keshet L.P., Nesher Ltd. and Talbiya B. Investment Ltd. (collectively, the
      "Existing Debt Holders"), converted all debt owed including interest to the
      Existing Debt Holders in the approximate amount of $1,405,236 into 1,884,902
      shares of common stock. Further, Dr. Gary Fromm agreed to forgive debt owed
      to
      him by our company in the amount of $1,162,732 in consideration of our company
      issuing 479,221 shares of common stock and the Existing Debt Holders
      transferring 702,840 shares of common stock of our company to Dr. Fromm.





**Luther
      Consulting Agreement**





In
      connection with the closing of the acquisition of North Texas, we entered into
      a
      consulting agreement with Luther Capital Management, Inc. ("Luther Capital").
      Pursuant to the consulting agreement, in consideration for providing valuable
      services to our company in connection with the acquisition of North Texas,
      we
      have agreed to issue Luther Capital and its designees, an aggregate of 5,580,280
      shares (the "Luther Shares") of common stock. In addition to other designations,
      Luther Capital agreed to transfer 479,295 shares of common stock to Dr. Fromm,
      794,361 shares of common stock to Thomas E. Durkin, III, 158,872 shares of
      common stock to D&D Investments, LLC, a limited liability company of which
      Mr. Durkin owns 25% of the outstanding membership interests , and 794,361 shares
      of common stock to R.I. Heller &Co., LLC, a limited liability company of
      which Mr. William N. Plamondon, III owns a majority of the outstanding
      membership interests. Messrs. Plamondon, Durkin and Fromm are executive officers
      and/or directors of our company.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





None.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





The
      Company filed a Certificate of Amendment to its Certificate of Incorporation
      ("Amendment") with the Secretary of State of the State of Nevada that was
      effective December 5, 2005. The Amendment was filed to effect a reverse split
      of
      the issued and outstanding common shares of the Company whereby every 300 shares
      of common stock held were exchanged for one share of common stock. Any
      shareholder that holds a fractional shares as a result of the reverse split
      will
      receive a whole share in lieu of a fractional share. As a result, the issued
      and
      outstanding shares of common stock were reduced from 832,520,612 ** prior
      to
      the reverse split to approximately 2,775,069 following the reverse stock split
      and the Company’s quotation symbol on the OTC Bulletin Board changed from “ATEG”
to “ATGR”. The authorized capital of the Company will remain at 1,000,000,000
      shares of common stock and 50,000,000 shares of preferred stock. The reverse
      split was approved by the written consent by stockholders of the Company holding
      a majority of the outstanding shares of common stock of the Company, dated
      as of
      September 28, 2005.




**ITEM
      5. OTHER INFORMATION**





None.





**ITEM
      6. EXHIBITS**





(a)
      Exhibits.





31.1
            Certification
                by Chief Executive Officer pursuant to Sarbanes-Oxley Section 30231.2
            Certification
                by Chief Financial Officer pursuant to Sarbanes-Oxley Section 30232.1
            Certification
                by Chief Executive Officer pursuant to 18 U.S. C.   Section 135032.2
            Certification
                by Chief Financial Officer pursuant to 18 U.S. C.   Section 1350





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**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**AMERICAN
                TECHNOLOGIES GROUP, INC.***By:*
            */s/
                Thomas E. Durkin, III**Thomas
                E. Durkin, III*
              PRESIDENT**





DATE: *August 10, 2007*




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