**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10 QSB**

*(Mark      One)*

| [XX] | QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                SECURITIES |
|------|--------------------------------------------------------------------------------------------------|

| [__] | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                SECURITIES |
|------|---------------------------------------------------------------------------------------------------|

**US      ENERGY INITIATIVES CORPORATION**

*(Exact      name of registrant as specified in its charter)*

| **GEORGIA**                                                                                  |   | **58                2267238**                       |
|----------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or other jurisdiction of incorporation or                organization) |   | (I.R.S.                Employer Identification No.) |

** **

**2701      North Rocky Point Drive, Suite 325, Tampa, Florida      33607**

**(813)      287 5787**

----

**US      ENERGY INITIATIVES**

**Report      on Form 10QSB**

**for      the nine month period ended September 30, 2006**

----

**US      ENERGY INITIATIVES CORPORATION**

**CONSOLIDATED      BALANCE SHEETS**

|                                                                                                                                                                              |   | **September                30, 2006****(unaudited)** |          | **December                31, 2005****(audited)** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|---------------|---------------------------------------------------|--------|
| **ASSETS**                                                                                                                                                                        |   |
| ***Current                Assets***                                                                                                                                               |   |                                                 |          |                                              |   |   |   |
| Cash                                                                                                                                                                              |   | $                                                    | 30,908        |                                              | $      | 818,557 |   |
| Accounts                Receivable, net of $55,000                and $12,000 respectively                                                                                        |   |                                                 | 326,027       |                                              |   | 370,777 |   |
| Other                assets                                                                                                                                                       |   |                                                 | 3,110         |                                              |   | - |   |
| Prepaid                expenses and deposits                                                                                                                                      |   |                                                 | 45,841        |                                              |   | 32,286 |   |
| Inventories                                                                                                                                                                       |   |                                                 | 562,627       |                                              |   | 162,690 |   |
| Deferred                consulting                                                                                                                                                |   |                                                 | 324,251       |                                              |   | 576,258 |   |
| Deferred                debt costs                                                                                                                                                |   |                                                 | 1,640,998     |                                              |   | 397,671 |   |
| Total                current assets                                                                                                                                               |   |                                                 | 2,933,762     |                                              |   | 2,358,239 |   |
|                                                                                                                                                                              |   |                                                 |          |                                              |   |   |   |
| Property,                plant & equipment, net                                                                                                                               |   |                                                 | 564,321       |                                              |   | 565,415 |   |
| GoodwillPurchase                price subject to allocation                                                                                                                       |   |                                                 | 61,820683,877 |                                              |   | 61,8200 |   |
| Intellectual                property, certifications, net                                                                                                                         |   |                                                 | 804,394       |                                              |   | 873,342 |   |
|                                                                                                                                                                              |   |                                                 |          |                                              |   |   |   |
|                                                                                                                                                                              |   | $                                                    | 5,048,174     |                                              | $      | 3,858,816 |   |
|                                                                                                                                                                              |
| **LIABILITIES                AND SHAREHOLDERS' DEFICIT**                                                                                                                          |
|                                                                                                                                                                              |   |                                                 |          |                                              |   |   |   |
| ***Current                Liabilities***                                                                                                                                          |   |                                                 |          |                                              |   |   |   |
| Accounts                payable                                                                                                                                                   |   | $                                                    | 742,296       |                                              | $      | 526,001 |   |
| Due                to related parties                                                                                                                                             |   |                                                 | 15,000        |                                              |   | 176,540 |   |
| Due                to related parties,convertible debt                                                                                                                            |   |                                                 | 1,638,752     |                                              |   | 1,080,752 |   |
| Notes                payable                                                                                                                                                      |   |                                                 | 1,997,743     |                                              |   | 1,630,293 |   |
| Discount                on debt                                                                                                                                                   |   |                                                 | (236,956      | )                                                 |   | (650,630 | ) |
| Derivative                liability                                                                                                                                               |   |                                                 | 399,256       |                                              |   | 841,010 |   |
| Other                current liabilities                                                                                                                                          |   |                                                 | 663,683       |                                              |   | 526,427 |   |
| Total                current liabilities                                                                                                                                          |   |                                                 | 5,219,774     |                                              |   | 4,130,393 |   |
| Total                Liabilities                                                                                                                                                  |   |                                                 | 5,219,774     |                                              | $      | 4,130,393 |   |
|                                                                                                                                                                              |   |                                                 |          |                                              |   |   |   |
| ***Shareholders'                Deficit***                                                                                                                                        |   |                                                 |          |                                              |   |   |   |
| Preferred                A stock (.01 par value, 42,215 shares authorized and                outstanding                                                                          |   |                                                 | 422           |                                              |   | 422 |   |
| Preferred                B stock (.01 par value, 954,563 shares authorized; 195,209 shares                outstanding                                                             |   |                                                 | 1,952         |                                              |   | 1,952 |   |
| Common                stock (.001 par value, 150,000,000 shares authorized; 132,259,954                and                105,905,433 shares issued and outstanding, respectively |   |                                                 | 132,260       |                                              |   | 105,905 |   |
| Additional                paid-in capital                                                                                                                                         |   |                                                 | 23,695,439    |                                              |   | 16,997,922 |   |
| Deferred                compensation                                                                                                                                              |   |                                                 | 0             |                                              |   | (200,000 | ) |
| Accumulated                deficit                                                                                                                                                |   |                                                 | (24,001,673   | )                                                 |   | (17,177,778 | ) |
| Total                shareholders' deficit                                                                                                                                        |   |                                                 | (171,600      | )                                                 |   | (271,577 | ) |
|                                                                                                                                                                              |   |                                                 |          |                                              |   |   |   |
| Total                Liabilities and Shareholders' Deficit                                                                                                                        |   | $                                                    | 5,048,174     |                                              | $      | 3,858,816 |   |

----

**US      ENERGY INITIATIVES CORPORATION**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

|                                                                        |   | **Three                Months****Ended****September                30, 2006** |        | **Three                Months****Ended****September                30, 2005** |   | **Nine                Months****Ended****September                30, 2006** |   | **Nine                Months****Ended****September                30, 2005** |        |
|-----------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|-------------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|-------------|
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| Revenue                                                                     |   | $                                                                             | 456,126     |                                                                          | $      | 224,298                                                                      |   | $                                                                            | 881,849     |   | $ | 278,035 |   |
| Cost                of sales                                                |   |                                                                          | 267,484     |                                                                          |   | 219,001                                                                      |   |                                                                         | 462,443     |   |   | 248,008 |   |
| Gross                Profit                                                 |   |                                                                          | 188,642     |                                                                          |   | 5,297                                                                        |   |                                                                         | 419,406     |   |   | 30,027 |   |
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| Operating                Expenses                                           |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| Consulting                and professional                                  |   |                                                                          | 314,757     |                                                                          |   | 218,514                                                                      |   |                                                                         | 1,410,463   |   |   | 624,398 |   |
| Research                & Development                                   |   |                                                                          | 26,571      |                                                                          |   | 18,168                                                                       |   |                                                                         | 52,682      |   |   | 98,022 |   |
| Compensation                                                                |   |                                                                          | 2,072,555   |                                                                          |   | 295,710                                                                      |   |                                                                         | 3,203,921   |   |   | 867,214 |   |
| Depreciation                and Amortization                                |   |                                                                          | 44,725      |                                                                          |   | 8,050                                                                        |   |                                                                         | 134,650     |   |   | 8,050 |   |
| Rent                                                                        |   |                                                                          | 58,545      |                                                                          |   | 18,347                                                                       |   |                                                                         | 131,534     |   |   | 53,920 |   |
| Insurance                                                                   |   |                                                                          | 48,654      |                                                                          |   | 26,987                                                                       |   |                                                                         | 180,076     |   |   | 37,022 |   |
| Other                operating expenses                                     |   |                                                                          | 195,591     |                                                                          |   | 70,072                                                                       |   |                                                                         | 371,908     |   |   | 167,446 |   |
|                                                                        |   |                                                                          | 2,761,398   |                                                                          |   | 655,848                                                                      |   |                                                                         | 5,485,234   |   |   | 1,856,072 |   |
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| ***Loss                from operations***                                   |   |                                                                          | (2,572,756  | )                                                                             |   | (650,551                                                                     | )      |                                                                         | (5,065,828  | ) |   | (1,826,045 | ) |
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| Other                Income (Expense)                                       |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| Derivative                gain (loss)                                       |   |                                                                          | 1,379,059   |                                                                          |   |                                                                         |   |                                                                         | 803,129     |   |   |   |   |
| Interest                expense                                             |   |                                                                          | (1,304,018  | )                                                                             |   | (763,353                                                                     | )      |                                                                         | (2,724,917  | ) |   | (1,571,199 | ) |
| Gain                on extinguishment of debt                               |   |                                                                          | 216,000     |                                                                          |   |                                                                         |   |                                                                         | 162,557     |   |   |   |   |
| Miscellaneous                                                               |   |                                                                          | 56          |                                                                          |   | 0                                                                            |   |                                                                         | 1,164       |   |   | 0 |   |
|                                                                        |   |                                                                          | 291,097     |                                                                          |   | (763,353                                                                     | )      |                                                                         | (1,758,067  | ) |   | (1,571,199 | ) |
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| ***Net                loss***                                               |   | $                                                                             | (2,281,659  | )                                                                             | $      | (1,413,904                                                                   | )      | $                                                                            | (6,823,895  | ) | $ | (3,397,244 | ) |
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| Basic                and diluted weighted average common shares outstanding |   |                                                                          | 128,096,006 |                                                                          |   | 93,683,058                                                                   |   |                                                                         | 116,400,574 |   |   | 86,095,715 |   |
|                                                                        |   |                                                                          |        |                                                                          |   |                                                                         |   |                                                                         |        |   |   |   |   |
| Basic                and diluted loss per share                             |   | $                                                                             | (0.03       | )                                                                             | $      | (0.02                                                                        | )      | $                                                                            | (0.06       | ) | $ | (0.04 | ) |

----

**US      ENERGY INITIATIVES CORPORATION**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

|                                                                                                                  |   | **Nine                Months****Ended****September                30, 2006** |          | **Nine                Months****Ended****September                30, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|---------------|------------------------------------------------------------------------------|--------|
| Cash              flows from operating activities                                                                     |   | $                                                                            | (6,823,895    | )                                                                            | $      | (3,397,244 | ) |
| Net                Loss                                                                                               |   |                                                                         |          |                                                                         |   |   |   |
| Adjustments                to reconcile net income to net                cash provided (used) by operating activities |   |                                                                         |          |                                                                         |   |   |   |
| Common                stock issued for services                                                                       |   |                                                                         | 2,328,313     |                                                                         |   | 206,000 |   |
| Depreciation                                                                                                          |   |                                                                         | 65,702        |                                                                         |   | 16,857 |   |
| Amortization                of deferred                compensation                                                   |   |                                                                         | 200,000       |                                                                         |   | 225,000 |   |
| Amortization                of debt discount and deferred                debt cost                                    |   |                                                                         | 1,668,873     |                                                                         |   | 1,527,957 |   |
| Amortization                of deferred                consulting                                                     |   |                                                                         | 504,007       |                                                                         |   |   |   |
| Amortization                of intangibles                                                                            |   |                                                                         | 68,948        |                                                                         |   |   |   |
| Conversion                benefit on related party                advance                                             |   |                                                                         | 558,000       |                                                                         |   |   |   |
| Gain                on extinguishment of debt                                                                    |   |                                                                         | (162,557      | )                                                                            |   |   |   |
| Derivative                (income) expense                                                                            |   |                                                                         | (803,129      | )                                                                            |   |   |   |
| Advanced                Deposits                                                                            |   |                                                                         | (3,422        | )                                                                            |   |   |   |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Change                in operating assets and liabilities                                                             |   |                                                                         |          |                                                                         |   |   |   |
| Accounts                Receivable                                                                                    |   |                                                                         | 178,107       |                                                                         |   | (111,870 | ) |
| Inventory                                                                                                             |   |                                                                         | (246,934      | )                                                                            |   | (68,330 | ) |
| Prepaid&deposits                                                                                                  |   |                                                                         | (13,555       | )                                                                            |   |   |   |
| Other                assets                                                                                      |   |                                                                         | (800          | )                                                                            |   |   |   |
| Accounts                payable                                                                                       |   |                                                                         | 67,488        |                                                                         |   | 145,711 |   |
| Accrued                liabilities                                                                                    |   |                                                                         | 27,231        |                                                                         |   | (93,701 | ) |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Net              Cash Provided (used) by operating activities                                                         |   |                                                                         | (2,387,623    | )                                                                            |   | (1,549,620 | ) |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Cash              flows from Investing Activities                                                           |   |                                                                         |          |                                                                         |   |   |   |
| Purchase                of property and equipment                                                                     |   |                                                                         | (4,323        | )                                                                            |   | (243,841 | ) |
| Business                acquisition                                                                                   |   |                                                                         | (292,635      | )                                                                            |   | (200,000 | ) |
| Cash                acquired in business                acquisition                                                   |   |                                                                         | 63,049        |                                                                         |   |   |   |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Net              cash provided (used) by investing activities                                                         |   |                                                                         | (233,909      | )                                                                            |   | (443,841 | ) |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Cash              flows from Financing Activities                                                                     |   |                                                                         |          |                                                                         |   |   |   |
| Loans                from related parties                                                                             |   |                                                                         | 558,000       |                                                                         |   | 1,469,094 |   |
| Proceeds                from exercise of warrants                                                           |   |                                                                         |          |                                                                         |   | 150 |   |
| Payment                to related parties                                                                             |   |                                                                         | (161,540      | )                                                                            |   |   |   |
| Payments                on accounts payable in settlement                                                             |   |                                                                         |          |                                                                         |   | (40,000 | ) |
| Proceeds                from notes payable                                                                            |   |                                                                         | 2,414,025     |                                                                         |   | 600,000 |   |
| Payments                on Notes payable                                                                    |   |                                                                         | (976,602      | )                                                                            |   | (28,465 | ) |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Net              cash provided (used) by financing              activities                                  |   |                                                                         | 1,833,883     |                                                                         |   | 2,000,779 |   |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Net              increase (decrease) in cash and cash              equivalents                                        |   |                                                                         | (787,649      | )                                                                            |   | 7,318 |   |
| Beginning              cash and cash equivalents                                                                      |   |                                                                         | 818,557       |                                                                         |   | 2,025 |   |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Ending              cash and cash equivalents                                                                         |   | $                                                                            | 30,908        |                                                                         | $      | 9,343 |   |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Supplement                disclosure of cash flow information                                                         |   |                                                                         |          |                                                                         |   |   |   |
| Cash                paid during the year for                interest                                   |   | $                                                                            | 41,477        |                                                                         | $      | 20,063 |   |
| Common                stock issued for services                                                        |   | $                                                                            | 2,328,313     |                                                                         |   |   |   |
| Common                stock issued for reduction in                debt                                               |   | $                                                                            | 1,801,695     |                                                                         |   |   |   |
| Common                stock issued to raise convertible                debt                                 |   | $                                                                            | 558,000       |                                                                         |   |   |   |
| Common                stock issued as debt discount                                                              |   | $                                                                            | 366,000       |                                                                         |   |   |   |
| Common                stock issued as debt cost                                                                       |   | $                                                                            | 1,500,000     |                                                                         |   |   |   |
| Amortization                of Common Stock issued for                deferred compensation            |   | $                                                                            |  200,000 |                                                                         |   |   |   |
|                                                                                                                  |   |                                                                         |          |                                                                         |   |   |   |
| Non              cash financing activities                                                                            |   |                                                                         |          |                                                                         |   |   |   |
| Expiration                of redeemable                securities                                                     |   |                                                                         |          |                                                                         | $      | 530,000 |   |

----

**US      ENERGY INITIATIVES CORPORATION**

**Notes      to Consolidated Financial Statements**

***Note      1 - Nature of business, basis of presentation and summary of significant      accounting policies***

*a.      Basis of presentation*

*b.      Principles of Consolidation and Basis of Presentation*

*c.      Use of Accounting Estimates*

*d.      Cash and Cash Equivalents*

*e.      Accounts Receivable*

*f.      Inventories*

*g.      Property, Plant and Equipment Net*

----

*h.      Goodwill and other Intangible Assets*

*"Goodwill      and Other Intangibles"*

*i.      Impairment of Assets*

*j.      Income Taxes*

*"Accounting      for Income Taxes"*

*k.      Earnings (Loss) Per Common Share*

*l.      Revenue Recognition*

*m.      Stock Based Compensation*

*"Accounting      for Stock Based Compensation"*

----

*n.      Research and Development Costs*

*o.      Fair Value of Financial Instruments*

*Cash,      Accounts Receivable, Accounts Payable and Accrued Expenses*

*Long-Term      Obligations*

*p.      Accounting For Financial Instruments*

*q.      Recently issued Accounting Standards*

*r.      Going concern:*

----

***Note      2 - Related Party Transactions***

*License      Agreement*

***Note      3 - Goodwill***

***Note      4 - Intangible Assets, Net***

----

***Note      5 - Shareholders' Equity***

*Preferred      Stock*

***Note      6 - Debt in Default***

***Note      7 - Litigation***

***Note      8 - Stock Options and Warrants***

----

***Note      9 - Derivative Financial Instruments***

| **Issue                Date**                                                                                                      | **Expiration                Date** | **Instrument**                                                    | **Exercise                Price Per Share** | **Value                at Issue Date** | **Value                at 9/30/06** |
|------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|-------------------------------------------------------------------|---------------------------------------------|----------------------------------------|-------------------------------------|
| 3/05/05                                                                                                                            | 3/05/10                            | 1,600,000                warrants issued to Alpha Capital         | $0.19                                       | $928,000                               | $169,699                            |
| 11/4/05                                                                                                                            | 11/4/10                            | 314,815                warrants issued to Dutchess Private Equity | $0.27                                       | $85,000                                | $                36,204             |
| Fair                value of freestanding derivative instrument liabilities for options                and                warrants | $205,903                           |

| **Issue                Date**                                                                             | **Expiration                Date** | **Instrument**                               | **Exercise                Price Per Share** | **Value                at Issue Date** | **Value                at 9/30/06** |
|-----------------------------------------------------------------------------------------------------------|------------------------------------|----------------------------------------------|---------------------------------------------|----------------------------------------|-------------------------------------|
| 11/4/05                                                                                                   | 11/4/10                            | Dutchess                $340,000 term note   | $0.27                                       | $201,481                               | 0                                   |
| 12/20/05                                                                                                  | 12/21/06                           | Dutchess                $1,362,500 term note | $0.27                                       | $302,778                               | $18,401                             |
| 3/23/06                                                                                                   | 3/23/07                            | Dutchess                $1,412,500 term note | $0.27                                       | $470,833                               | $82,345                             |
| 7/13/06                                                                                                   | 10/13/07                           | Dutchess                $845,000 term note   | $0.27                                       | $338,169                               | $92,607                             |
| Fair                value of freestanding derivative instrument liabilities for term                notes | $193,353                           |
| Total                fair value of freestanding derivative instrument liabilities                         | $399,256                           |

| Expected                  term ranging from           | .22                  to 3.5 years |
|-------------------------------------------------------|-----------------------------------|
| Stock                  Price at September 30, 2006    | $0.155                            |
| Expected                  dividend yield              | $0.00                             |
| Expected                  stock price volatility      | 103%                              |
| Risk-free                  interest rate ranging from | 4.59%                  to 5.02%   |

***Note      10 - Debt Financing***

----

***Note      11 - Acquisition***

----

| Purchase              price                                         |   | $      | 350,000  |   |
|---------------------------------------------------------------------|--------|--------|----------|--------|
|                                                                |   |   |     |   |
| Less:              values currently assigned to              assets |   |   |     |   |
|                                                                |   |   |     |   |
| Cash                                                                |   |   | (63,049  | )      |
| Accounts                Receivable net                              |   |   | (133,357 | )      |
| Inventory                                                           |   |   | (153,003 | )      |
| Fixed                assets net                                     |   |   | (60,285  | )      |
| Other                assets                                         |   |   | (2,310   | )      |
|                                                                |   |   |     |   |
| Plus:                values currently assigned to liabilities       |   |   |     |   |
|                                                                |   |   |     |   |
| Accounts                Payable and accrued                expense  |   |   | 205,501  |   |
| Credit                line payable                                  |   |   | 400,130  |   |
| Purchase                price subject to allocation            |   | $      | 543,627  |   |

|                         |   | For                the three months ended September                30, |       |  For                the three months ended September                30, |   | For                the nine months ended September                30, |   | For                the nine months ended September                30, |       |
|------------------------------|--------|------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|------------|
|                         |   | 2006                                                                   |       | 2005                                                                         |   | 2006                                                                       |   | 2005                                                                       |       |
|                         |   | (unaudited)                                                            |       | (unaudited)                                                                  |   | (unaudited)                                                                |   | (unaudited)                                                                |       |
| Revenue                      |   |                                                                   | 456,126    |                                                                         |   | 722,296                                                                    |   |                                                                       | 1,771,502  |   |   | 1,757,383 |   |
| Gross              profit    |   |                                                                   | 294,184    |                                                                         |   | 109,579                                                                    |   |                                                                       | 504,150    |   |   | 299,993 |   |
| Net              income/loss |   |                                                                   | (2,281,472 | )                                                                            |   | (1,383,946                                                                 | )      |                                                                       | (7,044,451 | ) |   | (3,346,037 | ) |

***Note      12 - Segment Information***

|                                                                        |   |       |      |   |      |       |   |   |                        |       |   |   |          |   |   |   |       |   |
|------------------------------------------------------------------------|--------|------------|-----------|--------|-----------|------------|--------|--------|-----------------------------|------------|--------|--------|---------------|--------|--------|--------|------------|--------|
|                                                                   |   |       |      |   |      |       |   |   | Hybrid                Fuels |       |   |   | Manufacturing |   |   |   | Total      |   |
| Revenue                                                                |   |       |      |   | 466,876   |       |   |   | 414,973                     |       |   |   | 881,849       |   |
| Cost                of sales                                           |   |       |      |   | 203,081   |       |   |   | 259,362                     |       |   |   | 462,443       |   |
| Gross                Profit                                            |   |       |      |   | 263,795   |       |   |   | 155,611                     |       |   |   | 419,406       |   |
|                                                                   |   |       |      |   |      |       |   |   |                        |       |   |   |          |   |   |   |       |   |
| Operating                Expenses                                      |   |       |      |   |      |       |   |   |                        |       |   |
| Consulting                and professional                             |   | 1,397,577  |      |   |      | 12,886     |   |   |                        | 1,410,463  |   |
| Research                & development                              |   | 51,431     |      |   |      | 1,251      |   |   |                        | 52,682     |   |
| Compensation                                                           |   | 1,696,650  |      |   |      | 1,507,271  |   |   |                        | 3,203,921  |   |
| Depreciation                and amotization                            |   | 131,143    |      |   |      | 3,507      |   |   |                        | 134,650    |   |
| Rent                                                                   |   |       |      |   |      |       |   |   | 120,834                     |       |   |   | 10,700        |   |   |   | 131,534    |   |
| Insurance                                                              |   |       |      |   | 170,290   |       |   |   | 9,787                       |       |   |   | 180,076       |   |
| Other                operating expenses                                |   | 343,778    |      |   |      | 28,130     |   |   |                        | 371,908    |   |
|                                                                   |   |       |      |   |      |       |   |   | 3,911,703                   |       |   |   | 1,573,532     |   |   |   | 5,485,234  |   |
| Loss                from operations                                    |   | (3,647,908 | )         |   |      | (1,417,920 | )      |   |                        | (5,065,828 | )      |
|                                                                   |   |       |      |   |      |       |   |   |                        |       |   |   |          |   |   |   |       |   |
| Other                income (expense)                                  |   |       |      |   |      |       |   |   |                        |       |   |
|  Derivative                gaim (loss)                            |   | 803,129    |      |   |      |       |   |   |                        | 803,129    |   |
|  Interest                expense                                  |   | (2,715,972 | )         |   |      | (8,945     | )      |   |                        | (2,724,917 | )      |
|  Debt                extinguishment gain/loss                     |   | 162,557    |      |   |      |       |   |   |                        | 162,557    |   |
|  Miscellaneous                                                    |   | 1,164      |      |   |      | -          |   |   |                        | 1,164      |   |
|                                                                   |   |       |      |   |      |       |   |   | (1,749,122                  | )          |   |   | (8,945        | )      |   |   | (1,758,067 | )      |
| Loss                from continuing operatings                         |   | (5,397,030 | )         |   |      | (1,426,865 | )      |   |                        | (6,823,895 | )      |
| Net                loss for reportable segments                        |   | (5,397,030 | )         |   |      | (1,426,865 | )      |   |                        | (6,823,895 | )      |
| Total                Assets                                            |   |       |      |   | 4,330,816 |       |   |   | 717,358                     |       |   |   | 5,048,174     |   |
| Goodwill                                                               |   |       |      |   | 61,820    |       |   |   | -                           |       |   |   | 61,820        |   |
|                                                                   |   |       |      |   |      |       |   |   |                        |       |   |   |          |   |   |   |       |   |
| Reconciliation                of Segment Amounts Reported to Condensed |   |       |      |   |      |       |   |   |
| Consolidated                Amounts                                    |   |       |      |   |      |       |   |   |                        |       |   |
| Revenue                                                                |   |       |      |   |      |       |   |   |                        |       |   |   |          |   |
|  Total                revenues for reportable segments            |   |       | 881,849   |   |      |       |   |   |
|  Total                consolidated revenue                        |   |       |      |   |      | 881,849    |   |   |                        |       |   |
|                                                                   |   |       |      |   |      |       |   |   |                        |       |   |   |          |   |   |   |       |   |
| Net                income (loss)                                       |   |       |      |   |      |       |   |   |                        |       |   |
|  Net                income (loss) for reportable segments         |   |       | 6,823,895 |   |      |       |   |   |
|  Net                income (loss) consolidated                    |   |       |      |   |      | 6,823,895  |   |   |                        |       |   |
|                                                                   |   |            |      |   |      |       |   |   |

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**Item      2 - Management's Discussion and Analysis or Plan of      Operations**

*This      Report contains forward-looking statements, within the meaning of Section 21E      of      the Securities Exchange Act of 1934, as amended, which reflect our expectation      or belief concerning future events that involve risks and uncertainties. Our      actions and performance could differ materially from what is contemplated by      the      forward-looking statements contained in this Report. Factors that might cause      differences from the forward-looking statements include those referred to or      identified under "Risk Factors" in our Annual Report on Form 10-KSB for the      year      ended December 31, 2005 and other factors that may be identified elsewhere      in      this Report. Reference should be made to such factors and all forward-looking      statements are qualified in their entirety by the above cautionary statements.      The following discussion and analysis provides information which management      believes is relevant to an assessment and understanding of the results of our      operations and financial condition. The discussion should be read in conjunction      with the financial statements and notes thereto.*

*Corporate      Events*

*Nature      of Business*

*Our      Business Strategy*

*The      state of our operations *

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|   | · | General                Motors Thailand (GMTH) C-190 Colorado Pick-Up Program. We converted                our                first prototype for GMTH during June 2005 and concluded our agreement                approximately one year later during June 2006. GMTH intends to introduce                their C-190 Colorado Pick-Up with our conversion system during the                Truck                & Bus Expo automotive show held in Bangkok, Thailand November 30 -                December 10. Following the program introduction at the auto show,                GMTH                will offer the dual-fuel option for their C-190 Colorado Pick-Up                through                their 100 dealerships within the country of Thailand and for                export. We have received our first purchase order and we've shipped                the first seven production systems to GMTH for use in the auto expo                show                during early November. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | International                Automotive Original Equipment Manufacturer (OEM). During the third                quarter, we completed the prototype system and installation for a                second                international automotive OEM. In subsequent reports, the OEM has                shown                their vehicle operating in diesel cost approximately $2.50 per kilometer                while the same vehicle, converted with our system cost approximately                $1.73                per kilometer. We have scheduled preliminary program meetings during                November in Thailand. As we have finished the preliminary system                for this                OEM, we anticipate program sales during 2007. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | PSGas                Five-Year Bus Conversion Program. During the third quarter we executed                an                agreement with Thailand-based PSGas for the conversion of 10,000                buses                over a five year period. During November, we received the first engine                shipped by PSGas from Thailand to our development facility in PeachTree                City, Georgia. We anticipate completing the PSGas system during November                and have scheduled an installation during the first week of December.                Following one week of operation, we anticipate receiving our first                purchase order against the contract for delivery in December, January                and                February. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Our      active domestic programs include:*

|   | · | Solid                Waste Authority of Central Ohio (SWACO) - During May of 2006, we                completed                a preliminary Detroit Series 60 engine platform system for SWACO.                SWACO                intends to use the converted vehicle to burn landfill methane as                a means                to capture and utilize a previously wasted source of energy. Upon                completion of the field trials, we are slated to convert an additional                25                refuse haulers. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Town                of Islip New York - We are participants in a grant scheduled for                release                during December 2006. Our participation in this project is to initially                convert 12 vehicles for the Town of Islip. Based upon a successful                test of                our system with this first round of conversions, we expect to enter                a                program to convert the full Town of Islip fleet. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Our      active development programs include:*

|   | · | Off-road                and on-road CARB verification - During the fourth quarter 2006 and                first                quarter 2007, we will be converting an engine for an unrelated party                that                intends to marry our system together with their own emission device                and to                apply to the California Air Resource Board (CARB) for an emissions                verification. This verification from CARB will then allow us to                commercialize our technology within the State of California. In addition,                achieving the CARB verification adds a competitive advantage to our                selling efforts worldwide as CARB is internationally recognized as                the                highest authority on matters relating to the approval of aftermarket                automotive devices which affect a vehicles emissions. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Through      our sub-licensees*

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|   | · | Thailand                - Thailand-based GreenGas Asia is our sub-licensee for Thailand.                GreenGas                facilitated our contract with PSGas. GreenGas has ordered 10 systems                for                delivery in November and 40 systems for delivery during December.                These                systems are for the Isuzu 2.5 or 3.0 liter engines in the aftermarket. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Europe                - United Kingdom-based TruckGas is our sub-licensee for Europe. We                are                finalizing preliminary engine platform selection and anticipate activating                the TruckGas program during the first quarter 2007. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Manufacturing      Capacity*

*Our      custom electronic manufacturing*

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**Item      3 Controls and Procedures**

*Evaluation      of Disclosure Controls and Procedures.*

*Changes      in internal controls.*

**PART      II**

**Item      1 - Litigation**

**Item      2 - Unregistered Sales of Equity Securities and Use of      Proceeds**

**Item      3 - Defaults Upon Senior Securities**

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**Item      4 - Submission of Matters to a Vote of Security Holders**

**Item      5 - Other Information**

**Item      6 - Exhibits**

**No.**
** **
**Description      of Exhibit**

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**SIGNATURES**

**US      ENERGY INITIATIVES CORPORATION**

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