UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10 QSB
(Mark One)
 [XX]     QUARTERLY  REPORT  PURSUANT  TO  SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE  ACT  OF  1934

For  the  quarterly  period  ended  June  30,  2006

                                       or

 [__]     TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE  ACT  OF  1934

                        Commission File Number: 000-51789

                        US ENERGY INITIATIVES CORPORATION
                        ---------------------------------
             (Exact name of registrant as specified in its charter)

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

          2701 NORTH ROCKY POINT DRIVE, SUITE 325, TAMPA, FLORIDA 33607
          -------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (813) 287 5787
                                 --------------
              (Registrant's telephone number, including area code)

     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or  for  such shorter period that the
registrant was required  to  file  such  reports),  and  (2)  has  been  subject
to  such  filing  requirements  for  the  past  90  days.  Yes  [X]  No  [__]

APPLICABLE  ONLY  TO  ISSUERS  INVOLVED  IN  BANKRUPTCY  PROCEEDINGS  DURING THE
PRECEDING  FIVE  YEARS:

Indicate  by  check  mark  whether  the  registrant  has filed all documents and
reports  required  to  be  filed  by  Sections 12, 13 or 15(d) of the Securities
Exchange  Act  of 1934 subsequent to the distribution of securities under a plan
confirmed  by  a  court.  Yes  [__]  No  [__]

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate  the  number  of  shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. At August 11, 2006, the Company
had  42,215  Series  A  Preferred  Shares  and 195,209 Series B Preferred Shares
outstanding  and  122,881,674 of its $0.001 par value common shares outstanding.

<PAGE>

                              US ENERGY INITIATIVES
                              REPORT ON FORM 10QSB
                  FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2006

                                     PART I

Item  1  -  Financial  Statements

Consolidated  Balance  Sheets June 30, 2006  (unaudited) and the  year   ended
December  31,  2005 (audited)

Consolidated  Statements  of  Operations for the three and six month periods
ended June 30, 2006  and  2005 (unaudited)

Consolidated  Statements  of  Cash Flows for the six month periods ended
June 30, 2006  and  2005 (unaudited)

Notes  to  Consolidated  Financial  Statements

Item  2 - Management's Discussion and Analysis of Financial Condition or Plan of
Operation

Item  3  -  Controls  and  Procedures

                                     PART  II

Item  1  -  Legal  Proceedings

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

Item  3  -  Defaults  Upon  Senior  Securities

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

Item  5  -  Other  Information

Item  6  -  Exhibits

<PAGE>

<TABLE>
                                   US ENERGY INITIATIVES CORPORATION
                                      CONSOLIDATED BALANCE SHEETS
                        June 30, 2006 (unaudited) and December 31, 2005 (audited)
<CAPTION>
<S>                                                                          <C>            <C>
                                                                                June 30,     December 31,
                                                                                  2006           2005
                                                                             -------------  -------------
                                                                              (unaudited)     (audited)

                                                ASSETS

Current Assets

Cash                                                                         $    141,344   $    818,557
Accounts Receivable, net of $70,000 and $12,000  respectively                     319,721        370,777
Other assets     3,710     -
Prepaid expenses and deposits                                                      41,042         32,286
Inventories                                                                       292,518        162,690
Deferred consulting                                                               268,260        576,258
Deferred debt costs                                                               444,680        397,671
                                                                             -------------  -------------
  Total current assets                                                          1,511,275      2,358,239

Property, plant & equipment, net                                                  608,137        565,415
Goodwill                                                                           61,820         61,820
Intellectual property, certifications, net                                        827,377        873,342
Purchase price subject to allocation                                              543,627              0
                                                                             -------------  -------------

                                                                             $  3,552,236   $  3,858,816
                                                                             =============  =============

                                 LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities
Accounts payable                                                             $    521,183   $    526,001
Debt in litigation                                                                109,868        109,868
Advanced deposits                                                                 106,936         58,133
Due to related parties                                                             20,970        176,540
Due to related parties,convertible debt                                         1,498,752      1,080,752
Notes payable                                                                   1,944,507      1,630,293
Discount on debt                                                                 (401,050)      (650,630)
Derivative liability                                                            1,149,315        841,010
Debt in default                                                                   106,593        106,593
Convertible debt in default                                                        68,200         75,700
Sales and payroll taxes payable                                                    95,750        113,552
Other current liabilities                                                         177,440         62,581
                                                                             -------------  -------------
     Total current liabilities                                                  5,398,464      4,130,393
                                                                             -------------  -------------
Total Liabilities                                                               5,398,464   $  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;
116,662,674 and 105,905,433 shares issued and outstanding, respectively           116,663        105,905
Additional paid-in capital                                                     19,804,935     16,997,922
Deferred compensation                                                             (50,000)      (200,000)
Accumulated deficit                                                           (21,720,200)   (17,177,778)
                                                                             -------------  -------------
Total shareholders' deficit                                                    (1,846,228)      (271,577)
                                                                             -------------  -------------
Total Liabilities and Shareholders' Deficit                                  $  3,552,236   $  3,858,816
                                                                             =============  =============
</TABLE>

<PAGE>

<TABLE>
                                                   US ENERGY INITIATIVES CORPORATION
                                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                              For the Three and Six Month Periods Ended June 30, 2006 and 2005 (unaudited)

<CAPTION>
<S>                                                                       <C>            <C>            <C>            <C>
                                                                          Three Months   Three Months    Six Months     Six Months
                                                                              Ended          Ended          Ended          Ended
                                                                          June 30, 2006  June 30, 2005  June 30, 2006  June 30, 2005
                                                                          -------------  -------------  -------------  -------------
Revenue                                                                   $    257,585   $     35,574   $    425,685   $     53,737
Cost of sales                                                                   38,649         18,175        197,740         29,007
                                                                          -------------  -------------  -------------  -------------
Gross Profit                                                                   218,936         17,399        227,945         24,730


Operating Expenses
Consulting and professional                                                    735,310        250,855      1,095,707        405,884
Research & Development                                                          16,642         38,207         26,111         79,854
Compensation                                                                   717,153        208,307      1,131,366        571,504
Depreciation and Amortization                                                   45,007          5,700         89,925          8,806
Rent                                                                            44,609         20,190         72,989         35,150
Insurance                                                                       66,144          9,325        131,422         10,035
Other operating expenses                                                        85,077         27,553        173,597         88,991
                                                                          -------------  -------------  -------------  -------------
                                                                             1,709,942        560,137      2,721,117      1,200,224
                                                                          -------------  -------------  -------------  -------------

Loss from operations                                                        (1,491,006)      (542,738)    (2,493,172)    (1,175,494)

Other Income (Expense)
Derivative gain (loss)                                                         357,878                      (341,552)
Interest expense                                                            (1,325,227)      (294,664)    (1,655,278)      (807,846)
Loss on extinguishment of debt                                                 (53,443)                      (53,443)
Miscellaneous                                                                      529         (1,739)         1,108              0
                                                                          -------------  -------------  -------------  -------------
                                                                            (1,020,263)      (296,403)    (2,049,165)      (807,846)
                                                                          -------------  -------------  -------------  -------------
Net loss                                                                  $ (2,511,269)  $   (839,141)  $ (4,542,337)  $ (1,983,340)
                                                                          =============  =============  =============  =============
Basic and diluted weighted average common shares outstanding               114,161,347     83,354,971    110,443,645     82,239,165
                                                                          =============  =============  =============  =============
Basic and diluted loss per share                                          $      (0.02)  $      (0.01)  $      (0.04)  $      (0.02)
                                                                          =============  =============  =============  =============
</TABLE>

<PAGE>

<TABLE>
                                     US ENERGY INITIATIVES CORPORATION
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                     For the Six Month Periods Ended June 30, 2006 and 2005 (unaudited)
<CAPTION>
<S>                                                                          <C>            <C>
                                                                               Six Months    Six Months
                                                                                 Ended          Ended
                                                                             June 30, 2006  June 30, 2005
                                                                             -------------  -------------
Cash flows from operating activities
Net Loss                                                                     $ (4,542,337)  $ (1,983,340)
Adjustments to reconcile net income to
   net cash provided (used) by operating activities
     Common stock issued for services                                             576,313        151,000
     Depreciation                                                                  43,960          8,806
     Amortization of deferred compensation                                        150,000        150,000
     Amortization of debt discount and
       deferred debt cost                                                         941,097        785,957
     Amortization of deferred consulting                                          307,998
     Amortization of intangibles                                                   45,965
     Conversion benefit on related party advance                                  418,000
     Loss on extinguishment of debt                                                53,443
     Derivative (income) expense                                                  341,552
     Advance Deposits                                                              21,400

Change in operating assets and liabilities
     Accounts Receivable                                                          184,413        (25,060)
     Inventory                                                                     23,175        (17,177)
     Prepaid & deposits                                                            (8,756)      (271,515)
     Other assets                                                                  (1,400)
     Accounts payable                                                            (153,625)        26,658
     Accrued liabilities                                                           74,403        (30,792)
                                                                             -------------  -------------
Net Cash Provided (used) by operating activities                               (1,524,399)    (1,205,463)

Cash flows from Investing Activities
     Purchase of property and equipment                                           (26,397)       (72,234)
     Business acquisition                                                        (292,635)
     Cash acquired in business acquisition                                         63,049
     Loan                                                                                         (9,571)
                                                                             -------------  -------------
Net cash provided (used) by investing activities                                 (255,983)       (81,805)

Cash flows from Financing Activities
     Loans from related parties                                                   418,000        772,093
     Proceeds from exercise of warrants                                                              150
     Payment to related parties                                                  (162,290)        (7,000)
     Proceeds from notes payable                                                1,812,394        600,000
     Payments on Notes payable                                                   (964,935)       (53,932)
                                                                             -------------  -------------
Net cash provided (used) by financing activities                                1,103,169      1,311,311

Net increase (decrease) in cash and cash equivalents                             (677,213)        24,043
Beginning cash and cash equivalents                                               818,557          2,025
                                                                             -------------  -------------
Ending cash and cash equivalents                                             $    141,344   $     26,068
                                                                             =============  =============
Supplement disclosure of cash flow information

Cash paid during the year for interest                                       $     38,045   $     15,907
Common stock issued for services                                             $    576,314   $    151,000
Common stock issued for reduction in debt                                    $  1,457,345
   Common stock issued to raise convertible debt                             $    418,000
   Common stock issued as debt discount                                      $    366,026
   Amortization of Common Stock issued
     for deferred compensation                                               $    150,000   $    150,000
                                                                             =============  =============
</TABLE>


<PAGE>
                        US ENERGY INITIATIVES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Six Month periods ended June 30, 2006 and 2005
                                   (unaudited)

NOTE  1  -  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.  Basis  of  presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in  accordance  with  U.S. generally accepted accounting principles for
interim  financial  information  and  with  the  instruction  to Form 10-QSB and
Article  10  of  Regulation  S-X.  Accordingly, they  do  not include all of the
information  and  footnotes  required  by  U.S.  generally  accepted  accounting
principles  for  complete consolidated  financial  statements.  In  the  opinion
of  management,  all  adjustments  (consisting  only  of  those  of  a  normal
recurring  nature)  considered  necessary  for  a  fair  presentation  have been
included.  Operating  results  for the six month periods ended June 30, 2006 and
2005  are  not  necessarily indicative of  the  results  that  may  be  expected
for  the  year  ending  December  31,  2006.


<PAGE>

 b.  Principles  of  Consolidation  and  Basis  of  Presentation

      The  consolidated financial statements include the accounts and operations
of  US  Energy  Corporation and its wholly-owned subsidiaries.   All significant
inter-company  balances  and  transactions have been eliminated in preparing the
consolidated  financial  statements.

c.  Use  of  Accounting  Estimates

     Management  is  required  to  make  estimates  and  assumptions  during the
preparation  of  the consolidated financial statements and accompanying notes in
conformity with accounting principles generally accepted in the United States of
America.  These  estimates and assumptions affect the reported amounts of assets
and  liabilities  and the disclosure of contingent assets and liabilities at the
dates  of  the  consolidated financial statements. They also affect the reported
amounts  of  net  income.  Actual  results  could  differ  materially from these
estimates  and  assumptions.

d.  Cash  and  Cash  Equivalents

     The  Company  considers all highly liquid debt instruments purchased with a
maturity  of  three  months  or  less  to  be  cash  equivalents.

e.  Accounts  Receivable

     Accounts  receivable,  are  stated  at  estimated  net  realizable  value.
Accounts  receivable  are  comprised  of  balances  due  from  customers.

f.  Inventories

     Inventories,  are stated at the lower of cost or market first-in, first-out
(FIFO)  method.

g.  Property,  Plant  and  Equipment  Net

Property,  plant  and equipment is capitalized at cost and depreciated using the
straight-line  depreciation  method  over  the  estimated  useful  lives  of the
respective  assets.

h.  Goodwill  and  other  Intangible  Assets

     The Company accounts for goodwill and other intangible assets in accordance
with  Statement  of  Financial  Accounting  Standards  "Goodwill  and  Other
Intangibles"  (SFAS  142),  intangible  assets  with  an indefinite life, namely
goodwill,  are  not  amortized.  Intangible  assets  with  a  definite  life are
amortized  on  a straight-line basis over their estimated  useful  lives  of ten
years.  Intangible  assets  with  indefinite  lives  will  be  tested  for
impairment  annually  and  when  an  event occurs that would indicate  that  the
carrying  amount  may  be  impaired.

i.  Impairment  of  Assets

     In  accordance  with  Statement  of  Financial Accounting Standards No. 144
"Accounting  for  Impairment  or  Disposal  of  long-lived  Assets" ("SFAS 144")
long-lived  assets,  such  as  property and equipment, and purchased intangibles
subject  to amortization, are reviewed for impairment whenever events or changes
in  circumstances  indicate  that  the  carrying  amount  of an asset may not be
recoverable.  When  factors  indicate  that  the  assets should be evaluated for
possible  impairment, the Company uses an  estimate  of  related  non discounted
cash  flows.  A  deficiency  in  these  cash  flows  relative  to  the  carrying
amounts

<PAGE>
is  an  indication  of  the  need  for a write-down due to impairment. Losses on
impairment  are  recognized  by  a  charge  to  earnings.

j.  Income  Taxes

     The  Company  accounts for income taxes in accordance with the Statement of
Financial  Accounting  Standards  "Accounting  for  Income  Taxes" ("SFAS 109").
Under  the  liability  method  specified  by  SFAS  109, deferred tax assets and
liabilities  are  determined  based  on  the  difference  between  the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates  which  will  be  in  effect  when these differences reverse. Deferred tax
expense  is  the  result  of  changes  in  deferred  tax assets and liabilities.
Valuation  allowances are provided if necessary to reduce deferred tax assets to
the  amount  expected  to  be  realized.

k.  Earnings  (Loss)  Per  Common  Share

     Earnings  (loss)  per  share  are  computed  using  the  basic  and diluted
calculations  on  the face of the statement of operations. Basic earnings (loss)
per  share are calculated by dividing net income  (loss) by the weighted average
number  of shares  of  common stock outstanding for the period. Diluted earnings
(loss)  per  share  is  calculated by dividing net income (loss) by the weighted
average  number  of  shares of common stock outstanding for the period, adjusted
for  the  dilutive  effect of common stock equivalents, using the treasury stock
method.  The  warrants  outstanding  were  determined  to  be  antidilutive  and
therefore  do  not  affect  earnings  per  share.

l.  Revenue  Recognition

     In  the sale of our dual-fuel conversion systems, if we install the system,
revenues  are recognized when the finished vehicle is retrieved by the customer.
If  our  system  is  installed  by  a  third-party, we recognize revenues on our
dual-fuel system when the merchandise is shipped to the customer, which is  when
title  and  risk  of  loss  has  passed  to  the  customer.

In  the  sale  of  our custom electronic manufacturing products and services, we
recognize  revenues  when  the  merchandise is shipped to the customer, which is
when  title  and  risk  of  loss  has  passed  to  the  customer.

m.  Stock  Based  Compensation

     The  Company  has  adopted  SFAS  No.  123R,  "Accounting  for  Stock Based
Compensation"  as of January  1,  2006.   For  the  period  ended June 30, 2005,
the  Company  applied  Accounting  Principles  Board  Opinion No. 25 and related
interpretations  in  accounting  for  options  issued  to  employees.  Under
Opinion  No.  25, the intrinsic method is used to determine compensation expense
when  the  fair market value of the stock exceeds the exercise price on the date
of  grant.  As  of June 30, 2006 and 2005, no options had been granted under the
plan  and  therefore  no  compensation  expense  has  been  recognized.

n.  Research  and  Development  Costs

The  Company  charges  research  and  development  costs to expense as incurred.

o.  Fair  Value  of  Financial  Instruments

     The  Company,  in  estimating  its  fair  value  disclosures  for financial
instruments,  uses  the  following  methods  and  assumptions:

Cash,  Accounts  Receivable, Accounts Payable and Accrued Expenses: The carrying
amounts  reported  in  the balance sheet for cash, accounts receivable, accounts
payable  and  accrued  expenses  approximate  their  fair  value  due  to  their
relatively  short  maturity.

Long-Term  Obligations:  The  fair  value  of the Company's fixed-rate long-term
obligations  is  estimated  using  discounted  cash  flow analyses, based on the
Company's  current  incremental  borrowing  rates

<PAGE>

for  similar  types  of  borrowing  arrangements. At June 30, 2006 and 2005, the
Company  did  not  have  any  long-term  obligations.

p.  Accounting  For  Financial  Instruments

     In  May  2003,  the FASB issued Statement of financial Accounting Standards
No.  150,  "Accounting for Certain Financial Instruments with Characteristics of
Both  Liabilities  and  Equity"  (SFAS  150).  SFAS  150  requires  that certain
financial  instruments,  which  under  previous  guidance  were accounted for as
equity,  must  now  be  accounted for as liabilities.  The financial instruments
affected  include  mandatory redeemable stock certain financial instruments that
require or may require the issuer to buy back some of its shares in exchange for
cash  or other assets and certain obligations that can be settled with shares of
stock.

q.  Recently  issued  Accounting  Standards

     In  December 2004, the Financial Accounting Standards Board ("FASB") issued
a  revision  to  SFAS  No.  123,  SFAS  123R  Share-Based Payment. SFAS No. 123R
requires  all  companies  to  measure  compensation  costs  for  all share based
payments,  including  stock  options,  at  fair  value  and  expense  such
payments over the service  period.  SFAS No.  123R specifies that companies must
use  an  option-pricing  model  to  estimate  fair  value,  although it does not
specifically  require  the  use  of  a  particular  model.  The  new standard is
effective  for  annual periods beginning after December 15, 2005 and, therefore,
was  effective  for the Company beginning with the first quarter of 2006.  Under
the  provisions  of FAS 123R, companies can select from three transition methods
for  the implementation of this standard.  The modified prospective method would
require  all  new  awards  that  are granted after the effective date to use the
provisions  of  FAS  123R.  Under  this  method,  for  vested  awards  that  are
outstanding  on  the  effective  date  of  FAS 123R, a company would not have to
record  any  additional  compensation  expense.  For  unvested  awards  that are
outstanding  on  the  effective date of FAS 123R and were previously included as
part  of pro forma net income and earnings per share under the provisions of FAS
123  would  be charged to expense over the remaining vesting period, without any
changes  in  measurement.  The second alternative is a variation of the modified
prospective  method,  which  would  allow  companies  to restate earlier interim
periods  in  the  year that FAS 123R is adopted using the applicable FAS 123 pro
forma  amounts.  Under the third alternative, the modified retrospective method,
companies  would  apply  the  modified prospective method and also restate their
prior  financial  statements  to  include  the  amounts  that  were  previously
recognized  in  their pro forma disclosures under the original provisions of FAS
123.  As  of  the adoption of SFAS 123R, on January 1, 2006, the company did not
have  any  unvested  outstanding options and therefore did not need to select or
apply  a  transition  method  as  of  March  31,  2006.

r.  Going  concern:

The  accompanying  financial  statements have been prepared assuming the company
will continue as a going concern.  As reflected in the financial statements, the
Company  has  negative  working capital for the period ended June 30, 2006 and a
loss  from  operations.  These  conditions  raise  substantial  doubt  about the
Company's  ability  to  continue  as  a going concern.  The company has adequate
financing in place and subsequent to December 31, 2005 has completed significant
trials  on  its new conversion systems and has received initial potential orders
for  sales so as to provide funding for the continued operations of the Company.

In addition, the Company has entered into an agreement with a certain accredited
investor  relating  to  a  $5,000,000  equity line which was registered with the
Securities  and Exchange Commission and declared effective during December 2005.
Under the terms of the equity line, the company may draw up to $100,000 per put.

Subsequent to the quarter ended June 30, 2006, the company completed an offering
of  $845,000  principal  amount,  15  month  promissory note to Dutchess Private
Equities  Fund  II,  L.P.  for  aggregate  gross  proceeds  of  $650,000.

The available funding from these agreements is expected to be sufficient for the
Company  to  continue  operations  for  the  next  year.


<PAGE>

NOTE  2  -  RELATED  PARTY  TRANSACTIONS

     White  Knight  (WK)  is  a  major stockholder and has officers who serve in
management  positions  for  the company.  Per our agreement with WK, any funding
provided  by  WK is to be repaid in common stock at a conversion price of  $0.04
per  share.  The  conversion  price  was agreed upon in December, 2003, when the
Company's  common  stock  was  at  $0.03  per  share.

     Effective  July 1, 2006, WK agreed to amend its financing agreement and any
future  investments made by WK will be repaid at no greater than 10% discount to
the  prevailing  market  price  for  the  Company's  securities.

As June 30, 2006, $1,498,752 is outstanding debt due to WK.  Through the quarter
ended  June  30,  2006  WK  advanced  a  total  of  $350,000.

At January 1, 2004, the Company entered a two-year employment agreement with the
principals  of  WK at the rate of $25,000 per month payable in restricted common
stock.  At  the  conclusion  of the employment agreement (December 31, 2005) the
Company  agreed  to  compensate  the principals of WK at the rate of $20,000 per
month  payable in cash.  From January 2004 through June 30, 2006, the principals
of  WK  have  served as our Chief Executive Officer, Chief Financial Officer and
majority  of  our  Board  of  Directors.  Effective  June  1, 2006, the Board of
Directors  appointed  a  new  Chief  Financial  Officer.  The  principals  of WK
continue  to  serve as our Chief Executive Officer and the majority of our Board
of  Directors.

License  Agreement

     The  Company entered into a licensing agreement with Frank Davis, our Chief
Technology  Officer,  a  Director and significant shareholder and Engine Control
Technology  LLC  (ECT).  The  license gives the Company the exclusive world-wide
rights,  to  utilize  and  exploit five issued and one pending patents including
marketing  and selling products.  The underlying patents were developed by Frank
Davis  and other family members who are employees of the Company and the patents
have  since been assigned to ECT, the owner of which is Patricia Davis. Patricia
Davis  is  the  wife  of  Frank  Davis.

     In  addition,  the  Company  has a consulting agreement with Frank Davis to
provide  various  technical  consulting services.  The agreement expires in 2009
but is automatically renewable annually thereafter, if not terminated by written
notice.  During  the  term of the agreement, the consultant shall receive health
and  dental  insurance  for  himself and his immediate family which includes his
wife,  the  use  of  a  vehicle  and  reimbursement of certain related expenses.

NOTE  3  -  GOODWILL

     As of June 30, 2006 goodwill represented an intangible asset resulting from
the  acquisition  of DRV Energy.  Goodwill was analyzed on December 31, 2005 for
impairment  as  it  has  an  indeterminant  life.  For  income  tax purposes, no
deductible  expense  is  anticipated  for  the  acquisition  Goodwill.

NOTE  4  -  INTANGIBLE  ASSETS,  NET

     Amortization  expense  charged to operations was $45,965 and $0 for the six
months  ended  June  30,  2006  and  2005,  respectively.

Based  on  the  Company's  year end analysis for impairment losses of $2,724,738
were  required  to  be  recorded  as  of  December 31, 2005.  The impairment was
determined  based  on  the  loss of a significant contract related to one of the
certifications.  As of June 30, 2006, the Company evaluated the remaining useful
lives of the certifications and determined the remaining lives to be reasonable.

NOTE  5  -  SHAREHOLDERS'  EQUITY

Preferred  Stock

<PAGE>
Effective  February 1, 2002, the Company designated 999,779 shares of previously
undesignated  preferred  stock  as  Series  A  Preferred Stock, for which 42,215
shares  are  authorized  and  Series  B  Preferred Stock, for 954,563 shares are
authorized.

Series  A  Preferred  Stock  is convertible, at the option of the holder, at any
time,  into  shares of the Company's common stock as determined by dividing $.19
by  a  conversion  price  determined  on  the  date  the  related certificate is
surrendered.  The  conversion  price  is  subject  to periodic adjustment and is
initially  established  at  $.01632.  Series  A Preferred Stock is automatically
convertible  into  shares  of  the  Company's  common  stock  upon  (i) the date
specified  by  vote or written consent or agreement of holders of at least three
quarters  of  the  shares  of  Series  A Preferred outstanding, or (ii) upon the
closing  of  the  sale  of  the  company's  common  stock  in a firm commitment,
underwritten  public  offering  registered under the Securities Act in which the
Company  receives gross proceeds of no less than $20 million. Series A Preferred
Stock  has  a  liquidation  preference  of  the greater of $.19 per share or the
amount  that  such  share would be entitled to upon liquidation or distribution.
The  Series  A  Preferred  Stock has voting rights, except as to the election of
debtors,  equal  to the number of shares of common stock into which the Series A
Preferred  Stock  is  convertible.  The Series A preferred Stockholders have the
right  to  elect  one  director  of  the  Company.

Series B Preferred Stock is convertible, at the option of the holder at anytime,
into shares of the Company's common stock as determined by dividing the lower of
$.09  or  the price per share paid by the holder of the Series B Preferred Stock
by  a  conversion  price  determined  on  the  date  the  related certificate is
surrendered.  The  conversion  price  is  subject  to periodic adjustment and is
initially  established  at  $.00773.  Series  B Preferred Stock is automatically
convertible  into  shares  of  the  Company's  common  stock  upon  (i) the date
specified  by  vote or written consent or agreement of holders of at least three
quarters of the shares of Series B Preferred Stock outstanding, or (ii) upon the
closing of the sale of Company's common stock in a firm commitment, Underwritten
public  offering  registered  under  the  Securities  Act  in  which the Company
receives  gross  proceeds  of no less than $20 Million. Series B Preferred Stock
has a liquidation preference of the greater of $.09 per share or the amount that
such  share would be entitled to upon liquidation or distribution.  The Series B
Preferred Stock has voting rights, except as to the election of directors, equal
to  the number of shares of common stock into which the Series B Preferred Stock
is convertible.  The Series B Preferred Stockholders have the right to elect one
director  of  the  Company.

NOTE  6  -  DEBT  IN  DEFAULT

     The Company did not meet the payment terms on the note payable to Peachtree
National  Bank  through  June 30, 2006.  The note is secured by the common stock
owned  by  Robby  Davis  and  Ricky  Davis,  both  employees of the Company. The
provisions  of  the  note  allow  for  the  note to become immediately and fully
payable  upon  default  of payments. While the bank had not initiated any remedy
actions  for  the  default as of June 30, 2006, the full balance of the note has
been  reclassified as a current liability. The remaining principal balance as of
06/30/06  was  approximately  $44,000.

The  Company  is  delinquent  in  payment  of  payroll  taxes.  The company is
currently  following  payment  schedules,  developed after negotiations with the
taxing  authorities.

NOTE  7  -  LITIGATION

     The  Company  is,  from  time  to  time, involved in litigation relating to
claims  arising  out  of  its operations in the ordinary course of business. The
Company  believes  that  none of the claims that were outstanding as of June 30,
2006  and  2005  should  have  a  material  adverse  impact  on its consolidated
financial  condition  or  results  of  operations.

NOTE  8  -  STOCK  OPTIONS  AND  WARRANTS

     The  Company's Stock Option Plan ("SOP") was adopted in 2001 to provide for
the  grant  to  employees  up  to  2,000,000  incentive stock options within the
meaning  of  Section  422  of  the  Internal  Revenue  Code.  The  SOP, which is
administered  by  the  Company's  Board  of  Directors,  is  intended to provide
incentives  to  directors,  officers,  and  other  key employees and enhance the
Company's  ability  to attract and retain qualified employees. Stock options are
granted  for  the  purchase of common stock at a price not less than the 100% of
fair  market  value  of  the  Company's  common  stock  on the date of the grant

<PAGE>

(110%  for  holders  of  more than 10% of the total combined voting power of all
classes  of  capital  stock then outstanding).  As of June 30, 2006 and 2005, no
options  had  been  granted  under  the  plan.

NOTE  9  -  DERIVATIVE  FINANCIAL  INSTRUMENTS

     The  captions  derivative financial instruments consist of (a) the embedded
conversion  feature bifurcated from the Convertible Debentures, (b) the Warrants
issued  in  connection  with the Convertible Debts, (c) interest rate index, and
(d)  put  options.  These  derivative  financial  instruments  are indexed to an
aggregate  of  10,412,655 shares at June 30, 2006 and are carried at fair value.

     At  June  30,  2006  the following derivative liabilities related to common
stock  options  and  warrants  and  embedded  derivative  instruments  were
outstanding:  (At  June 30, 2006, the closing price for the Company's securities
was  $0.255).

<TABLE>
<CAPTION>
<S>         <C>             <C>                                                <C>             <C>            <C>
                                                                               Exercise Price   Value at
Issue Date  Expiration Date                 Instrument                          Per Share      Issue Date     Value at 6/30/06
----------  --------------- -------------------------------------------------- --------------  ----------     ----------------
 10/15/05       10/5/10     1,200,000 warrants issued to Membrado                 $0.40         $330,000          $216,000
  3/05/05       3/05/10     1,600,000 warrants issued to Alpha Capital            $0.19         $928,000          $320,000
  11/4/05       11/4/10     314,815 warrants issued to Dutchess Private Equity    $0.27         $ 85,000          $ 58,871

Fair value of freestanding derivative instrument liabilities for options and warrants                             $594,871
</TABLE>

<TABLE>
<CAPTION>
<S>         <C>             <C>                                                <C>             <C>            <C>
                                                                               Exercise Price   Value at
Issue Date  Expiration Date                 Instrument                          Per Share      Issue Date     Value at 6/30/06
----------  --------------- -------------------------------------------------- --------------  ----------     ----------------
 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           $205,679
 3/23/06        3/23/07     Dutchess $1,412,500 term note                          $0.27        $470,833           $348,765
Fair value of freestanding derivative instrument liabilities for term notes                                        $554,444
Total fair value of freestanding derivative instrument liabilities                                               $1,149,315
</TABLE>

NOTE  10  -  DEBT  FINANCING

     On  March  28,  2006,  we completed an offering of our $1,412,500 principal
amount  one-year  promissory  note (the "Note") to Dutchess Private Equity Fund,
L.P.  (the  "Investor")  for  aggregate gross proceeds of  $1,130,000.  The Note
bears  no  interest.  Payments  made  by us in satisfaction of the Note shall be
made  from each put from the Equity Line of Credit with the Investor given by us
to  the Investor under that certain Investment Agreement dated as of November 4,
2005  which  we entered into with the Investor (the "Investment Agreement").  We
shall  make  payments  to  the Investor in an amount equal to the greater of (1)
100%  of  each  put  to  the Investor from us, or (2) $117,708.33 until the face
amount  is paid in full.  Our initial payment will be due on May 1, 2006 and all
subsequent  payments  will  be  made at the closing of every put to the Investor
thereafter  until the Note is paid in full, with a minimum amount of $117,708.33
per month.  In the event that on the maturity date we have any remaining amounts
unpaid  on  the  Note,  the Investor can exercise its right to increase the face
amount  by  10%  and  an  additional  2.5%  per  month,  pro  rata  for  partial
periods, as liquated damages. In addition, our obligation to repay the principal
and  accrued interest under the Note, as well as our $1,362,500 principal amount
one-year  promissory  note  which we issued to the Investor and Dutchess Private
Equities  Fund,  II,  L.P. on December 20, 2005, is secured by all of our assets
pursuant  to  a  certain Security  Agreement  which  we  entered  into  with the
Lender  on  March  23,  2006.

     We  used  a  portion  the  proceeds  from the Note to repay our outstanding
principal  amount promissory notes, inclusive of accrued and unpaid interest and
liquidated  damages in the aggregate amount of $541,542, issued pursuant to that
certain  Subscription  Agreement  dated  March  31,  2005  (the  "Subscription
Agreement").  In  addition,  we  entered into a Settlement Agreement and Release
(the  "Settlement  Agreement") with the holders of the promissory notes on March
24,  2006  pursuant  to which the holders and we agreed to release and discharge
each  other,  and  our  respective  officers,  directors,

<PAGE>

principals,  control  persons, past and present employees, insurers, successors,
agents  and  assigns  from  any and all actions, damages, judgments, claims, and
demands  existing or claimed to exist between the parties in connection with the
promissory  notes  or  the  Subscription  Agreement.

     We  claim  an  exemption  from  the  registration  requirements  of the Act
for  the  private  placement of these securities pursuant to Section 4(2) of the
Act  and/or Regulation  D promulgated there under since, among other things, the
transaction  did  not  involve  a  public  offering,  the  investors  were
accredited  investors and/or  qualified  institutional buyers, the investors had
access  to  information about  the  company  and their investment, the investors
took  the securities for investment  and  not  resale,  and  we took appropriate
measures  to  restrict  the  transfer  of  the  securities.

On  March  28,  2006,  the  Company  rendered full satisfaction of the Remaining
Debentures  with  ALPHA  CAPITAL  AKTIENGESELLSCHAFT,  WHALEHAVEN  CAPITAL  FUND
LIMITED,  and  ELLIS  INTERNATIONAL  LTD.through the payment of $541,542.00 (the
"Funds")  by  wire transfer to the bank and account.  The agreement also reduces
the  exercise  price  to  $0.19  per  share  for  the  warrants.  Each Investor,
individually,  hereby  agrees  that  they  will  not  exercise or sell more than
sixty-seven  thousand five hundred (67,500) shares underlying the Warrant in any
thirty  (30) day period unless the Company's common stock is trading above forty
cents  ($0.40) per share. Upon receipt of the Funds, the Investors shall return,
via  overnight  delivery,  the Remaining Debentures to the company.  The Company
agrees  to  file  all  necessary  paperwork  with  the  SEC,  including  any
post-effective  amendments,  for  the  Investors  within  seven  (7)  days.  The
Company  shall agree to abide by  all  terms  and  conditions  in  the  original
Warrant with respect to registration  and  issuance  of  shares  underlying  the
Warrant.

NOTE  11  -  ACQUISITION

On  June  9, 2006, the Company entered into a "Stock Purchase Agreement" for 100
percent  of  the outstanding common shares of Automated Engineering Corporation.
The aggregate purchase price was $350,000, and was consummated by a cash payment
in  the  amount  of  $292,635  to  the  shareholders of 83.6% of the outstanding
shares.  The balance of $57,365, representing a minority interest shareholder is
included  in  accrued  expenses  as  of  June  30,  2006

As  this  transaction  occurred in the middle of a reporting period, the Company
has designated the acquisition date for accounting purposes to be the end of the
month  of  June.  Therefore,  operational  results for this acquired entity will
commence  in  the  month  of  July  2006.

The  Company is in the process of verifying the values of the assets acquired as
well  as  certain  intangible  assets;  thus,  the  amount of the purchase price
subject  to  allocation  carried  on  the  balance  sheet as of June 30, 2006 is
calculated  as  follows:

          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
                                                         ===========

<PAGE>

The  unaudited  pro  forma  effect  of  the acquisition of Automated Engineering
Corporation  on  the  Company's  revenues,  gross  profit and net income had the
acquisition  occurred  on  January  1,  2005  is  as  follows;

   Pro  forma  for the three and six month period ended June 30, 2006 and 2005

                       For the three  For the three  For the six    For the  six
                      months  ended  months  ended  months  ended  months  ended
                       June 30,2006   June 30,2005   June 30,2006   June 30,2005
                      -------------  -------------  -------------  -------------
                        (unaudited)    (unaudited)    (unaudited)    (unaudited)

Revenue                   701,946        519,087       1,320,562      1,073,568
Gross  profit             317,911        318,736         578,419        618,921
Net  income/loss       (2,240,428)      (813,138)     (4,719,129)    (1,953,408)

NOTE  12  -  SEGMENT  INFORMATION

Commencing  with  the Company's acquisition of Automated Engineering Corporation
in  the  second  quarter  of 2006 the Company operates in two business segments.
The  Natural  gas  vehicle  conversion  system  segment  operates development of
natural  gas  conversion  systems  for  light  and  heavy  duty  vehicles.  The
Electronic Manufacturing segment is electronic design, production and ability to
proto-type  and  produce  electronic  control  devices.

Since  the  newly  acquired  segment is being accounted for as of the end of the
month of June 2006, there are no operational results to be reported on a segment
basis  in  the  period  ended  June  30,  2006.

NOTE  13  -  SUBSEQUENT  EVENTS

On  July  14,  2006, the company completed an offering of our $845,000 principal
amount  15-month promissory note (the "Note") to Dutchess Private Equities Fund,
II.  L.P.  (the  "Investor") for aggregate gross proceeds of $650,000.  The Note
bears  interest  at  a  rate equal to 12% per month.  On or before July 31, 2006
through  November  30, 2006, we shall make payments to the Investor in an amount
equal  to 100%of each put from the Equity Line of credit with the Investor given
by  s  to  the  Investor  under  that  certain  Investment Agreement dated as of
November  4,  2005  which  we  entered  into  with the Investor (the "Investment
Agreement").  Our  initial  payment  will  be  due  on  July  31,  2006  and all
subsequent  payments  will  be  made at the closing of every put to the Investor
thereafter  until the Note is paid in full.  Commencing on December 31, 2006, we
shall  make  payments  to  the Investor in an amount equal to the greater of (i)
100%  of  each  put  to  the  investor from us, or (ii)1/12th of the outstanding
balances  due  on  this  Note  and  any  notes currently outstanding between the
Company  and  the  Investor  dated March 23, 2006 and December 20, 2005.  In the
event  that  on  the  maturity  date we have any remaining amounts unpaid on the
Note, the Investor can exercise its right to increase the face amount by 10% and
an  additional  2.5%  per  month,  pro  rata  for partial periods, as liquidated
damages.  In  addition,  our  obligation  to  repay  the  principal  and accrued
interest  under  the  Note,  as well as out $1,412,500 principal amount one-year
promissory  note which we issued to Dutchess Private Equities Fund L.P. on March
23,  2006, and our $1,362,500 principal amount one-year promissory note which we
issued  to  the  Investor  on December 20, 2005, is secured by all of our assets
pursuant  to  a  certain  Security  Agreement which we entered into on March 23,
2006.

We  claim  an  exemption  from  the registration requirements of the Act for the
private  placement of these securities pursuant to Section 4(2) of the Act and /
or  Regulation  D  promulgated  thereunder  since,  among  other  things,  the
transaction  did  not  invo0lve a public offering, the investors were accredited
investors  and  / or qualified institutional buyers, the investors had access to
information  about  the  Company  and  their  investment, the investors took the
securities  for  investment  and not resale, and we took appropriate measures to
restrict  the  transfer  of  the  securities.

<PAGE>

ITEM  2  -  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR  PLAN  OF  OPERATION

     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.

Nature  of  Business

     US  Energy Initiatives Corporation ("US Energy" or the "Company", "we" "us"
"our") was formed in 1996 to commercialize a patent dual conversion system which
permits a diesel engine to operate in dual fuel diesel and natural gas mode.  We
also  operate  Automated  Engineering  Corporation,  a  custom  electronic
manufacturing  enterprise.

b.  Our  patent  dual  fuel  system

     We  manufacture and commercialize our patent electronic and mechanical dual
fuel  delivery  system under the name Hybrid Fuel System.  Our system converts a
diesel  engine  to  operate primarily on natural gas.  The system is designed to
replace  up  to  80%  diesel  with  natural  gas.

-     Our systems have been selected by General Motors Thailand for use in their
2007  model  year  C190 Colorado pick-up program due to launch in December 2006;

-     We  have  reached  agreements  with  parties  in  Thailand and a series of
European  countries  for  the  sale  of  our  system  in  the  aftermarket;

-     We  principally  operate  from  a  fully-equipment systems engineering and
development  facility  in  Peachtree  City, Georgia where we develop new systems
through  final  bill-of-material  (BOM)  and  conduct limited emissions testing;

-     We  manufacture  the  electronic  control  unit  for  our  system  through
Automated  Engineering  Corporation,  a  majority-owned  subsidiary.

Our  custom  electronic  manufacturing

     During June, we acquired 100% interest in Automated Engineering Corporation
(AEC), a custom electronic manufacturing company located in Tampa, Florida.  The
principal component of our dual-fuel system is the electronic control unit which
houses  the  unique  calibrations for each engine platform.  In our opinion, our
ability  to  manufacture this component in-house greatly improves our ability to
ensure  the  highest  in  quality, to realize the lowest cost of goods and to be
assured  of  reliable  deliverables.

In addition to the manufacturing of our electronic control unit, through AEC, we
offer  our clients electronics design, production, product management and repair
solutions.  Our  facilities and equipment are capable of providing our customers
with  varying  combinations  of  the  following  services:

     -     integrated  design  and  engineering;

     -     component  selection,  sourcing  and  procurement;

     -     automated  assembly;

     -     design  and  implementation  of  product  testing;

     -     enclosure  services;

     -     systems  assembly,  direct  order fulfillment and configure to order;
and

     -     repair  and  warranty.

<PAGE>

Overview

     US  Energy  seeks  to  facilitate  commercialization  of  new,  late  stage
energy-related  technologies.  We believe commercializing late development stage
technologies  will  provide  us  the  following  advantages:

-     Similar  to  our  patent  dual-fuel  technology,  new  technologies should
provide  us  with  a  competitive  advantage  through offering a unique product.

-     Typically,  evolving  late-stage  technologies through a commercial BOM is
the  most  expensive, time-consuming component of commercialization.  We believe
we can attract our target technologies interested in utilizing our facilities in
PeachTree  City, Georgia and our team of experienced developmental engineers and
executives  together  with  our  ISO  9001  Certified  Electronic  Manufacturing
facility.  We  believe  this  will  allow  us  to  craft  agreement and licenses
favorable  to  our  Company  and  its  revenue  and  earnings  objectives.

     We intend to limit the acquisition or licensing of any candidate technology
to  those  which  can  demonstrate  a  unique  market opportunity coupled with a
proto-type  demonstration.

     We intend to evolve our two business units and international infrastructure
to  achieve  our  objective  in  that:

Our  business  units:

-     Through  our division Hybrid Fuel Systems and wholly-owned subsidiary DRV,
Inc.,  we  offer  our  patent dual-fuel diesel to natural gas conversion systems
technology.  This patent, unique product has a world-wide economic driver in the
disparity  between  the  cost of diesel and natural gas.  The infrastructures we
mature  through  the sale and service of this product will allow us to develop a
sales, inventory delivery, installation, service and warranty capability in Asia
and  Europe  together  with  our  presence  in  the  continental  US;

-     Through  our  wholly  owned  subsidiary Automated Engineering Corporation,
(AEC),  we  offer our clients electronics design, production, product management
and  repair  solutions.  We  anticipate our target technologies will need one or
more  electronic  control  components.  Our capability to proto-type and produce
electronic  control  devices in our ISO 9001 Certified facility positions allows
us  the  flexibility and control to finalize all electronic devices through BOM;

Our  international  infrastructure

-     We  have  been  selected  by General Motors Thailand for use in their C190
Colorado  Dual-Fuel Pick-Up vehicle program scheduled for launch during December
2006.

-     We  have  entered  an agreement with GreenGas for the sale of 1,500 of our
systems  over  a  three  year  period  principally  in  Thailand.
-
-     We  have  entered  an agreement with TruckGas for the sale of 2,000 of our
systems  over  a  three  year  period  principally  in  Europe.

     The  following  discussion  relates our financial performance for the three
and  six-month  periods  ended June 30, 2006 and 2005.  During these periods, we
were  principally  a  development  stage  enterprise and we had not acquired AEC
which  acquisition  was  effective June 9, 2006.  Accordingly, the following may
not  be  indicative  of  our  future  operating  results.

<PAGE>

Three  Months  Ended  June 30, 2006 Compared to Three Months Ended June 30, 2005

     Our  current assets decreased approximately 36% from $2,358,239 at the year
ended  December  31,  2005  to $1,511,275 for the period ended June 30, 2006 and
during  this  same  period  our  total assets decreased by approximately 8% from
$3,858,816  to  $3,552,236.  Total  liabilities  during this period increased by
approximately  30%  from  $4,130,393  at  the  year  ended  December 31, 2005 to
$5,398,464  at  June  30, 2006.  Our Shareholders' Deficit increased during this
three  month  period  from  $(271,577)  at  the  year ended December 31, 2005 to
$(1,846,228)  at  June  30,  2006.

In  comparing  profit and loss during the six month periods ended June 30, 2005
and 2006, our revenue and gross profits increased by 624% and 691%, respectively
from  $35,574  and  53,757  to  $257,585  and $425,685. The increase in revenues
during this period were principally due to our acquisition of DRV Energy and the
EPA  certified  systems which were a part of that acquisition.   Comparing these
two  periods,  our operating expenses increased 205% from $560,137 for the three
months  period  ended  June 30, 2005 to $1,709,942 for the period ended June 30,
2006.  Our  net  loss  for  the three months period increased approximately 199%
from $(839,141) for the three months ended June 30, 2005 to $(2,511,269) for the
three  month  period  ended  June  30,  2006.

Six-Months  Ended  June  30, 2006 Compared to the Six-Months Ended June 30, 2005

     In  comparing  profit  and  loss during the six month period ended June 30,
2005  and  2006,  our  revenue  and  gross  profits  increased by 692% and 819%,
respectively  from  $53,757 and 24,750 to $425,685 and $227,945. The increase in
revenues  during  this  period  were  principally  due to our acquisition of DRV
Energy  and  the  EPA  certified  systems which were a part of that acquisition.
Comparing  these  two  periods,  our  operating  expenses  increased  127%  from
$1,200,224  for  the  six month period ended June 30, 2005 to $2,721,117 for the
period  ended  June  30,  2006.  Our net loss for the six month period increased
approximately 129% from $(1,983,320) for the three months ended June 30, 2005 to
$(4,542,337)  for  the  six  month  period  ended  June  30,  2006.

ITEM  3  CONTROLS  AND  PROCEDURES

(a)  Evaluation  of  Disclosure  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.

(b)  Changes  in  internal  controls.  There  were  no  changes  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.

                                     PART II

ITEM  1  -  LEGAL PROCEEDINGS

     US  Energy  is  not  party  to  any  proceeding  or  action.

ITEM  2  -  UNREGISTERED  SALES  OF  EQUITY  SECURITIES  AND  USE  OF  PROCEEDS

None

ITEM  3  -  DEFAULTS  UPON  SENIOR  SECURITIES

     The Company did not meet the payment terms on the note payable to Peachtree
National  Bank  through  June 30, 2006.  The note is secured by the common stock
owned  by  Robby  Davis  and  Ricky  Davis,  both  employees of the Company. The
provisions  of  the  note  allow  for  the  note to become immediately and fully
payable  upon  default  of payments. While the bank had not initiated any remedy

<PAGE>
actions  for  the  default as of June 30, 2006, the full balance of the note has
been  reclassified  as  a  current  liability  for  both  years.  The  remaining
principal  balance  as  of  June  30,  2006  was  approximately  $42,729.

ITEM  4  -  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

     None.

ITEM  5  -  OTHER  INFORMATION

     None.

ITEM  6  -  EXHIBITS

NO.     DESCRIPTION  OF  EXHIBIT
---     ------------------------

31.1 Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Section
     302  (filed  herewith).

31.2 Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Section
     302  (filed  herewith).

32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350
     (filed  herewith).

32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350
     (filed  herewith)

<PAGE>
                                   SIGNATURES

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

                        US ENERGY INITIATIVES CORPORATION

By:  /s/  MARK  CLANCY
----------------------
Mark  Clancy
Chief  Executive  Officer
(Principal  Executive  Officer)


Date:  August  17,  2006


By:  /s/  MICHELLE  HAMILTON
----------------------------
Michelle  Hamilton
Chief  Financial  Officer
(Principal  Financial  and  Accounting  Officer)


Date:  August  17,  2006

<PAGE>