**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-QSB**


**Amendment
      No. 1**








**[x]
      Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
      1934**





For
      the
      quarterly period ended **March
      31, 2006**





**[
      ] Transition Report under Section 13 or 15(d) of the Exchange Act For the
      Transition Period from ________ to ___________**





Commission
      File Number: 1-32881





**Industrial
      Enterprises of America, Inc.**


(formerly
      known as Advanced Bio/Chem, Inc.)


(Exact
      name of registrant as specified in its charter)





**Nevada**
            **13-3963499**(State
                or jurisdiction of incorporation
            (I.R.S.
                Employeror
                organization)
            Identification
                No.)**711
                Third Avenue, Suite 1505, New York, New York**
            **10017**(Address
                of principal executive offices)
            (Zip
                Code)





**(212)
      490-3100**


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
      12
      months (or 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


PROCEEDING
      DURING THE PRECEDING FIVE YEARS





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





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.





As
      of
      September 11, 2006, **** 7,618,889
      shares of the registrant’s Common Stock were outstanding.





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








**Table
      of Contents**









**Page**Recent
                  Developments........................................................
              1**Part
                  I**Item
                  1. Financial Statements..................................................
              2Item
                  2. Management’s Discussion and Analysis or Plan of Operations
                  ...
              19Item
                  3. Controls and Procedures.............................................
              22**Part
                  II**Item
                  1. Legal Proceedings....................................................
              23Item
                  2. Unregistered Sales of Equity Securities and Use of Proceeds
                  ...
              23Item
                  3. Defaults Upon Senior Securities....................................
              25Item
                  4. Submission of Matters to a Vote of Security Holders
............
              25Item
                  5. Other Information......................................................
              25Item
                  6. Exhibits..................................................................
              25











**Explanatory
      Note**





As
      previously disclosed by Industrial Enterprises of America, Inc., a Nevada
      corporation (the “Company”), in Amendment No. 1 to the Transition Report on Form
      10-KSB for the six months ended June 30, 2004 (the “Transition Report”), filed
      with the Securities and Exchange Commission (the “SEC”) on September 12, 2006,
      the Company amended and restated its financial statements, including the notes
      therein, for the six months ended June 30, 2004, in order to correct an error
      in
      recording the sale of its operating assets under the equity method of accounting
      instead of recording the transaction as an arms’ length transaction recognizing
      the fair market value of the securities received in the transaction. 
 This Amendment No. 1 (this “Amendment No. 1”) to the Quarterly Report on
      Form 10-QSB for the period ended March 31, 2006 makes the same correction to
      the
      Company’s unaudited financial statements for such period.




Pursuant
      to the rules of the SEC, Item 6, "Exhibits," of Part II of this Amendment No.
      1
      to the Quarterly Report on Form 10-QSB for the period ended March 31, 2006
      (the
“Original Filing”) has been amended to contain updated certifications from our
      Chief Executive Officer and Chief Financial Officer, as required by Sections
      302
      and 906 of the Sarbanes-Oxley Act of 2002.




This
      Amendment No. 1 only amends and restates the Items described above to reflect
      the effects of the restatement, and we have not modified or updated other
      disclosures presented in our Original Filing.  Accordingly, this Amendment
      No. 1 does not reflect events occurring after the filing of the Original Filing
      and does not modify or update those disclosures affected by subsequent events,
      except as specifically referenced herein.  Information not affected by this
      Amendment No. 1 is unchanged and reflects the disclosures  made
      at
      the time of the Original Filing on May 23, 2006.










**Recent
      Developments**








***Sale
      of Springdale Facility***





As
      previously disclosed on a Current Report on Form 8-K filed on February 15,
      2006,
      Industrial Enterprises of America, Inc., a Nevada corporation (the “Company”),
      signed a letter of intent to sell one of its excess facilities for two million
      five hundred thousand dollars ($2,500,000). As subsequently disclosed on a
      Current Report on Form 8-K filed on May 16, 2006, the Company sold this excess
      facility, Springdale Specialty Plastics, Inc. ("Springdale"), pursuant to an
      Asset Purchase Agreement with Fortco Pittsburgh, LLC (the "Buyer") on May 12,
      2006. Pursuant to the Asset Purchase Agreement, the Company has sold all right,
      title and interest in and to the property and assets, real, personal or mixed,
      of every kind and description, which relate solely to the business of Springdale
      to the Buyer for an aggregate amount of two million five hundred thousand
      dollars ($2,500,000) subject to adjustment as provided in the Agreement. The
      terms of the Agreement were determined by arms length negotiations between
      the
      parties.





***Increase
      in Earnings Guidance***





As
      recently disclosed on a Current Report on Form 8-K filed on May 16, 2006, the
      Company has raised its earnings guidance to ten million dollars ($10,000,000)
      for the fiscal year ending June 30, 2007.





***Reverse
      Stock Split***





As
      recently disclosed on a Current Report on Form 8-K filed on May 19, 2006,
      effective at the close of business on June 5, 2006, the Company will effect
      a
      reverse stock split by converting each block of 10 shares of its common stock,
      par value $.001 per share (the "Common Stock"), issued and outstanding as of
      such date, into one share of Common Stock. The reverse stock split was approved
      by both the Company's Board of Directors and the Company’s shareholders. The
      1-for-10 ratio split will reduce the number of shares of Common Stock
      outstanding from 56,226,888 to approximately 5,622,700 shares. The par value
      of
      the Company's Common Stock will remain $.001 per share and the number of
      authorized shares will remain at 150,000,000 shares of Common
      Stock.

















Page
          1





**PART
      I**


**Item
      1. Financial Statements.**





***Critical
      Accounting Policies***





Revenue
      Recognition





EMC
      Packaging, Inc., a Delaware corporation (“EMC”), is primarily engaged in the
      manufacturing and sale of packaged refrigerants for the automotive and dusting
      markets. Revenue is recognized with the successful manufacture and delivery
      of
      such product to the end user customer.





Unifide
      Industries, Limited Liability Company, a New Jersey limited liability company
      (“Unifide”), markets and distributes a full line of automotive aftermarket
      chemicals. Distribution markets include retail, wholesale, value chains, and
      private labeling. Unifide brands consist of Unifide (retail), Taylor Made
      Products (professional), NuEnergy and Phoenix (value). Revenue is recognized
      with sales to the distribution chain.





Today’s
      Way Manufacturing, LLC, also a New Jersey limited liability company (“Today’s
      Way”), is a contract manufacturer of liquid and aerosol products. Currently,
      Today’s Way is solely producing for Unifide Industries. Revenue is recognized by
      toll manufacture of products.





The
“Pitt
      Penn Group” (including Pitt Penn Oil Co., LLC, a limited liability company
      organized under the laws of the State of Ohio, and Pitt Penn Oil DISC LLC,
      a
      Delaware limited liability company) is a supplier of automotive and chemical
      products.  Revenue is recognized with sales to the distributor
      chain.





All
      intercompany transactions have been eliminated.





Inventory





Inventory
      is stated at the lower of cost or market, with cost determined on a first-in,
      first-out basis.





Machinery
      and Equipment





Machinery
      and equipment are recorded at cost. Depreciation is computed on the estimated
      useful lives of the assets ranging from three to ten years using the
      straight-line method.





Accounting
      for Stock-Based Compensation





The
      Company has adopted the disclosure provisions of SFAS No. 123, “Accounting for
      Stock-Based Compensation.” In accordance with the provisions of SFAS No. 123,
      the Company applies Accounting Principles Board Opinion 25 and related
      interpretations in accounting for stock issued to its employees and consultants.
      Management exercises judgment in its determination of when significant non-cash
      stock transactions have occurred. The Company will adopt FAS 123(R) at the
      beginning of the next fiscal year.










Page
          2





**INDUSTRIAL
      ENTERPRISES OF AMERICA, INC.**


**Balance
      Sheet**


**March
      31, 2006**


**(Unaudited)**


**(restated)**





**March
                31, 2006****(Unaudited)**ASSETSCurrent
                AssetsCash
            
            
            $
                125,505Accounts
                receivable, net of allowance of $164,551
            5,977,208Other
                receivables
            48,750Inventory,
                net of reserve of $2,445,000
            8,284,802Note
                receivable
            500,000Prepaid
                expenses
            340,190Total
                Current Assets
            $
                15,276,455Investment
                in common stock
            2,617,034Property,
                plant and equipment net of accumulated depreciation
            10,515,033Other
                Assets
            138,776Other
                intangibles, net of amortization of $28,916
            83,113Loan
                fees
            808,509Goodwill
            5,135,038TOTAL
                ASSETS
            $
                34,573,958



























The
            accompanying Notes are an integral part of these financial
            statements.
 Page
          3





**INDUSTRIAL
      ENTERPRISES OF AMERICA, INC.**


**Balance
      Sheet**


**March
      31, 2006**


**(Unaudited)**


**(restated)**





LIABILITIES
                & SHAREHOLDERS' EQUITYCurrent
                LiabilitiesCurrent
                maturities of long term debt
            $
                2,267,678Accounts
                payable
            7,893,258Payable
                related parties
            58,782Accrued
                payables
            857,862Accrued
                interest
            263,000Accrued
                interest to shareholders and related parties
            2,302Total
                Current Liabilities
            $
                11,342,883Long
                Term LiabilitiesNotes
                payable net of current debt
            7,494,889Convertible
                notes payable
            8,958,371Notes
                payable related parties
            1,129,918Discount
                on notes payable
            (7,598,587)Total
                Long Term Liabilities
            $
                9,984,591Total
                Liabilities
            
            $
                21,327,474Shareholders'
                EquityPreferred
                stock, $0.001 par value,10,000,000
                shares authorized; -0- shares issued andoutstanding
                as of March 31, 2006
            $
                -Common
                stock, $0.01 par value,15,000,000
                shares authorized; 5,491,928 shares issued andoutstanding
                as of March 31, 2006
            $
                54,919Additional
                paid-in capital
            23,039,219Subscribed
                stock payable
            433,989Shareholder
                receivable
            (6,000)Director
                fees, unamortized
            (51,000)Equity
                development fees, unamortized
            (563,963)Unrealized
                securities gains (losses)
            (326,978)Retained
                (deficit)
            (8,910,471)Total
                Shareholders' Equity
            $
                13,246,484TOTAL
                LIABILITIES & SHAREHOLDERS' EQUITY
            $
                34,573,958





The
            accompanying Notes are an integral part of these financial
            statements.
 Page
          4





**INDUSTRIAL
      ENTERPRISES OF AMERICA, INC.**


**Statement
      of Operations**


**(Unaudited)**


**(restated)**


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****31-Mar-06**
              
              **31-Mar-05**
              
              **31-Mar-06**
              
              **31-Mar-05**(Restated)
              
              (Restated)
              
              (Restated)
              
              (Restated)Revenues
              
              $9,015,508
              
              $831,831
              
              $19,567,081
              
              $2,180,618Cost
                  of Goods Sold
              8,557,127
              
              740,592
              
              16,302,267
              
              1,867,097Write
                Down of Inventory
              2,400,000
              
              -
              
              2,400,000
              
              -Gross
                  Profit
              ($1,941,619)
              
              $91,239
              
              $864,814
              
              $313,521Expenses:Selling,
                  general & administrative
              534,359
              
              139,727
              
              2,403,874
              
              336,707Doubtful
                  account expense
              -
              
              45,279
              
              -
              
              149,551Salaries
                  and contract labor
              1,002,708
              
              417,430
              
              1,422,995
              
              1,514,807Depreciation
                  and amortization
              246,882
              
              3,900
              
              370,839
              
              4,502Legal
                  and professional fees
              630,488
              
              273,539
              
              1,323,267
              
              584,905Operations
                  consolidation expense
              250,000
              
              -
              
              250,000
              
              -Total
                  Expenses
              $2,664,437
              
              $879,875
              
              $5,770,975
              
              $2,590,472Income
                  (loss) from operations
              ($4,606,056)
              
              ($788,636)
              
              ($4,906,161)
              
              ($2,276,951)Interest
                  expense
              2,253,068
              
              65,705
              
              3,028,670
              
              120,030Proceeds
                  from sale of securities
              27,024
              
              -
              
              533,802
              
              -Miscellaneous
                  income
              -1,662
              
              3,000
              
              8,627
              
              6,000Net
                  income (loss)
              ($6,833,762)
              
              ($851,341)
              
              ($7,392,402)
              
              ($2,390,981)Net
                  income (loss) per share basic and diluted
              ($1.60)
              
              ($0.39)
              
              ($1.61)
              
              ($1.24)Weighted
                  average number of common shares outstanding
              4,276,915
              
              2,159,481
              
              4,602,476
              
              1,927,983





The
            accompanying Notes are an integral part of these financial
            statements.
 Page
          5


**INDUSTRIAL
      ENTERPRISES OF AMERICA, INC.**


**Statements
      of Cash Flows**


**(Unaudited)**


**(restated)**


**Nine
                Months Ended****March
                31, 2006**
              **(restated)**
            
            **March
                31, 2005 (restated)****Operating
                activities**Net
                income (loss)
            $
                (7,392,402)
            
            $
                (1,963,379)Non-cash
                itemsDepreciation
                and amortization
            527,219
            
            4,502Doubtful
                account expense
            -
            
            149,551Stock
                based compensation
            938,602
            
            318,000Stock
                based interest expense
            1,859,150
            
            -Stock
                sales for notes receivable
            (451,425)
            
            -Net
                changes in working capital accountsAccounts
                receivable
            1,284,477
            
            71,939Other
                receivable
            (48,750)
            
            (82,234)Related
                party receivable
            197,484
            
            (269,984)Prepaid
                expenses
            (104,947)
            
            25,269Notes
                receivable security sales
            (500,000)
            
            -Inventory
            888,831
            
            123,313Other
                current assets
            29,590
            
            -Accounts
                payable
            1,994,746
            
            (7,735)Related
                party payable
            396,750
            
            3,000Accrued
                interest
            407,362
            
            -Accrued
                interest related parties
            (1,365)
            
            37,036Current
                notes payable related party
            (232,340)
            
            -Accrued
                expenses
            (472,670)
            
            245,173Other
                payables
            (74,997)
            
            -**Net
                cash (used) by operating activities**
            **$
                (754,685)**
            
            **$
                (1,345,549)****Investing
                activities**Additions
                to property, plant and equipment
            (234,890)
            
            (1,803)Proceeds
                from sale of Power 3 Medical Products stock
            55,988
            
            -Investment
                in subsidiaries
            (7,742,597)
            
            -Other
            -
            
            (1,013)**Net
                cash (used) by investing activities**
            **$
                (7,921,499)**
            
            **$
                (2,816)****Financing
                activities**Proceeds
                from issuance of debt
            $
                26,474,828
            
            $
                -Principal
                payments on debt
            (18,451,888)
            
            (210,636)Proceeds
                from notes payable related party and shareholders
            1,129,918
            
            550,000Payments
                on related party loans
            (1,250,442)
            
            -Proceeds
                from issuance of common stock
            295,690
            
            899,000Subscribed
                stock
            410,000
            
            2,000Equity
                development fees
            (161,000)
            
            -**Net
                cash provided by Financing Activities**
            **$
                8,447,106**
            
            **$
                1,240,864****Net
                cash increase for period**
            **$
                (229,078)**
            
            **$
                (108,001)**Cash
                at beginning of period
            354,583
            
            123,531**Cash
                at end of period**
            **$
                125,505**
            
            **$
                15,530****SUPPLEMENTAL
                DISCLOSURES RELATED TO CASH FLOWS:**Interest
                paid
            $
                987,293
            
            $
                82,992**SUPPLEMENTAL
                SCHEDULE OF NON-CASH INVESTING AND FINANCING
                ACTIVITIES:**Notes
                receivable for Power 3 Medical Products stock sales
            $
                500,000
            
            $
                -Notes
                payable for Unifide and Today Way’s acquisition
            $
                3,750,000
            
            $
                -Debt
                converted to common stock
            $
                86,319
            
            $
                96,409Debt
                converted to paid in capital
            $
                -
            
            $
                699,434Accrued
                interest converted to stock
            $
                469,796
            
            $
                33,660Stock
                issued for EMC Packaging, Inc.
            $
                -
            
            $
                808,474Stock
                issued for Unifide acquisition
            $
                1,050,000
            
            $
                -Stock
                issued for Today’s Way acquisition
            $
                450,000
            
            $
                -Stock
                issued for services
            $
                1,638,372
            
            $
                723,000Stock
                issued for employment agreement
            $
                42,500
            
            $
                -Stock
                issued for equity development fees
            $
                2,525,343
            
            $
                -Stock
                issued for director fees
            $
                73,500
            
            $
                -Stock
                cancelled
            $
                (5,000)
            
            $
                -


The
            accompanying Notes are an integral part of these financial
            statements.
 Page
          6


**Industrial
      Enterprises of America, Inc.**


**Notes
      to Interim Financial Statements**


**(restated)**







**Note
      1 - Basis of presentation**





Effective
      February 11, 2005, the Company changed its name to Industrial Enterprises of
      America, Inc. from Advanced Bio/Chem, Inc.





The
      condensed financial statements included herein have been prepared by the Company
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      Certain information and footnote disclosures normally included in financial
      statements prepared in accordance with generally accepted accounting principles
      have been condensed or omitted pursuant to such rules and regulations, although
      the Company believes that the disclosures are adequate to make the information
      presented not misleading.





These
      statements reflect all adjustments, consisting of normal recurring adjustments,
      which, in the opinion of management, are necessary for fair presentation of
      the
      information contained therein. It is recommended that these condensed financial
      statements be read in conjunction with the financial statements and notes
      thereto included in the Company’s Form 10-KSB for the year ended June 30, 2005.





**Note
      2 - Restatement of financial statements due to accounting
      error**





After
      lengthy discussions with the Securities Exchange Commission personnel and the
      Company’s auditors, the Company has determined that it should restate the
      financial statements for the nine months ended March 31, 2006, due to an error
      in recording the sale of its operating assets under the equity method of
      accounting instead of recording the transaction as an arms length transaction
      recognizing the fair market value of the securities received in a transaction
      disposing its assets during the fiscal year ended June 30, 2004, the transition
      period. (See Footnote 17 - Mergers and Acquisitions.)





In
      addition, certain financing arrangements included detachable warrants which
      were
      not previously fair valued pursuant to APB 14, FASB 133 and EITF 00-27. Debt
      and
      warrants have been fair valued, accordingly, causing a requirement for the
      restatement of the financial statements for the nine months ended March 31,
      2006
      and 2005.





The
      effect of the referenced changes required a restatement of the March 31, 2006,
      financial statements in order to properly reflect the asset value and the
      related adjustment to current and prior period earnings. The effect of this
      change was to increase the net loss for the period ended March 31, 2006, by
      $2,056,427, increase assets by $1,039,742, decrease total liabilities by
      $7,459,741 and increase shareholders’ equity by $8,499,483.





**Note
      3 - Going concern**





As
      shown
      in the accompanying financial statements, the Company has incurred recurring
      losses from operations. This raises substantial doubt about the Company’s
      ability to continue as a going


Page
          7


concern.
      The accompanying financial statements do not include any adjustments that might
      be necessary if the Company is unable to continue as a going concern.





**Note
      4 - Inventory**





As
      of
      March 31, 2006, inventory consisted of the following:


Raw
                materials
            $
                4,062,800Work-in-process
            51,168Packaging
            1,110,759Finished
                goods
            3,060,075Total
                inventory
            $
                8,284,802





**Note
      5 - Depreciation and amortization**





Property
      and equipment, consisting primarily of molds, tools, and office equipment,
      additions for the nine months ended March 31, 2006 totaled
      $10,515,033.





March
                31, 2006
            
            March
                31, 2005Plant
                & equipment
            
            $7,161,458
            
            $
                106,033Office
                equipment
            
            130,089
            
            4,070Vehicles
            
            30,483
            
            -Leasehold
                improvements
            
            3,412,382
            
            -Less:
                Accumulated depreciation
            
            (219,379)
            
            (7,628)Net
                fixed assets
            
            $10,515,033
            
            $
                102,475





Equity
      development fees, employment agreement of chief financial officer and director
      fees are recorded at cost. Amortization is computed using the straight-line
      method over the agreed period to which services from the respective grantee
      is
      expected. The ranges of agreed periods of services used in computing
      amortization are as follows:





Equity
                development fees
            2
                - 5 yearsDirector
                fees
            1
                yearEmployment
                agreement
            3
                years





Equity
      development fees totaled $563,963 for the nine months ended March 31, 2006,
      and
      $-0- for the nine months ended March 31, 2006.





Depreciation
      and amortization for the nine months ended March 31, 2006 and 2005, totaled
      $370,839 and $4,502, respectively.





**Note
      6 - Goodwill**





Goodwill
      is the result of the acquisitions of EMC Packaging (October 2004), Unifide
      Industries (July 2005), Today’s Way Manufacturing (July 2005), and Spinwell
      Holding Company, Inc. (January 2006). The following outlines the calculations
      for goodwill related to these acquisitions:


Page
          8








EMC
                Pkg
            
            Unifide
            
            Today’s
                Way
            
            Spinwell
                Holdings
            
            TotalPurchase
                price
            $
                808,474
            
            $3,479,968
            
            $
                950,000
            
            $4,000,000
            
            $
                8,808,474Less
                assets acquired
            (1,730,325)
            
            (4,959,477)
            
            (399,257)
            
            (11,716,799)
            
            (18,805,858)Less
                adjustment to fair market value
            -
            
            -
            
            -
            
            (4,172,861)
            
            (4,172,861Add
                liabilities assumed
            1,339,880
            
            5,017,960
            
            441,783
            
            11,889,661
            
            18,689,284Costs
                in excess of net assets acquired
            $
                418,029
            
            $3,538,451
            
            $
                1,178,558
            
            $
                -
            
            $5,135,038





Impairment
      expense related to goodwill for the nine months ended March 31, 2006, and 2005,
      were $-0- and $-0-, respectively.





**Note
      7 - Earnings per share**





Basic
      earnings per share (EPS) includes dilution and is determined by dividing income
      available to common stockholders by the weighted average number of shares of
      common stock outstanding. Diluted EPS reflects the potential dilution that
      could
      occur if options and other contracts to issue shares of common stock were
      exercised or converted into common stock. There are warrants to issue an
      additional 6,813,227 shares as of March 31, 2006, and 762,500 as of March 31,
      2005, each adjusted for the reverse stock split of 10:1 dated June 5, 2006.
      The
      warrants are not included in the calculation of EPS because they are considered
      to be anti-dilutive at March 31, 2006.





**Note
      8 - Warrants and options**





Disclosures
      required by Statement of Financial Accounting Standards No. 123, "Accounting
      for
      Stock-Based Compensation" ("SFAS No. 123"), including pro forma operating
      results had the Company prepared its financial statements in accordance with
      the
      fair value based method of accounting for stock-based compensation prescribed
      therein are shown below. Exercise prices and weighted-average contractual lives
      of stock options outstanding as of March 31, 2006, are as follows:




Options
                  Outstanding
              
              Options
                  ExercisableWeighted
                  Average
              
              Weighted
                  AverageExercise
                  Prices
              
              Number
                  Outstanding
              
              Remaining
                  Contractual Life
              
              Exercise
                  Prices
              
              Number
                  Exercisable$2.00
              
              222,500
              
              8.59
                  yrs
              
              $2.00
              
              222,500$2.30
              
              250,000
              
              9.17
                  yrs
              
              $2.30
              
              250,000$1.30
              
              40,000
              
              9.79
                  yrs
              
              $1.30
              
              40,000$2.20
              
              150,000
              
              9.84
                  yrs
              
              $2.20
              
              8,333$1.40
              
              25,000
              
              9.84
                  yrs
              
              $1.40
              
              8,333$1.00
              
              35,000
              
              9.69
                  yrs
              
              $1.00
              
              35,000$1.00
              
              135,000
              
              9.73
                  yrs
              
              $1.00
              
              135,000$1.30
              
              30,000
              
              9.79
                  yrs
              
              $1.30
              
              30,000


Page
          9


Summary
      of Options Granted and Outstanding:


For
                  the nine months ended March 312006
                  (restated)
              
              2005
                  (restated)Shares
              
              Weighted
                  Average Exercise Price
              
              Shares
              
              Weighted
                  Average Exercise PriceOptions:Outstanding
                  at beginning of period
              
              472,500
              
              $
                  2.16
              
              20,000
              
              $
                  8.00Granted
              
              415,000
              
              $
                  1.51
              
              222,500
              
              $
                  2.00Exercised
              
              (73,750)
              
              $
                  1.00
              
              -
              
              $
                  -Cancelled
              
              -
              
              $
                  -
              
              (20,000)
              
              $
                  (8.00)Outstanding
                  at end of period
              
              813,750
              
              $
                  1.93
              
              222,500
              
              $
                  2.00




The
      Company has issued 415,000 options since the year ended June 30, 2005, at the
      rate of one option for each common share.  The options have an exercise
      price range of $1.00 to $2.30 per share and a term of ten (10) years.  The
      fair vale of the warrants has been estimated on the date of grant using the
      Black-Scholes option pricing model.  The weighted average fair vale of
      these options was $1.96 per option.  The following assumptions were used in
      computing the fair value of these warrants:  weighted average risk-free
      rate of 3.82% (U.S. three-year treasury), zero dividend yield, volatility of
      the
      Company's common stock of 100% and an average life of the warrants of ten
      years.





The
      following table summarizes the pro forma operating results of the Company for
      March 31, 2006, had compensation costs for the stock options granted to
      employees been determined in accordance with the fair value based method of
      accounting for stock based compensation as prescribed by SFAS No. 123.





Pro
                forma net (loss) available to common stockholders
            
            $
                (4,460,692Pro
                forma basic and diluted loss per share
            
            $
                (0.97)





A
      summary
      of warrant activity for the nine months ended March 31, 2006, is as
      follows:


Number
                of Warrants
            
            Weighted
                Average Exercise Price
            
            Warrants
                Exercisable
            
            Weighted
                Average Exercise PriceOutstanding
                at June 30, 2005 (restated)
            
            897,500
            
            $2.77
            
            897,500
            
            $2.77Warrants
                cancelled
            
            -
            
            $
                -
            
            -
            
            $
                -Warrants
                exercised
            
            (100,000)
            
            $(2.00)
            
            (100,000)
            
            $(2.00)Warrants
                granted
            
            5,915,727
            
            $2.67
            
            5,915,727
            
            $2.67Outstanding
                at March 31, 2006
            
            6,813,227
            
            $2.75
            
            6,813,227
            
            $2.75


Page
          10





At
      March
      31, 2006, the range of warrant prices for shares under warrants and the
      weighted-average remaining contractual life is as follows:





Warrants
                Outstanding
            
            Warrants
                ExercisableRange
                of Warrant
            
            
            
            Weighted
                Average
            
            Weighted
                Average
            
            
            
            Weighted
                AverageExercise
                Prices
            
            Number
                of Warrants
            
            Exercise
                Price
            
            Remaining
                Contractual Life
            
            Number
                of Warrants
            
            Exercise
                Price$5.00
            
            310,000
            
            $5.00
            
            4.76
                yrs
            
            310,000
            
            $5.00$3.40
            
            1,304,314
            
            $3.40
            
            2.92
                yrs
            
            1,304,314
            
            $3.40$3.30
            
            115,000
            
            $3.30
            
            5.56
                yrs
            
            115,000
            
            $3.30$3.00
            
            87,373
            
            $3.00
            
            4.27
                yrs
            
            87,373
            
            $3.00$2.85
            
            1,031,252
            
            $2.85
            
            4.30
                yrs
            
            1,031,252
            
            $2.85$2.50
            
            12,500
            
            $2.50
            
            4.21
                yrs
            
            12.500
            
            $2.50$2.40
            
            2,974,870
            
            $2.40
            
            2.91
                yrs
            
            2,974,870
            
            $2.40$2.00
            
            400,000
            
            $2.00
            
            3.63
                yrs
            
            400,000
            
            $2.00$1.82
            
            93,750
            
            $1.82
            
            4.30
                yrs
            
            93,750
            
            $1.82$1.75
            
            464,168
            
            $1.75
            
            4.62
                yrs
            
            464,168
            
            $1.75$1.20
            
            20,000
            
            $1.20
            
            6.16
                yrs
            
            20,000
            
            $1.20





The
      Company has issued 5,915,727 warrants since the year ended June 30, 2005, at
      the
      rate of one warrant for each common share. The warrants have an exercise price
      range of $1.20 to $5.00 per share and a term ranging from 5 to 9 years. The
      fair
      value of the warrants has been estimated on the date of grant using the
      Black-Scholes option pricing model. The weighted average fair value of these
      warrants was $2.12. The following assumptions were used in computing the fair
      value of these warrants: weighted average risk-free interest rate of 4.01%
      (U.S.
      three-year treasury), zero dividend yield, volatility of the Company's common
      stock of 100% and an average life of the warrants of 3.9015 years.





**Note
      9 - Interest Expense**





The
      Company recorded interest expense totaling $3,028,670 and $120,030 for the
      nine
      months ended March 31, 2006 and 2005, respectively.





**Note
      10 - Debt issuances**





On
      July
      8, 2005, the Company completed a convertible debt offering of $500,000 at 8%
      due
      on July 8, 2006, with a conversion price of $2.70, convertible at lenders’
discretion. On July 19, 2005, the Company completed a convertible debt offering
      of $1,210,000 at Wall Street prime plus four points due on July 19, 2007, with
      a
      conversion price of $2.00, convertible at lenders’ discretion.





On
      November 7, 2005, the Company secured a $5,000,000 credit facility for its
      subsidiaries, EMC Packaging and Unifide Industries, from Mercantile Business
      Credit, L.P. of Ardmore, Pennsylvania. This secured asset based credit facility
      replaced the subsidiaries’ existing credit line and doubles their borrowing
      capacity, providing additional working capital for expanding
      operations.





On
      January 27, 2006, the Company completed a convertible debt offering of
      $5,000,000 at Wall Street Journal prime plus 4 points due on July 27, 2008,
      with
      a conversion price of $0.18, convertible at lenders’ discretion. On March 8,
      2006, the Company completed a convertible debt offering of $2,150,000 at Wall
      Street Journal prime plus 4 points due on September 8, 2008, with a conversion
      price of $0.18, convertible at lenders’ discretion. In addition to the
      foregoing, the Company issued 5,915,727 of financing and detachable warrants
      to
      purchase shares of the


Page
          11


Company’s
      common stock to the convertible note holders. The company determined the value
      of these warrants using the Black Scholes method of valuation, and recorded
      a
      discount attributed to the fair value of the warrants at March 31, 2006 in
      the
      amount of $7,598,586. Since the warrants may be exercised at any time following
      issuance, the Company incurred a finance charge attributable to the issuance
      of
      the warrants in the nine months ended March 31, 2006, in the amount of
      $1,842,636.





**Note
      11 - Related party transactions**





At
      March
      31, 2006 and 2005, the corporation had incurred payables to certain officers
      for
      various operational related expenses in the amount of $58,782 and $-0-,
      respectively.





The
      Company has notes payable to the following related parties:





March
                31, 2006
            
            March
                31, 2005Shareholders,
                unsecured, 5% interest per month, due July 15, 2005
            $
                -
            
            $350,000Shareholders,
                unsecured, 18% interest , due October 30, 2007
            -
            
            100,000Shareholders,
                unsecured, 18% interest, due November 3, 2007
            -
            
            50,000Shareholders,
                unsecured, 18% interest, due November 16, 2007
            -
            
            50,000Shareholders,
                unsecured, 18% interest, due November 26, 2007
            -
            
            50,000Shareholders,
                secured with Unifide stock, 8% interest, due December 1,
                2007
            1,129,918
            
            -0-$1,129,918
            
            $600,000





**Note
      12 - Due from Power 3 Medical Products, Inc.**





In
      May
      2004, the Company entered into an Asset Purchase Agreement (the “Agreement”),
      among the Company, Power3, and Steven B. Rash and Ira Goldknopf (collectively,
      the "Shareholders"). The sale was approved by the Company’s shareholders by
      proxy. As provided in the Agreement, the Company sold to Power3 all of the
      Company’s assets in consideration for 15,000,000 shares of the common stock, par
      value $.001 per share, of Power3. The assets disposed of by the Company included
      all tangible personal property, intellectual property, rights in contracts
      that
      the Company is a party to, along with intangible property, including goodwill.
      In consideration for the benefits that they received by virtue of the
      transaction, each of the Shareholders agreed to make the representations,
      warranties, and indemnifications in the Agreement jointly and severally, along
      with the Company, and each of the Shareholders agreed to enter into and be
      bound
      by a Non-Competition Agreement and an Employment Agreement containing, among
      other things, covenants respecting confidentiality, non-competition and
      non-solicitation. The terms of the Agreement were determined by arms' length
      negotiations between the parties. Various amounts were expended subsequent
      to
      the transaction that are deemed to be the responsibility of Power3 et al. The
      total of those amounts are $149,551. Due to the nature of the


Page
          12


ongoing
      discussions with the management team at Power3, this receivable has been
      determined to be impaired and a like amount has been recorded as doubtful
      account expense during the year ended June 30, 2005.





**Note
      13 - Changes in common shares outstanding**





Included
      in the table below are the changes in common shares since June 30, 2005. See
      Note 18 for discussion of mergers and acquisitions affecting common shares.
      Effective June 5, 2006, the Company recorded a reverse stock split of 10:1
      which
      effect is reflected in the table below.





CommonSharesOutstanding
                common shares at June 30, 2005
            3,713,919Debt
                converted to stock
            277,019Stock
                issued to Unifide Industries LLC members
            418,800Stock
                issued to Todays Way Manufacturing LLC members
            181,200Stock
                issued for services
            1,068,240Stock
                issued for cash
            328,750Stock
                issued for shareholder receivable
            4,000Stock
                cancelled
            (500,000)Outstanding
                common shares at March 31, 2006
            5,491,928





**Note
      14 - Investment in common stock**





The
      following table shows the Company’s fair market value method of investments’
gross unrealized losses and fair value, aggregated by length of time that
      individual securities have been in a continuous unrealized loss position, at
      March 31, 2006:





Less
                Than 12 Months
            
            12
                Months or More
            
            TotalDescription
                of Securities
            
            Fair
                Value
            
            Unrealized
                losses
            
            Fair
                Value
            
            Unrealized
                losses
            
            Fair
                Value
            
            Unrealized
                lossesInvestments
                in equity securities carried at fair market value
            
            $2,617,034
            
            $326,978
            
            $
                -0-
            
            $
                -0-
            
            $2,617,034
            
            $326,978





The
      aggregate fair market value of the Company’s investments totaled $2,617,034 at
      March 31, 2006. The investments were evaluated for impairment pursuant to
      FAS-107, *Disclosures
      about Fair Value of Financial Instruments* ,
      and the
      Company did not identify any events or changes in circumstances that may have
      had a significant adverse effect on the fair value of those investments.





**Note
      15 - Gain on sale of securities**





The
      Company has liquidated 5,653,451 shares of 15,000,000 shares of Power 3 Medical
      Products, Inc. at an average share price of $0.09. Gain from the disposition
      of
      these shares total $533,802.


Page
          13


**Note
      16 - Unrealized securities losses**





The
      Company classifies its debt and marketable equity securities into
      held-to-maturity, trading, or available-for-sale categories. Debt securities
      are
      classified as held-to-maturity when the Company has the positive intent and
      ability to hold the securities to maturity. Debt securities for which the
      Company does not have the intent or ability to hold to maturity are classified
      as available for sale. Held-to-maturity securities are recorded as either
      short-term or long-term on the balance sheet based on contractual maturity
      date
      and are stated at amortized cost. Marketable securities that are bought and
      held
      principally for the purpose of selling them in the near term are classified
      as
      trading securities and are reported at fair value, with unrealized gains and
      losses recognized in earnings. Debt and marketable equity securities not
      classified as held-to-maturity or as trading are classified as
      available-for-sale and are carried at fair market value, with the unrealized
      gains and losses, net of tax, included in the determination of comprehensive
      income and reported in shareholders’ equity. The fair value of substantially all
      securities is determined by quoted market prices. The estimated fair value
      of
      securities for which there are no quoted market prices is based on similar
      types
      of securities that are traded in the market. Gains or losses on securities
      sold
      are based on the specific identification method.





**Note
      17 - Mergers and acquisitions**





On
      June
      1, 2005, the Company’s Board of Directors approved a merger with Unifide
      Industries, Limited Liability Company, a New Jersey limited liability company.
      One hundred (100%) percent of the Membership Interests of Unifide were acquired
      in exchange for $800,000 in cash, $1,200,000 in promissory notes, common stock
      valued at $1,050,000 as of July 10, 2005, and 20,000 options to purchase 20,000
      shares of the Company’s common stock at a purchase price of $2.30. The options
      are not vested until two (2) years of employment after the date of closing.
      The
      options expire ten (10) years after the Closing Date. The agreement was
      finalized on July 1, 2005, at which time all of the assets, liabilities and
      operations of Unifide were acquired. Reference is made to that Form 8K filed
      by
      the Company on July 18, 2005, as related to Unifide Industries LLC.





On
      June
      1, 2005, the Company’s Board of Directors approved a merger with Todays Way
      Manufacturing, LLC, a New Jersey limited liability company. One hundred (100%)
      percent of the Membership Interests of Todays Way were acquired in exchange
      for
      $200,000 in cash, $300,000 in promissory notes, common stock valued at $450,000
      as of July 10, 2005, and 75,500 options to purchase 75,500 shares of the
      Company’s common stock at a purchase price of $2.30. The options expire on May
      31, 2015. The agreement was finalized on July 1, 2005, at which time all of
      the
      assets, liabilities and operations of Unifide were acquired. Reference is made
      to that Form 8K filed by the Company on July 18, 2005, as related to Today’s Way
      Manufacturing LLC.





On
      January 27, 2006, the Company completed the acquisition of Spinwell Holding
      Company, LLC, (hereinafter SHC) a limited liability company organized under
      the
      laws of the State of Ohio and its wholly owned subsidiary Pitt Penn Oil DISC
      Company, a Delaware corporation. SHC is a supplier of automotive and chemical
      products based outside of Pittsburgh, Pennsylvania. Under terms of the
      acquisition, the Company agreed to pay three million five hundred thousand
      dollars ($3,500,000), subject to adjustment pursuant to the agreement, and
      acquire notes of the Company in the aggregate amount of five hundred thousand
      dollars ($500,000). Reference is made to that Form 8K filed by the Company
      on
      January 19, 2006.





Page
          14


**Note
      18- Disputed Liabilities and Cancellation of Debt**





On
      November 28, 2005, the Board of Directors of the Company, based on legal and
      accounting research, concluded that the approximately $1,900,000 should be
      removed from the Company’s disputed liabilities. It was concluded that in the
      Power3 transaction, many of the liabilities of the Company were actually assumed
      by Power3 when Power3 purchase the stock of a subsidiary of the Company,
      Advanced Bio/Chem, Inc. (Texas) (“AVBC Texas”). Power3 purchased all of the
      assets of the Company in the transaction and the stock of AVBC Texas was one
      of
      those assets. The liabilities being removed were liabilities of AVBC Texas
      and
      should not have been reflected as liabilities of the Company following the
      Power3 transaction.





**Note
      19 - Commitments and contingencies**





As
      previously stated above, on May 18, 2004, the Company sold all of its assets
      in
      exchange for fifteen million shares of Power 3 Medical Products, Inc. stock
      and
      the assumption of certain liabilities by Power 3 and the repayment of all other
      indebtedness by certain shareholders of the Company. As such the Company should
      have had no liabilities as of May 18, 2004. The Company is taking this position
      based upon advice of legal counsel. If the Company is found to be responsible
      for the payment of any of these liabilities, it would have indemnification
      rights against either Power 3 or those certain shareholders who signed the
      Asset
      Purchase Agreement.





**Note
      20 - Proforma Statement of Operations for the three months ended March 31,
      2006
      and March 31, 2005.**


Page
          15


The
      following unaudited data reflects the combined operations of the Company and
      its
      subsidiaries as of March 31, 2005.








**IEAM**
            
            **EMC**
            
            **UNIFIDE**
            
            **TODAY'S
                WAY**
            
            **SPINWELL
                HOLDING**
            
            
            
            **COMBINED****Three
                months ended March 31, 2005**
            
            **Three
                months ended March 31, 2005**
            
            **Three
                months ended March 31, 2005**
            
            **Three
                months ended March 31, 2005**
            
            **Three
                months ended March 31, 2005**
            
            **Eliminations**
            
            **Three
                months ended March 31, 2005**Net
                sales
            $
                -
            
            $834,831
            
            $3,359,740
            
            $213,744
            
            $8,770,688
            
            $(213,744)
            
            $12,965,259Cost
                of goods sold
            -
            
            740,592
            
            2,700,783
            
            205,042
            
            8,100,587
            
            (213,744)
            
            11,533,260Gross
                profit
            $
                -
            
            $
                94,239
            
            $
                658,957
            
            $
                8,702
            
            $
                670,101
            
            $
                -
            
            $
                1,431,999Selling
                & admin
            317,849
            
            90,017
            
            304,930
            
            5,702
            
            360,606
            
            -
            
            1,079,104Salaries
                & contract labor
            6,500
            
            76,140
            
            116,087
            
            -
            
            193,993
            
            -
            
            392,720Depreciation
                & amortization
            -
            
            3,900
            
            3,939
            
            8,517
            
            39,383
            
            -
            
            55,739Legal
                & professional
            235,164
            
            2,174
            
            41,290
            
            -
            
            63,173
            
            -
            
            341,801Total
                expenses
            $
                559,513
            
            $
                172,231
            
            $
                466,246
            
            $
                14,219
            
            $
                657,155
            
            $
                -
            
            $
                1,869,364Net
                income (loss) from operations
            $
                (559,513)
            
            $
                (77,992)
            
            $
                192,711
            
            $
                (5,517)
            
            $
                12,946
            
            $
                -
            
            $
                (437,365)Interest
                expense
            26,000
            
            39,705
            
            33,391
            
            1,486
            
            128,224
            
            -
            
            228,806Net
                income (loss) before income tax expense
            $
                (585,513)
            
            $(117,697)
            
            $
                159,320
            
            $
                (7,003)
            
            $
                (115,278)
            
            $
                -
            
            $
                (666,171)Income
                tax expense
            -
            
            -
            
            -
            
            -
            
            -
            
            -
            
            -Net
                income (loss)
            $
                (585,513)
            
            $(117,697)
            
            $
                159,320
            
            $
                (7,003)
            
            $
                (115,278)
            
            $
                -
            
            $
                (666,171)





Page
          16


The
      following unaudited data reflects the combined operations of the Company and
      its
      subsidiaries as of March 31, 2006.





**IEAM**
            **EMC**
            **UNIFIDE**
            **TODAY'S
                WAY**
            **SPINWELL
                HOLDING**
            
            
            
            **COMBINED****Three
                months ended March 31, 2006**
            **Three
                months ended March 31, 2006**
            **Three
                months ended March 31, 2006**
            **Three
                months ended March 31, 2006**
            **Three
                months ended March 31, 2006**
            
            **Elimination**
            
            **Three
                months ended March 31, 2006**Net
                sales
            $
                -
            $1,447,520
            $3,052,124
            $10,414
            $7,778,760
            
            $(631,858)
            
            $11,656,960Cost
                of goods sold
            -
            1,234,621
            4,945,059
            -
            8,230,303
            
            (631,858)
            
            13,778,125Gross
                profit
            $
                -
            $
                212,899
            $(1,892,935)
            $10,414
            $
                (451,543)
            
            $
                -
            
            $(2,121,165)Selling
                & admin
            146,677
            111,447
            384,058
            -
            438,091
            
            -
            
            1,080,273Salaries
                & contract labor
            500,000
            62,910
            139,652
            -
            373,893
            
            -
            
            1,076,455Depreciation
                & amortization
            81,164
            5,362
            7,213
            8,517
            143,238
            
            -
            
            245,494Legal
                & professional
            162,786
            16,567
            14,250
            -
            191,005
            
            -
            
            384,608Operations
                consolidation expense
            250,000
            -
            -
            -
            -
            
            -
            
            250,000Total
                expenses
            $1,140,627
            $
                196,286
            $
                545,173
            $
                8,517
            $1,146,227
            
            $
                -
            
            $
                3,036,830Net
                income (loss) from operations
            $(1,140,627)
            $16,613
            $(2,438,108)
            $
                1,897
            $(1,597,770)
            
            $
                -
            
            $(5,157,995)Interest
                expense
            230,818
            17,115
            61,441
            820
            145,104
            
            
            
            455,298Net
                income (loss) before income tax expense
            $(1,371,445)
            $
                (502)
            $(2,499,549)
            $
                1,077
            $(1,742,874)
            
            $
                -
            
            $(5,613,293)Other
                Income
            27,038
            697
            -
            -
            -
            
            -
            
            27,735Income
                tax expense
            -
            -
            -
            -
            -
            
            -
            
            -Net
                income (loss)
            $(1,344,407)
            $
                195
            $(2,499,549)
            $
                1,077
            $(1,742,874)
            
            $
                -
            
            $(5,585,558)





**Note
      21 - Balance sheet variances since June 30, 2005**





Cash
      has
      decreased by more than $229,000, principally from the acquisition of Spinwell
      Holdings Company, Inc. and from operational activities. Accounts receivable,
      inventory, fixed assets, goodwill, line of credit with equipment lessor,
      accounts payable, and certain debt have increased as a result of the acquisition
      of Spinwell and operating activities, also. Equity development fees paid for
      the
      assistance in locating equity financing totaled $885,335. Amortization of such
      fees totaled $133,447. Certain directors, upon their admittance to the Board
      of
      Directors, were issued


Page
          17


a
      total
      of 35,000 shares of common stock in consideration for their services to be
      rendered to the Company’s Board over the twelve months of their
      appointment.





Selected
      balance sheet data as of March 31, 2005, follows:





**IEAM**
            
            **EMC**
            
            **UNIFIDE**
            
            **TODAYS
                WAY**
            
            **SPINWELL
                HOLDING**
            
            
            
            **COMBINED****March
                31, 2005**
            
            **March
                31, 2005**
            
            **March
                31, 2005**
            
            **March
                31, 2005**
            
            **March
                31, 2005**
            
            **Elimination**
            
            **March
                31, 2005**Total
                assets
            $9,820,663
            
            $1,839,360
            
            $5,092,684
            
            $369,006
            
            $13,087,145
            
            $(1,058,727)
            
            $29,150,131Total
                Liabilities
            $817,355
            
            $676,262
            
            $4,722,331
            
            $397,183
            
            $11,911,244
            
            $(656,570)
            
            $17,867,805





Selected
      balance sheet data as of March 31, 2006, follows:





**IEAM**
            
            **EMC**
            
            **UNIFIDE**
            
            **TODAYS
                WAY**
            
            **SPINWELL
                HOLDING**
            
            
            
            **COMBINED****March
                31, 2006**
            
            **March
                31, 2006**
            
            **March
                31, 2006**
            
            **March
                31, 2006**
            
            **March
                31, 2006**
            
            **Elimination**
            
            **March
                31, 2006**Total
                assets
            $16,623,064
            
            $2,363,966
            
            $3,648,363
            
            $358,105
            
            $15,139,877
            
            $(5,021,941)
            
            $33,111,434Total
                Liabilities
            $11,235,264
            
            $873,015
            
            $5,140,581
            
            $403,274
            
            $12,038,129
            
            $(904,202)
            
            $28,786,061





**Note
      22 - Subsequent events**





Pursuant
      to a Form 8K filed on May 16, 2006, the Company has on May 12, 2006, sold
      Springdale Specialty Plastics, Inc., a subsidiary of Spinwell Holdings Company
      LLC, which produced and assembled plastic containers used for storing automobile
      fluids to Fortco Pittsburgh LLC for $2,500,000 subject to adjustment as provided
      in the Asset Purchase Agreement. Prior to the execution of the Agreement, there
      were no material relationships between (i) the Company or any of its affiliates,
      any officer or director of the Company or any associate of any such director
      or
      officer, and (ii) Buyer or any of its affiliates, any officer or director of
      Buyer, or any associate of any such director or officer.


Page
          18





**Item
      2. Management’s Discussion and Analysis or Plan of
      Operations.**




References
      in this Form 10-QSB to the “Company,” “we,” “our” or “us” means Industrial
      Enterprises of America, Inc., together with its subsidiaries, except where
      the
      context otherwise indicates. This Form 10-QSB contains forward-looking
      statements within the meaning of that term in Section 27A of the Securities
      Act
      of 1933, as amended (the “Securities Act”) and Section 21E of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”). Additional written or
      oral forward-looking statements may be made by us from time to time, in filings
      with the SEC or otherwise. Statements contained herein that are not historical
      facts are forward-looking statements made pursuant to the safe harbor provisions
      described above. Forward-looking statements may include, but are not limited
      to,
      projections of revenues, income or losses, capital expenditures, plans for
      future operations, the elimination of losses under certain programs, financing
      needs or plans, compliance with financial covenants in loan agreements, plans
      for sales or acquisitions of assets or businesses, plans relating to our
      products or services, assessments of materiality, predictions of future events
      and the effects of pending and possible litigation, as well as assumptions
      relating to the foregoing. In addition, when used in this discussion, the words
      “anticipates”, “estimates”, “expects”, “intends”, “believes”, “plans” and
      variations thereof and similar expressions are intended to identify
      forward-looking statements.




Forward-looking
      statements are inherently subject to risks and uncertainties, some of which
      cannot be predicted or quantified based on current expectations. Consequently,
      future events and actual results could differ materially from those set forth
      in, contemplated by, or underlying the forward-looking statements contained
      herein. Statements in Quarterly Reports, particularly in “Item 2. Management’s
      Discussion and Analysis or Plan of Operations” and Notes to Condensed
      Consolidated Financial Statements, describe factors, among others, that could
      contribute to or cause such differences. Other factors that could contribute
      to
      or cause such differences include, but are not limited to, unanticipated
      increases in operating costs, labor disputes, failure to properly integrate
      acquisitions, capital requirements, increases in borrowing costs, product
      demand, pricing, market acceptance, intellectual property rights and litigation,
      risks in product and technology development and other risk factors detailed
      in
      our SEC filings.




Readers
      are cautioned not to place undue reliance on any forward-looking statements
      contained herein, which speak only as of the date hereof. We undertake no
      obligation to publicly release the result of any revisions of these
      forward-looking statements that may be made to reflect events or circumstances
      after the date hereof or to reflect the occurrence of unexpected events.





The
      comparative data included in the Results of Operations and the Liquidity and
      Capital Resources sections below contain data for the nine month period ended
      March 31, 2005, consisting of pre-acquisition Unifide, Today’s Way and Pitt Penn
      Group data. The nine month period ended March 31, 2006 data consists of
      post-acquisition Unifide, Today’s Way and Pitt Penn Group data and includes the
      operations of EMC, Unifide, Today’s Way for the nine month period and the Pitt
      Penn Group data for the period beginning January 27, 2006.





*Three
      Months Ended March 31, 2006 as Compared to Three Months Ended March 31, 2005*




After
      discussions with our PCAOB Auditors, management of the Company concluded that
      the convertible debt and warrants issued by the Company was not recorded in
      accordance with APB-14, EITF 98-5 and EITF 00-27.  To resolve this issue
      the Company calculated the fair market value of the warrants and the beneficial
      conversion feature and allocated the debt amongst the proper instruments. 
Additionally, after discussions with our PCAOB Auditors, management of the
      Company concluded that the warrants issued with such debt were not recorded
      at
      the fair market value in accordance with SFAS 123(R).  To resolve this
      issue the Company has capitalized the costs directly associated with the
      issuance of debt issuances and is amortizing the fair market value of the
      warrants over the life of the loan.




Page
          19




Revenue
      and gross profit for the three months ended March 31, 2006 was $9,015,508 and
      ($1,941,619), respectively, as compared to $831,831 and $91,239, respectively,
      for the same period in 2005 and reflects the revenue and gross profit derived
      from Unifide, Todays Way and Pitt Penn Group operations during the quarter.
      Additionally, the Company recognized a gain of $27,024 due to sales of shares
      of
      common stock of Power3 Medical Products, Inc., a New York corporation
      (“Power3”), in private and public transactions. No such gain was recorded during
      the prior year’s period.







Total
      operating expenses for the three months ended March 31, 2006 was $2,664,437
      as
      compared to $879,875 for the same period in 2005. Of this amount, $1,002,708
      was
      due to salaries and contract labor expenses which was a direct reflection of
      the
      addition of Unifide, Today’s Way and the Pitt Penn Group. This compares to
      $417,430 in salaries and contract labor expenses for the same period ended
      March
      31, 2005.





Interest
      expenses for the three months ended March 31, 2006 and 2005 was $2,253,068
      and
      $65,705, respectively, with the increase primarily attributable to the debt
      incurred in the acquisition of Unifide, Today’s Way and the Pitt Penn Group in
      accordance with the accounting treatment described above. In addition, the
      management identified obsolete inventory of approximately $2,400,000 during
      the
      three months ended March 31, 2006 and decided to write down inventory by such
      an
      amount so that the value of the inventory in the financial reports of the
      Company more accurately reflected the fair market value.





The
      result of the above was a net loss for the three months ended March 31, 2006
      of
      $(6,833,762), compared to a net loss of $(851,341) in the same period in 2005.





*Nine
      Months Ended March 31, 2006 as Compared to Nine Months Ended March 31, 2005*





Revenue
      and gross profit for the nine months ended March 31, 2006 was $19,567,081 and
      $864,814 respectively, as compared to $2,180,618 and $313,521, respectively,
      for
      the same period ended March 31, 2005 and reflects the revenue and gross profit
      derived from the Unifide, Today’s Way and Pitt Penn Group’s operations during
      the quarter. The Company recognized a gain of $533,802 due to sales of shares
      of
      common stock of Power3 in private and public transactions. No such gain was
      recorded during the prior year’s period.





Total
      operating expenses for the nine months ended March 31, 2006 was $5,770,975
      as
      compared to $2,590,472, for the same period in 2005. Of this amount, $2,403,874
      was due to selling, general and administrative expenses which was a direct
      reflection of the addition of Unifide, Today’s Way and the Pitt Penn Group. This
      compares to $336,707 in selling, general and administrative expenses for the
      same period ended March 31, 2005.





Interest
      expenses for the nine months ended March 31, 2006 and 2005 was $3,028,670 and
      $120,030, respectively, with the increase primarily attributable to the debt
      incurred in the acquisition of Unifide, Today’s Way and the Pitt Penn Group in
      accordance with the accounting treatment described above.


In
      addition, the management identified obsolete inventory of approximately
      $2,400,000 during the nine months ended March 31, 2006 and decided to write
      down
      inventory by such an amount so that the value of the inventory in the financial
      reports of the Company more accurately reflected the fair market
      value.





The
      result of the above was a net loss for the nine months ended March 31, 2006
      of
      $(7,392,402), compared to a net loss of $(2,390,981) in the same period in
      2005.





Net
      (loss) income per share basic and diluted for the three and nine months ended
      March 31, 2006 was $(1.60) and $(1.61) per share, respectively, compared to
      $(0.39) and $(1.24) in the respective periods for the prior
      year.


Page
          20





***Liquidity
      and Capital Resources***


Net
      cash
      used by operations for the nine months ending March 31, 2006 was $ (754,685) ,
      compared to negative cash provided by operations for the nine months ending
      March 31, 2005 of $ (1,345,549). This
      increase in funds used by operations was mostly attributable to a rise in
      depreciation and amortization in connection with the acquisitions of Unifide,
      Today’s Way and Pitt Penn Group.




Net
      cash
      used by investing activities was a negative $ (7,921,499) in
      the
      nine months ending March 31, 2006 as compared to a negative $ (2,816) for
      the
      nine months ending March 31, 2005. This difference is directly related to the
      acquisitions of Unifide, Today’s Way and the Pitt Penn Group.








Net
      cash
      provided by financing activities was $ 8,447,106 in
      the
      nine months ending March 31, 2006 as compared to $1, 240,864 for
      the
      nine months ending March 31, 2005.


Page
          21








**Item
      3. Controls and Procedures.**





The
      Company's management, under the supervision and with the participation of the
      Company's President and Chief Executive Officer and Chief Financial Officer,
      have evaluated the Company's disclosure controls and procedures as of November
      1, 2006, and they have concluded that our disclosure controls and procedures
      were not effective as of such date because we identified a material weakness
      in
      our internal control in ensuring that all information required to be filed
      in
      this report was recorded, processed, summarized and reported within the time
      period required by the rules and regulations of the Securities and Exchange
      Commission, and that such information is accumulated and communicated to our
      management, including our Chief Executive Officer and Chief Financial Officer,
      as appropriate, to allow timely decisions regarding required disclosure. This
      material weakness relates to the accounting for convertible notes and warrants.
       The Company continues to take the remediation actions described in our
      prior financial reports. The Board of Directors will continue to monitor the
      progress of the Company’s remediation efforts.  There have been no changes
      in internal control over financial reporting that have materially affected,
      or
      are reasonably likely to materially affect, the Company's internal control
      over
      financial reporting.








Page
          22





**PART
      II**


**Item
      1. Legal Proceedings.**





In
      November 2004, Chapman Spira & Carson, LLC (“Chapman Spira”), an
      investment banking firm, filed a lawsuit in the Supreme Court of the State
      of
      New York for the County of New York against the Company and Power3. The suit
      alleges that the Company and Power3 are liable to Chapman Spira for damages
      allegedly resulting from the breach of a letter agreement between Chapman Spira
      and the Company relating to the performance of strategic and investment banking
      services. Chapman Spira is seeking damages in the amount of $1,522,000 plus
      interest. The Company has filed an answer in the lawsuit. The Company disputes
      the allegations in the complaint and is vigorously defending this
      matter.




In
      January 2005, Plaintiff Kamy Behzadi, a previous employee of the Company and
      Power3, filed suit against the Company and Power3. Plaintiff was seeking to
      remove the restrictions on 500,000 shares of Common Stock of the Company
      received pursuant to an employment arrangement. In May 2005, the Company filed
      an action against Behzadi regarding his employment with the Company. On March
      22, 2006, both lawsuits were settled and all actions between the parties have
      been fully resolved, pending compliance with the settlement
      agreement.





In
      June
      2005, Charles Caudle and others filed a lawsuit in Harris County, Texas, against
      the Company, a former subsidiary of the Company, Power3 and the officers and
      directors of the companies. The suit alleges that the Company, Power3 and the
      officers and directors, are liable to plaintiffs for unspecified damages. The
      Company, and its officers and directors, has filed an answer denying all claims
      in the lawsuit. Crawford Shaw, a former officer and director of the Company
      has
      filed a cross complaint against the Company for unspecified damages related
      to
      his resignation. The Company disputes the allegations in the complaint and
      the
      cross complaint and is vigorously defending these matters.




On
      December 13, 2005, Trinity Bui filed suit in the Supreme Court of the State
      of
      New York, County of New York against the Company alleging that the Company
      was
      in breach of certain notes payable to Ms. Bui and her investment company. 
Ms. Bui seeks payment of the notes and other unquantified damages. The Company
      believes that it has adequate defenses against such claims.  The Company
      believes that the notes payable are properly accounted for in the Company’s
      financials.  There can be no assurance that the Company will be successful
      in defending such claims.





On
      February 8, 2006, Waco Capital Management, Inc. filed suit in Seminole County,
      Florida against the Company alleging breach of a consulting agreement with
      the
      Company and seeking 2,000,000 shares of the Company’s Common Stock. Plaintiff
      claims that pursuant to the agreement, the Company was required to issue
      Plaintiff 2,000,000 shares of the Company’s Common Stock. The Company disputes
      the allegations in the complaint, has filed an answer and is vigorously
      defending this matter.





Except
      as
      stated above, as March 31, 2006, the Company was neither a party nor was any
      of
      its properties subject to any material legal proceedings.





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





The
      following sets forth information relating to all sales of our common stock
      during the quarter ended March 31, 2006, which sales were not registered under
      the Securities Act.


Page
          23




On
      January 27, 2006, the Company entered into a Securities Purchase Agreement
      with
      JLF Asset Management, LLC, relating to the issuance and sale, in a private
      placement, of an aggregate of five million dollars ($5,000,000) in convertible
      debentures (the "Debentures"). The Debentures are convertible into shares of
      the
      Company's Common Stock at a conversion price of eighteen cents ($0.18) per
      share
      and include one hundred percent (100%) warrant coverage broken down into two
      types of **** warrants
      to purchase shares of the Company's Common Stock, (i) fifty percent (50%) of
      the
      warrants are Class A Warrants at an exercise price of twenty-four cents ($0.24)
      and (ii) fifty percent (50%) of the warrants are Class B Warrants at an exercise
      price of thirty-four cents ($0.34). The warrants are not eligible for cashless
      exercise and have a three year exercise term. The Company received proceeds
      of
      $5,000,000 before deducting fees related to the private placement. No form
      of
      general solicitation or general advertising was conducted in connection with
      this private placement of the Debentures.





On
      March
      9, 2006, the Company issued and sold, in another private placement, an aggregate
      of two million forty-eight thousand four hundred ninety-three dollars and
      seventeen cents ($2,048,493.17) worth of convertible debentures (the "Additional
      Debentures"), a portion of which have not been drawn down yet. The Additional
      Debentures are convertible into shares of the Company's Common Stock at a
      conversion price of eighteen cents ($0.18) per share and include one hundred
      percent (100%) warrant coverage broken down into two types of warrants to
      purchase shares of the Company's Common Stock: (i) fifty percent (50%) of the
      warrants are Class A Warrants at an exercise price of twenty-four cents ($0.24)
      and (ii) fifty percent (50%) of the warrants are Class B Warrants at an exercise
      price of thirty-four cents ($0.34). The warrants are not eligible for cashless
      exercise and have a three year exercise term. The Company received the proceeds
      of the $2,048,493.17 before deducting fees related to the private placement.
      No
      form of general solicitation or general advertising was conducted in connection
      with this private placement of the Additional Debentures. The net dilutive
      effect of the Additional Debentures is minimal as the proceeds were used to
      pay
      off convertible debt with lower conversion prices.





Other
      than stated above, during the quarter ended March 31, 2006, the Company issued
      an aggregate of 7,706,189 shares of its Common Stock for accrued interest,
      note
      payments and services rendered, at prices between $0.10 and $0.58 per share.
      Each of the recipients of the stock represented his or her intention to acquire
      the securities for investment only and not with a view toward distribution.
      None
      of the shares of the Company’s Common Stock were sold through an underwriter and
      there were no underwriting discounts or commissions involved.





The
      sales
      and purchases in the private placements described above were exempt from
      registration under Section 4(2) of the Securities Act and the regulations
      promulgated thereunder, on the basis that each private placement did not involve
      a public offering. Each of the securities described above contain restrictive
      legends preventing the sale, transfer or other disposition of such securities,
      unless registered under the Securities Act.





Other
      than the securities mentioned above, the Company did not issue or sell any
      securities during the quarter ended March 31, 2006.





Page
          24


**Item
      3. Defaults Upon Senior Securities.**





None.





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





None





**Item
      5. Other Information.**





None





**Item
      6. Exhibits.**





***Exhibit
      Index***





31.1
            Certification
                of the Principal Executive Officer pursuant to Rule
                13a-14(a).31.2
            Certification
                of the Principal Financial Officer pursuant to Rule
                13a-14(a).32.1
            Section
                1350 Certification of the Chief Executive Officer.32.2
            Section
                1350 Certification of the Chief Financial
                Officer.








Page
          25





**Signatures**





In
      accordance with the requirements of the Exchange Act, the registrant has duly
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.





**Industrial
      Enterprises of America, Inc** .


(Registrant)





**Date:
      November 2, 2006**





By: /s/
      James W.
      Margulies


**James
      W. Margulies**


Chief
      Financial Officer








**Date:
      November 2, 2006**





By: /s/
      John D.
      Mazzuto


**John
      D. Mazzuto**


Director,
      Chief Executive Officer, Chairman of the Board,


President
      and Assistant Secretary