**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 **December
      31, 2005**





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





Commission
      File Number: 000-30646





**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]





**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 December 31, 2005 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 December 31, 2005
      (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 February 14, 2006.

















**Table
      of Contents**








**Page**Recent
                Developments........................................................................................
            1**Part
                I**Item
                1. Financial
                Statements.................................................................................
            3Item
                2. Management’s Discussion and Analysis or Plan of
                Operations............................
            18Item
                3. Controls and
                Procedures.............................................................................
            20**Part
                II**Item
                1. Legal
                Proceedings.................................................................................
            21Item
                2. Unregistered Sales of Equity Securities and Use of Proceeds
                ..........................
            21Item
                3. Defaults Upon Senior
                Securities..............................................................
            22Item
                4. Submission of Matters to a Vote of Security Holders
                ....................................
            22Item
                5. Other
                Information...............................................................................
            22Item
                6.
                Exhibits............................................................................................
            22











**Recent
      Developments**





***Acquisition
      of the Pitt Penn Group***





As
      previously reported on a Current Report on Form 8-K filed with the Securities
      and Exchange Commission (the “SEC”) on January 19, 2006, Industrial Enterprises
      of America, Inc. (the “Company”), signed a Membership Interest Purchase
      Agreement (the "Agreement") on January 17, 2006 to acquire the Pitt Penn Group
      (as hereinafter defined), a supplier of automotive and chemical products based
      outside of Pittsburgh, Pennsylvania. The Company closed the transaction and
      completed the acquisition of the Pitt Penn Group on January 31, 2006. Effective
      as of that date, Spinwell (as defined below) has operated as a wholly owned
      subsidiary of the Company.





Pursuant
      to the Agreement, the Company has purchased from the sellers set forth in the
      Agreement one hundred percent (100%) of the membership interests of Spinwell
      Holding Company, LLC, a limited liability company organized under the laws
      of
      the State of Ohio (“Spinwell”), which owns all of the issued and outstanding
      membership interests of (i) Pitt Penn Oil Co., LLC, a limited liability company
      organized under the laws of the State of Ohio, and (ii) Pitt Penn Oil DISC
      Company, a Delaware corporation (together, the "Pitt Penn Group" or "Pitt
      Penn"), for consideration consisting of an aggregate amount of four million
      dollars ($4,000,000) subject to adjustment as provided in the Agreement. The
      terms of the Agreement were determined by arms' length negotiations between
      the
      parties.





The
      Company, as the new parent company of the Pitt Penn Group and through the Pitt
      Penn Group, intends to continue to market and sell the products offered by
      the
      Pitt Penn Group prior to the purchase of the Pitt Penn membership interests
      under the Agreement. The Pitt Penn Group produces private label products
      including engine oil, transmission oil, antifreeze, washer solvent, brake fluid
      and gasoline additives. The Company has commenced moving some of its existing
      operations into Pitt Penn's facilities, which were being utilized at less than
      full capacity.





***Litigation
      and Judgments***





On
      January 9, 2006, the Company received a default judgment with respect to the
      lawsuit filed against Elora Resources S.A., a Panamanian corporation (“Elora”).
      The Company had filed such lawsuit in the United States District Court, District
      of Nevada, claiming that Elora had been fraudulently issued shares of the
      Company’s common stock. Elora was engaged as an advisor to the Company on April
      20, 2004 and 5,000,000 shares of the Company’s common stock were issued to Elora
      as compensation for its services; however, to the Company’s knowledge, no
      advisory services have ever been performed by Elora. ** As
      a
      result of such default judgment, the United States District Court, District
      of
      Nevada granted the Company the authority to cancel the 5,000,000 shares of
      its
      common stock issued to this entity.





***Board
      of Directors; Appointment of New Executive Officers***





On
      October 14, 2005, the Board of Directors elected John Mazzuto as the Company’s
      Chief Executive Officer and President. Mr. Mazzuto continued as the Company’s
      Chief Financial Officer until, in anticipation of the completion of the Pitt
      Penn Group, on December 3, 2005, the Board of Directors elected James Margulies
      as the interim Chief Financial Officer of the Company, and, effective January
      31, 2006, appointed him the Chief Financial Officer of the Company. Mr. Mazzuto
      will also continue as the Company’s Assistant Secretary.





Finally,
      as recently reported on a Current Report on Form 8-K/A filed with the SEC on
      January 10, 2006, Lou Frey Jr. resigned as a Director of the Company effective
      January 3, 2006. Therefore, the current Board of Directors has the following
      members: Jerome Davis, Robert J. Casper, John Mazzuto and Scott Margulis. Each
      of these members will serve as a Director until the next annual meeting of
      stockholders or thereafter until his successor is chosen or
      qualified.


**Page
          1**


***Sale
      of Securities***





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.





The
      sales
      and purchases in the private placements described above were exempt from
      registration under Section 4(2) of the Securities Act of 1933, as amended (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.


**Page
          2**


**PART
      I**


**Item
      1. Financial Statements.**





***Critical
      Accounting Policies***





Revenue
      Recognition





EMC
      Packaging 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 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.





Todays
      Way Manufacturing is a contract manufacturer of liquid and aerosol products.
      Currently, Todays Way is solely producing for Unifide Industries. Revenue is
      recognized by toll manufacture of products.





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.




**Page
          3**


**INDUSTRIAL
      ENTERPRISES OF AMERICA**


**Balance
      Sheet**


**December
      31, 2005**


**(Unaudited)**


**(restated)**





**December
                31, 2005****(Unaudited)**ASSETSCurrent
                AssetsCash
            
            
            $
                475,556Accounts
                receivable, net of allowance of $15,000
            3,838,913Due
                from related parties
            10,800Due
                from Power 3 Medical Products
            149,551Allowance
                for doubtful account
            (149,551)Inventory,
                net of reserve of $45,000
            4,305,632Note
                receivable
            500,000Prepaid
                expenses
            144,128Total
                Current Assets
            $
                9,275,029Investment
                in common stock
            1,242,150Property,
                plant and equipment net of accumulated depreciation
            346,056Other
                Assets
            122,531Other
                intangibles, net of amortization of $28,916
            83,596Goodwill
            4,519,038TOTAL
                ASSETS
            $
                15,588,400







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


**INDUSTRIAL
      ENTERPRISES OF AMERICA, INC.**


**Balance
      Sheet**


**December
      31, 2005**


**(Unaudited)**


**(restated)**





LIABILITIES
                & SHAREHOLDERS' EQUITYCurrent
                LiabilitiesCurrent
                maturities of long term debt
            $
                944,249Accounts
                payable
            3,978,220Payable
                related parties
            359,180Accrued
                payables
            137,214Accrued
                interest
            91,961Accrued
                interest to shareholders and related parties
            342,337Total
                Current Liabilities
            $
                5,853,161Long
                Term LiabilitiesNotes
                payable net of current debt
            2,294,157Convertible
                notes payable
            2,280,000Notes
                payable related parties
            2,033,177Total
                Long Term Liabilities
            $
                6,607,334Total
                Liabilities
            
            $
                12,460,495Shareholders'
                EquityPreferred
                stock, $0.001 par value,10,000,000
                shares authorized; -0- shares issued andoutstanding
                as of December 31, 2005
            $
                -Common
                stock, $0.001 par value,150,000,000
                shares authorized; 47,213,090 shares issued andoutstanding
                as of December 31, 2005
            $
                47,213Additional
                paid-in capital
            8,708,052Subscribed
                stock payable
            26,489Shareholder
                receivable
            (6,000)Director
                fees, unamortized
            (33,750)Equity
                development fees, unamortized
            (817,705)Unrealized
                security gain (loss)
            (1,703,595)Retained
                (deficit)
            (3,092,799)Total
                Shareholders' Equity
            $
                3,127,905TOTAL
                LIABILITIES & SHAREHOLDERS' EQUITY
            $
                15,588,400





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


**INDUSTRIAL
      ENTERPRISES OF AMERICA, INC.**


**Statement
      of Operations**


**(Unaudited)**


**(restated)**





**Three
                Months Ended**
            
            **Six
                Months Ended****Dec
                31, 2005**
            
            **Dec
                31, 2004**
            
            **Dec
                31, 2005**
            
            **Dec
                31, 2004**Revenues
            $
                5,626,379
            
            $
                1,348,787
            
            $
                10,551,573
            
            $
                1,348,787Cost
                of Goods Sold
            4,236,325
            
            1,126,505
            
            7,745,140
            
            1,126,505Gross
                Profit
            $
                1,390,054
            
            $
                222,282
            
            $
                2,806,433
            
            $
                222,282Expenses:Selling,
                general & administrative
            $
                879,515
            
            $
                171,986
            
            $
                1,869,515
            
            $
                193,632Allowance
                for doubtful account
            -
            
            6,556
            
            -
            
            104,272Salaries
                and contract labor
            216,365
            
            107,774
            
            420,287
            
            116,274Depreciation
                and amortization
            94,754
            
            5,971
            
            123,957
            
            5,971Legal
                and professional fees
            140,963
            
            944,718
            
            269,548
            
            966,866Total
                Expenses
            $
                1,331,597
            
            $
                1,236,967
            
            $
                2,683,307
            
            $
                1,387,016Income
                (loss) from operations
            $
                58,457
            
            $
                (1,014,685)
            
            $
                (26,425)
            
            $
                (1,164,734)Interest
                expense related party
            229,495
            
            9,025
            
            343,349
            
            11,038Interest
                expense other
            276,061
            
            43,286
            
            432,253
            
            43,286Total
                interest expense
            $
                505,556
            
            $
                52,311
            
            $
                775,602
            
            $
                54,324Net
                (Loss) from operations
            $
                (447,099)
            
            $
                (1,066,996)
            
            $
                (652,476)
            
            $
                (1,219,058)Gain
                on sale of stock
            506,778
            
            -
            
            506,778
            
            -Interest
                income
            1,200
            
            -
            
            2,440
            
            -Provision
                for income taxes
            -
            
            9,338
            
            -
            
            9,338Miscellaneous
                income
            7,575
            
            3,000
            
            7,849
            
            3,000Net
                income (loss)
            $
                68,454
            
            $
                (1,054,658)
            
            $
                (135,409)
            
            $
                (1,206,720)Net
                income (loss) per share basic and diluted
            $
                0.00
            
            $
                (0.06)
            
            $
                (0.00)
            
            $
                (0.06)Weighted
                average number of common shares outstanding
            45,328,307
            
            18,577,750
            
            40,851,868
            
            18,577,750








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


**INDUSTRIAL
      ENTERPRISES OF AMERICA, INC.**


**Statement
      of Cash Flows**


**(Unaudited)**


**(restated)**


**Six
                  Months Ended****December
                  31, 2005**
              
              **December
                  31, 2004****Operating
                  activities**Net
                  income (loss)
              $
                  (135,409)
              
              $
                  (1,206,720)Non-cash
                  itemsDepreciation
                  and amortization
              123,957
              
              5,971Stock
                  based compensation
              155,880
              
              -Gain
                  on sale of stock
              (451,425)
              
              -Net
                  changes in working capital accountsAccounts receivable
              (852,950)
              
              (284,619)Related party receivable
              186,684
              
              -Other receivable
              -
              
              (150,466)Inventory
              (415,537)
              
              41,128Prepaid expenses
              (93,679)
              
              77,435Accounts payable
              544,767
              
              10,474Due to related party
              304,773
              
              6,794Accrued interest
              86,128
              
              -Accrued interest related party
              281,733
              
              11,038Current notes payable
              -
              
              100,638Current notes payable related party
              644,326
              
              -Other payables
              13,784
              
              -Accrued expenses
              (504,817)
              
              545,932**Net
                  cash (used) by operating activities**
              **$
                  (111,785)**
              
              **$
                  (842,394)****Investing
                  activities**Additions
                  to property, plant and equipment
              (134,864)
              
              (5,264)Investment
                  in common stock
              5,767
              
              -Proceeds
                  from sale of Power 3 Medical Products stock
              55,266
              
              -Investment
                  in subsidiaries
              (1,434,424)
              
              -Other
              (20,000)
              
              (1,013)**Net
                  cash (used) by investing activities**
              **$
                  (1,528,255)**
              
              **$
                  (6,277)****Financing
                  activities**Payments
                  towards bank line of credit
              -
              
              103,356Proceeds
                  from issuance of debt
              9,328,276
              
              -Principal
                  payments on debt
              (7,273,195)
              
              -Proceeds
                  from notes payable related party and shareholders
              50,000
              
              300,000Payments
                  on related party loans
              (334,068)
              
              -Proceeds
                  from issuance of common stock
              40,000
              
              8,000Equity
                  development fees
              (50,000)
              
              315,000**Net
                  cash provided by Financing Activities**
              **$
                  1,761,013**
              
              **$
                  726,356****Net
                  cash increase for period**
              **$
                  120,973**
              
              **$
                  (122,315)**Cash
                  at beginning of period
              354,583
              
              133,219**Cash
                  at end of period**
              **$
                  475,556**
              
              **$
                  10,904**





The
          accompanying Notes are an integral
          part of these financial statements.
 **Page
          7**


**SUPPLEMENTAL
                DISCLOSURES RELATED TO CASH FLOWS:**Interest
                paid
            $
                407,741
            
            $
                43,286**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 Todays Way acquisitions
            $
                3,750,000
            
            $
                -Debt
                converted to common stock
            $
                52,500
            
            $
                70,404Accrued
                interest converted to stock
            $
                -
            
            $
                20,071Stock
                issued for Unifide acquisition
            $
                1,050,000
            
            $
                -Stock
                issued for Todays Way acquisition
            $
                450,000
            
            $
                -Stock
                issued for services
            $
                173,750
            
            $
                -Stock
                issued for employment agreement
            $
                42,500
            
            $
                -Stock
                issued for equity development fees
            $
                628,890
            
            $
                -Stock
                issued for director fees
            $
                45,000
            
            $
                -Stock
                cancelled
            $
                5,000
            
            $
                -


The
          accompanying Notes are an integral
          part of these financial statements.
 **Page
          8**


**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 and Exchange Commission personnel and
      the Company’s auditors, the Company has determined that it should restate the
      financial statements for the six months ended December 31, 2005, 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 15 - Mergers and Acquisitions.) The effect of the change
      required a restatement of the September 30, 2004, 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 December 31, 2005, by $10,018, increase assets by
      $1,559,957, increase total liabilities by $6,210 and increase shareholders’
equity by $1,553,746.





**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 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
      December 31, 2005, inventory consisted of the following:




Raw
                materials
            $1,317,431Work-in-process
            176,873Packaging
                materials
            1,415,509Finished
                goods
            1,440,819Total
                inventory
            $4,350,632





**Note
      5 - Depreciation and amortization**





Property
      and equipment are recorded at cost. Depreciation is computed using the
      straight-line method over the estimated useful lives of the respective assets.
      Repairs and maintenance, which are not considered betterments and do not extend
      the useful life of property, are charged to expense as incurred. When property
      and equipment are retired or otherwise disposed of, the asset and accumulated
      depreciation are


**Page
          9**


removed
      from the accounts and the resulting gain or loss is reflected in income. The
      ranges of estimated useful lives used in computing depreciation are as
      follows:




Equipment
            7
                -
                10 yearsVehicles
            3
                -
                5 yearsOffice
                equipment
            7
                years





Property
      and equipment, consisting primarily of molds, tools, and office equipment,
      additions for the six months ended December 31, 2005 totaled
      $134,864.





December
                31, 2005
            
            December
                31, 2004Plant
                equipment
            
            $
                385,361
            
            $
                240,718Office
                equipment
            
            49,072
            
            36,249Vehicles
            
            30,483
            
            -Leasehold
                improvements
            
            9,051
            
            5,501Less:
                Accumulated depreciation
            
            (127,911)
            
            (72,516)Net
                fixed assets
            
            $
                346,056
            
            $
                209,952





Depreciation
      for the six months ended December 31, 2005, and December 31, 2004, totaled
      $45,076 and $5,971, respectively.





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 $885,335 and director fees totaled $73,500 for the
      six
      months ended December 31, 2005, and $-0- for either fee for the six months
      ended
      December 31, 2004.





December
                31, 2005
            
            December
                31, 2004Equity
                development fees
            $
                885,335
            
            $
                -Director
                fees
            45,000
            
            -Employment
                agreement
            42,500
            
            -Less
                accumulated amortization
            (78,881)
            
            -Net
                unamortized costs
            $
                893,954
            
            $
                -





Amortization
      for the six months ended December 31, 2005, and December 31, 2004, totaled
      $78,881 and $-0-, respectively.





**Note
      6 - Goodwill**





Goodwill
      is the result of the acquisitions of EMC Packaging (October 2004), Unifide
      Industries (July 2005), and Todays Way Manufacturing (July 2005). The following
      outlines the calculations for goodwill related to these
      acquisitions:





EMC
                Pkg
            
            Unifide
            
            Todays
                Way
            
            TotalPurchase
                price
            $
                808,474
            
            $3,050,000
            
            $
                950,000
            
            $
                4,808,474Less
                assets acquired
            (1,730,325)
            
            (4,959,477)
            
            (399,257)
            
            (7,089,059)Add
                liabilities assumed
            1,339,880
            
            5,017,960
            
            441,783
            
            6,799,623Costs
                in excess of net assets acquired
            $
                418,029
            
            $3,108,483
            
            $
                992,526
            
            $
                4,519,038





Amortization
      expense related to goodwill for the six months ended December 31, 2005, and
      2004, were $-0- and $-0-, respectively.


**Page
          10**


**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 28,840,334 shares as of December 31, 2005,
      and
      -0- as of September 30, 2004. None of these warrants have been exercised as
      of
      December 31, 2005.





**Note
      8 - Warrants and options**





As
      permitted under generally accepted accounting principles, stock-based awards
      granted to employees are accounted for following APB 25. Accordingly, the
      Company has not recognized compensation expense for its stock-based awards
      to
      employees. Outlined below are pro forma results had compensation costs for
      the
      Company’s stock-based compensation plans been determined based on the fair value
      approach of SFAS 123.





For
                the Six Months Ended
              December2005
            
            2004Net
                (loss), as reported
            $(135,409)
            
            $(1,206,720)Less
                compensation cost determined under the fair value method
            -
            
            -Pro
                forma net (loss)
            $(135,409)
            
            $(1,206,720)





Basic
                and dilutive (loss) per share:As reported
            $
                (0.00)
            
            $
                (0.06)Pro forma
            $
                (0.00)
            
            $
                (0.06)





These
      pro
      forma amounts may not be representative of future disclosures since the
      estimated fair value of stock options is amortized to expense over the vesting
      period and options may be granted in future years.





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 September 30, 2005, are as follows:





Options
                Outstanding
            
            Options
                ExercisableWeighted
                Average
            
            Weighted
                Average
            
            
            
            Weighted
                AverageExercise
                Prices
            
            Number
                Outstanding
            
            Remaining
                Contractual Life
            
            Exercise
                Prices
            
            Number
                Exercisable
            
            Exercise
                Price$0.00
            
            -0-
            
            0.00
            
            $0.00
            
            -0-
            
            $0.00





Summary
      of Options Granted and Outstanding:





For
                the six months ended December 312005
            
            2004Shares
            
            Weighted
                Average Exercise Price
            
            Shares
            
            Weighted
                Average Exercise PriceOptions:Outstanding
                at beginning of period
            
            -
            
            $
                -
            
            200,000
            
            $
                0.80Granted
            
            -
            
            $
                -
            
            2,600,000
            
            $
                0.50Exercised
            
            -
            
            $
                -
            
            -
            
            $
                -Cancelled
            
            -
            
            $
                -
            
            (200,000)
            
            $
                (0.80)Outstanding
                at end of period
            
            -
            
            -
            
            2,600,000
            
            $
                0.50





**Page
          11**


The
      following table summarizes the pro forma operating results of the Company for
      December 31, 2005, 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
            
            $
                (135,409)Pro
                forma basic and diluted loss per share
            
            $
                (0.00)





A
      summary
      of warrant activity for the six months ended December 31, 2005, is as
      follows:


Number
                of Warrants
            
            Weighted
                Average Exercise Price
            
            Warrants
                Exercisable
            
            Weighted
                Average Exercise PriceOutstanding
                at June 30, 2005
            
            8,975,000
            
            $0.277
            
            8,975,000
            
            $0.277Warrants
                cancelled
            
            -
            
            $
                -
            
            -
            
            $
                -Warrants
                exercised
            
            (1,000,000)
            
            $(0.20)
            
            (1,000,000)
            
            $(0.20)Warrants
                granted
            
            19,865,334
            
            $0.255
            
            19,865,334
            
            $0.255Outstanding
                at December 31, 2005
            
            28,840,334
            
            $0.271
            
            28,840,334
            
            $0.271





At
      December 31, 2005, 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$0.50
            
            3,100,000
            
            $0.50
            
            5.00
                yrs
            
            3,100,000
            
            $0.50$0.33
            
            1,150,000
            
            $0.33
            
            5.81
                yrs
            
            1,150,000
            
            $0.33$0.30
            
            873,670
            
            $0.30
            
            4.53
                yrs
            
            873,670
            
            $0.30$0.285
            
            10,312,499
            
            $0.285
            
            4.55
                yrs
            
            10,312,499
            
            $0.285$0.25
            
            125,000
            
            $0.25
            
            4.45
                yrs
            
            125,000
            
            $0.25$0.23
            
            2,500,000
            
            $0.23
            
            9.42
                yrs
            
            2,500,000
            
            $0.23$0.20
            
            4,000,000
            
            $0.20
            
            3.87
                yrs
            
            4,000,000
            
            $0.20$0.1824
            
            937,500
            
            $0.1824
            
            4.55
                yrs
            
            937,500
            
            $0.1824$0.175
            
            4,641,665
            
            $0.175
            
            4.87
                yrs
            
            4,641,665
            
            $0.175$0.12
            
            200,000
            
            $0.12
            
            6.41
                yrs
            
            200,000
            
            $0.12





As
      of
      December 31, 2005, warrants for 28,840,334 shares of common stock have not
      been
      exercised.





The
      Company has issued 19,865,334 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 $0.12 to $0.50 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 $0.0462. The following assumptions were used in computing the
      fair
      value of these warrants: weighted average risk-free interest rate of 8%, zero
      dividend yield, volatility of the Company's common stock of 50% and an average
      remaining life of the warrants of 5.0674 years.





**Note
      9 - Shareholder and related party debt**





The
      Company received $170,000 convertible debt from shareholders during the three
      months ended December 31, 2005. The notes bear interest 12% per annum and mature
      in January, 2006. There was an outstanding balance as of December 31, 2005,
      of
      $2,507,626. The notes are convertible into the Company’s common stock, par value
      $.001 per share at the lesser of (i) $0.10 per share or (ii) sixty-five (65%)
      percent of the average closing price of the common shares for the five (5)
      trading days prior to the date of the conversion provided, however, the Payee
      does not become the beneficial owner of ten (10%) percent or


**Page
          12**


more
      of
      the voting securities of the Company, or otherwise be considered an “affiliate”
of the Company. The Company shall not be obligated to issue the common stock
      in
      such an event.





The
      Company recorded interest expense totaling $775,602 and $54,324 for the six
      months ended December 31, 2005 and 2004, respectively.





**Note
      10 - 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 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
      11 - Related party transactions**





At
      December 31, 2005 and 2004, the Company had incurred payables to certain
      officers for various operational related expenses in the amount of $359,180
      and
      $-0-, respectively.





The
      Company has notes payable to the following related parties:





December
                31, 2005
            
            December
                31, 2004Shareholders,
                unsecured, 18% interest, due October 26, 2005
            $
                50,000
            
            $
                50,000Shareholders,
                unsecured, 5% interest per month, due July 15, 2005
            350,000
            
            -0-Shareholders,
                unsecured, 18% interest , due October 30, 2007
            400,000
            
            100,000Shareholders,
                unsecured, 18% interest, due November 3, 2007
            50,000
            
            50,000Shareholders,
                unsecured, 18% interest, due November 16, 2007
            50,000
            
            50,000Shareholders,
                unsecured, 18% interest, due November 26, 2007
            50,000
            
            50,000Shareholders,
                unsecured, 8% interest, due December 1, 2007
            1,387,626
            
            -0-Shareholders,
                unsecured, 12% interest, due January 30, 2006
            170,000
            
            -0-Total
            $
                2,507,626
            
            $
                300,000





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





Included
      in the table below are the changes in common shares since June 30, 2005. See
      Note 15 for discussion of mergers and acquisitions affecting common
      shares.





CommonSharesOutstanding
                common shares at June 30, 2005
            37,139,190Debt
                converted to stock
            2,200,000Stock
                issued to Unifide Industries LLC members
            4,188,000Stock
                issued to Todays Way Manufacturing LLC members
            1,812,000Stock
                issued for services
            6,533,900Stock
                issued for cash
            300,000Stock
                issued for shareholder receivable
            40,000Stock
                cancelled
            (5,000,000)Outstanding
                common shares at December 31, 2005
            47,213,090


**Page
          13**


**Note
      13 - 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
      December 31, 2005:





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
            
            $
                1,242,150
            
            $
                1,703,595
            
            $
                -0-
            
            $
                -0-
            
            $
                1,242,150
            
            $
                1,703,595





The
      aggregate fair market value of the Company’s investments totaled $1,242,150 at
      December 31, 2005. 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
      14 - 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
      15 - 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 200,000 options to purchase
      200,000 shares of the Company’s common stock at a purchase price of $0.40. 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 755,000 options to purchase 755,000 shares of the
      Company’s common stock at a purchase price of $0.23. 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 Todays Way were acquired.
      Reference is made to that Form 8K filed by the Company on July 18, 2005, as
      related to Todays Way Manufacturing, LLC.


**Page
          14**


**Note
      16 - 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 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 purchased 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
      17 - 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
      18 - Proforma Statement of Operations for the three months ended December 31,
      2004 and December 31, 2005**





The
      following unaudited data reflects the combined operations of the Company and
      its
      subsidiaries as of December 31, 2004.





**ILNP**
            
            **EMC**
            
            **UNIFIDE**
            
            **Todays
                Way**
            
            
            
            **COMBINED****Three
                months ended December 31, 2004**
            
            **Three
                months ended December 31, 2004**
            
            **Three
                months ended December 31, 2004**
            
            **Three
                months ended December 31, 2004**
            
            **Eliminations**
            
            **Three
                months ended December 31, 2004**Net
                sales
            $
                -
            
            $1,348,787
            
            $3,471,460
            
            $497,568
            
            (497,568)
            
            $4,820,247Cost
                of goods sold
            -
            
            1,126,505
            
            3,125,579
            
            268,723
            
            (497,568)
            
            4,023,239Gross
                profit
            $
                -
            
            $222,282
            
            $345,881
            
            $228,845
            
            
            
            $797,008Selling
                & admin
            96,058
            
            70,752
            
            449,272
            
            129,915
            
            
            
            745,997Salaries
                & contract labor
            656,000
            
            84,273
            
            105,851
            
            60,923
            
            
            
            907,047Depreciation
                & amortization
            -
            
            1,293
            
            6,365
            
            42,950
            
            
            
            50,608Legal
                & professional
            269,085
            
            79,700
            
            5,688
            
            3,853
            
            
            
            358,326Total
                expenses
            $1,021,143
            
            $236,018
            
            $567,176
            
            $237,641
            
            
            
            $2,061,978Net
                income (loss) from operations
            $(1,021,143)
            
            $(13,736)
            
            $(221,295)
            
            $(8,796)
            
            
            
            $(1,264,970)Interest
                expense
            9,025
            
            43,286
            
            24,975
            
            7,766
            
            
            
            85,052Net
                income (loss) before income tax expense
            $(1,030,168)
            
            $(57,022)
            
            $(246,270)
            
            $(16,562)
            
            
            
            $(1,350,022)Income
                tax expense
            -
            
            -
            
            -
            
            -
            
            
            
            -Net
                income (loss)
            $(1,030,168)
            
            $(57,022)
            
            $(246,270)
            
            $(16,562)
            
            
            
            $(1,350,022)





**Page
          15**





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





**ILNP**
            
            **EMC**
            
            **UNIFIDE**
            
            **Todays
                Way**
            
            
            
            **COMBINED****Three
                months ended December 31, 2005**
            
            **Three
                months ended December 31, 2005**
            
            **Three
                months ended December 31, 2005**
            
            **Three
                months ended December 31, 2005**
            
            **Eliminations**
            
            **Three
                months ended December 31, 2005**Net
                sales
            $
                -
            
            $1,092,943
            
            $4,533,436
            
            $15,390
            
            $(15,390)
            
            $5,626,379Cost
                of goods sold
            -
            
            940,975
            
            3,310,740
            
            -
            
            (15,390)
            
            4,236,325Gross
                profit
            $
                -
            
            $151,968
            
            $1,222,696
            
            $15,390
            
            
            
            $1,390,054Selling
                & admin
            51,441
            
            54,780
            
            757,723
            
            439
            
            
            
            864,383Salaries
                & contract labor
            35,000
            
            63,525
            
            152,840
            
            -
            
            
            
            216,365Depreciation
                & amortization
            66,727
            
            4,772
            
            14,636
            
            8,136
            
            
            
            94,271Legal
                & professional
            65,000
            
            16,703
            
            10,860
            
            -
            
            
            
            92,563Total
                expenses
            $218,168
            
            $139,780
            
            $936,059
            
            $8,575
            
            
            
            1,302,582Net
                income (loss) from operations
            (218,168)
            
            12,188
            
            286,637
            
            $6,815
            
            
            
            87,472Interest
                expense
            289,872
            
            140,216
            
            75,468
            
            1,549
            
            
            
            507,105Net
                income (loss) before income tax expense
            $(508,040)
            
            $(152,404)
            
            $211,169
            
            $5,266
            
            
            
            $(444,009)Other
                Income
            506,788
            
            5,553
            
            -
            
            122
            
            
            
            512,463Income
                tax expense
            -
            
            -
            
            -
            
            -
            
            
            
            -Net
                income (loss)
            $
                (1,252)
            
            $(146,851)
            
            $211,169
            
            $5,388
            
            
            
            $68,454





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





Cash
      has
      increased by more than $120,000, principally from the issuance of debt 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 acquisitions of Unifide Industries LLC and Todays
      Way Manufacturing LLC as discussed in Note 15 and in the Form 8K filed on July
      18, 2005. Equity development fees paid for the assistance in locating equity
      financing totaled $885,335. Amortization of such fees totaled $66,289. Certain
      directors, upon their admittance to the Board of Directors, were issued a total
      of 300,000 shares of common stock in consideration for their services to be
      rendered to the Company’s Board over the twelve months of their
      appointment.





**Page
          16**


Selected
      balance sheet data as of December 31, 2004, follows:





**ILNP**
            
            **EMC**
            
            **UNIFIDE**
            
            **Todays
                Way**
            
            
            
            **COMBINED****December
                31, 2004**
            
            **December
                31, 2004**
            
            **December
                31, 2004**
            
            **December
                31, 2004**
            
            **Eliminations**
            
            **December
                31, 2004**Total
                assets
            $13,784,218
            
            $1,927,824
            
            $4,691,461
            
            $415,776
            
            
            
            $20,819,279Total
                Liabilities
            $898,355
            
            $1,433,029
            
            $4,259,169
            
            $436,951
            
            
            
            $7,027,504





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


**ILNP**
            
            **EMC**
            
            **UNIFIDE**
            
            **Todays
                Way**
            
            
            
            **COMBINED****December
                31, 2005**
            
            **December
                31, 2005**
            
            **December
                31, 2005**
            
            **December
                31, 2005**
            
            **Eliminations**
            
            **December
                31, 2005**Total
                assets
            $8,053,009
            
            $2,699,885
            
            $6,691,272
            
            $366,622
            
            (2,132,911)
            
            $15,677,877Total
                Liabilities
            $5,605,987
            
            $1,209,130
            
            $5,860,712
            
            $412,868
            
            (628,202)
            
            $12,460,495





**Note
      20 - Subsequent events**





On
      January 17, 2006, the Company signed a Membership Interest Purchase Agreement
      to
      acquire a supplier of automotive and chemical products based outside of
      Pittsburgh, Pennsylvania. The Company closed the transaction and completed
      the
      acquisition of Spinwell Holding Company, LLC, a limited liability company
      organized under the laws of the State of Ohio, which owns all of the issued
      and
      outstanding membership interests of (i) Pitt Penn Oil Co., LLC, a limited
      liability company organized under the laws of the State of Ohio, and (ii) Pitt
      Penn Oil DISC Company, a Delaware corporation (together Pitt Penn), for
      consideration consisting of an aggregate amount of four million dollars
      ($4,000,000) subject to adjustment as provided in the Agreement. The terms
      of
      the Agreement were determined by arms’ length negotiations between the parties.
      The Company, as the new parent company of Pitt Penn and through the
      subsidiaries, intends to continue to market and sell the products offered by
      Pitt Penn prior to the purchase of the Pitt Penn membership interests under
      the
      Agreement. Pitt Penn produces private label products including engine oil,
      transmission, oil, antifreeze, washer solvent, brake fluid and gasoline
      additives. The Company has commenced moving some of its existing operations
      into
      Pitt Penn’s facilities, which were being utilized at less than full
      capacity.


On
      January 26, 2006, the Company completed a $5,000,000 private placement in
      convertible debentures with JLF Asset Management LLC. Per the terms of the
      financing, the Company has issued convertible debentures with a fixed conversion
      rate of $0.18 per share. The sale of the convertible debentures included 100%
      warrant coverage at above market prices.


**Page
          17**


**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 and Section 21E of the Securities Exchange Act of 1934. Additional
      written or oral forward-looking statements may be made by us from time to time,
      in filings with the Securities and Exchange Commission 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 of Financial Condition and Results 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 Securities and Exchange Commission 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 six month period ended
      December 31, 2004, consisting of pre-acquisition Unifide and Todays Way data.
      The six month period ended December 31, 2005 data consists of post-acquisition
      Unifide and Todays Way data and includes the operations of EMC, Unifide and
      Todays Way.





*Three
      Months Ended December 31, 2005 as Compared to Three Months Ended December 31,
      2004*





Revenue
      and gross profit for the three months ended December 31, 2005 was $5,626,379
      and
      $1,390,054, respectively, as compared to $1,348,787 and $222,282, respectively,
      for the same period ended December 31, 2004 and reflects the revenue and gross
      profit derived from Unifide’s and Todays Way’s operations during the quarter.
      Additionally, the Company recognized a gain of $506,778 due to sales of shares
      of common stock of Power3 Medical Products, Inc., a New York corporation in
      private and public transactions. No such gain was recorded during the prior
      year’s period.





Total
      operating expenses for the three months ended December 31, 2005 was $1,331,597
      as compared to $1,236,967 for the same period in 2004. $879,515 of this amount
      was due to selling, general and administrative expenses which was a direct
      reflection of the addition of Unifide and Todays Way. This compares to $171,986
      in selling, general and administrative expenses for the same period ended
      December 31, 2004.


**Page
          18**


Interest
      expenses for the three months ended December 31, 2005 and 2004 was $505,556
      and
      $52,311, respectively, with the increase primarily attributable to the debt
      incurred in the acquisition of Unifide and Todays Way during the previous
      quarter.





The
      result of the above was a net gain for the three months ended December 31,
      2005
      of $68,454, compared to a net loss of $ (1,054,658) in the same period in 2004.





*Six
      Months Ended December 31, 2005 as Compared to Six Months Ended December 31,
      2004*





Revenue
      and gross profit for the six months ended December 31, 2005 was $10,551,573
      and
      $2,806,433, respectively, as compared to $1,348,787 and $222,282, respectively,
      for the same period ended December 31, 2004 and reflects the revenue and gross
      profit derived from Unifide’s and Todays Way’s operations during the quarter. As
      stated above, the Company recognized a gain of $506,778 due to sales of shares
      of common stock of Power3 Medical Products, Inc., a New York corporation in
      private and public transactions. No such gain was recorded during the prior
      year’s period.





Total
      operating expenses for the six months ended December 31, 2005 was $2,683,307
      as
      compared to $1,387,016 for the same period in 2004. $1,869,515 of this amount
      was due to selling, general and administrative expenses which was a direct
      reflection of the addition of Unifide and Todays Way. This compares to $193,632
      in selling, general and administrative expenses for the same period ended
      December 31, 2004.





Interest
      expenses for the six months ended December 31, 2005 and 2004 was $775,602 and
      $54,324, respectively, with the increase primarily attributable to the debt
      incurred in the acquisition of Unifide and Todays Way.





The
      result of the above was a net loss for the six months ended December 31, 2005
      of
      $(135,409), compared to a net loss of $(1,206,720) in the same period in 2004.





Net
      (loss) income per share basic and diluted for the three and six months ended
      December 31, 2005 was $0.00 and $(0.00) per share, respectively, compared to
      $(0.06) and $(0.06) in the respective periods for the prior year.





***Liquidity
      and Capital Resources***





Net
      cash
      provided by operations for the six months ending December 31, 2005 was a
      negative $( 111,785) ,
      compared to a negative cash provided by operations for the six months ending
      December 31, 2004 of $( 783,981) .
      This
      decrease in funds used by operations was mostly attributable to a reduction
      in
      the net loss of the Company of $1,071,311 as compared to the same period ending
      December 31, 2004 and was offset by non-cash items.




Net
      cash
      provided by investing activities was a negative $(1,528,255) in
      the
      six months ending December 31, 2005 as compared to a negative $(6,277) for the
      six months ending December 31, 2004. The major portion of this difference is
      due
      to $1, 434,424
      being invested in the Company’s subsidiaries during the period ended December
      31, 2005 as compared to $0.00 being invested in the Company’s subsidiaries
      during the period ended December 31, 2004.




Net
      cash
      provided by financing activities was $1,761,015, in the six months ending
      December 31, 2005 as compared to $667,944 for the six months ending December
      31,
      2004.


**Page
          19**


**Item
      3. Controls and Procedures.**





***Evaluation
      of Disclosure Controls and Procedures***





The
      Company's Chief Executive Officer and Chief Financial Officer, after evaluating
      the effectiveness of the Company's disclosure controls and procedures (as
      defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rule
      13a-15(e)) as of the end of the period being reported (the "Evaluation Date"),
      have concluded that as of the Evaluation Date, the Company's disclosure controls
      and procedures, were effective in ensuring that information required to be
      disclosed by the Company in the reports it files or submits under the Exchange
      Act is recorded, processed, summarized and reported, within the time periods
      specified in the SEC’s rules and forms. Management has reviewed the
      recommendations set forth in a letter from the Company’s auditors and are still
      implementing some of such recommendations to bring the Company’s disclosure
      controls and procedures in line with such recommendations. The Company’s
      independent auditors have made a number of recommendations including, but not
      limited to, the following: (i) the Company should improve accounting controls
      through the formalization of accounting practices through promulgation of
      accounting policies and procedures, and (ii) additional recommendations related
      to improving internal controls through the separation of duties within the
      accounting function. Management has hired outside consultants to help with
      this
      process and believes that improvements have been made.




***Changes
      in Internal Controls***





No
      significant changes in the Company's internal controls or in other factors
      that
      could significantly affect these controls following the Evaluation Date came
      to
      management's attention.


**Page
          20**


**PART
      II**


**Item
      1. Legal Proceedings.**





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.





As
      of
      November 1, 2005, the Company decided to withdraw its litigation against Power3
      Medical Products, Inc., a New York corporation ("Power3"), which purchased
      all
      of the Company’s assets in consideration for 15,000,000 shares of the common
      stock, par value $.001 per share, of Power3 in May 2004. The Company has
      determined that many of the liabilities that were not assumed or paid off in
      the
      Power3 transaction were in fact liabilities of a subsidiary of the Company
      that
      was purchased by Power3 when Power3 purchased all of the assets of the Company.
      As such, the litigation was deemed unnecessary at this time. The litigation
      was
      withdrawn without prejudice and the Company can refile the litigation if its
      position is determined to be improper.





Except
      as
      stated above, as of December 31, 2005, 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 December 31, 2005, which sales were not registered
      under the Securities Act.





On
      December 31, 2005, the Company sold, in a private placement, 5,000,000 shares
      of
      common stock of Power3 Medical Products, Inc., a New York corporation, subject
      to liens, for consideration of $0.10 per share and 50% of appreciation over
      $0.18. The purchase price for such stock was paid in the form of a promissory
      note. Each of the purchasers in this private placement represented his or her
      intention to acquire the securities for investment only and not with a view
      toward distribution. These sales and purchases in the private placement were
      exempt from registration under the Securities Act pursuant to Section 4(2)
      and
      the regulations promulgated thereunder, on the basis that the private placement
      did not involve a public offering.





As
      of
      November 21, 2005, the Company offered and sold to certain accredited investors
      an aggregate of $2,500,000 worth of convertible promissory notes and warrants
      to
      purchase shares of common stock at prices between $.15 and $.175 **** share.
      This private placement was conducted through a placement agent, and the
      commissions to such agent from the offering amounted to $153,900. The purchasers
      in this private placement represented his or her intention to acquire the
      securities for investment purposes only and not with a view toward distribution.
      The sales and purchases in this private placement were also exempt from
      registration under Section 4(2) of the Securities Act, and, specifically,
      Regulation D thereunder, on the basis that the private placement did not involve
      a public offering.





Other
      than the securities mentioned above, the Company did not issue or sell any
      securities during the quarter ended December 31, 2005.


**Page
          21**


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





None.





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





As
      previously disclosed on a Current Report on Form 8-K filed on October 19, 2005,
      effective as of October 18, 2005, the Company amended its Articles of
      Incorporation by written consent by filing a Certificate of Amendment (the
      “Amendment”) with the Secretary of State of the State of Nevada. The Amendment
      changed the number of authorized shares of the Company’s common stock, par value
      $.001 per share, from 50,000,000 to 150,000,000. Additionally, the Amendment
      authorized for issuance 10,000,000 shares of preferred stock, par value $.001
      per share. Over 23,000,000 shares voted by written consent for the
      Amendment.





On
      November 11, 2005 the following individuals were elected to serve on the Board
      of Directors of the Company by written consent of the shareholders in lieu
      of an
      annual meeting: Robert Casper, Jerome Davis, Lou Frey, Scott Margulis and John
      Mazzuto. Over 23,000,000 shares voted by written consent for the election of
      the
      Directors.





**Item
      5. Other Information.**





Please
      see “Recent Developments” on page 1.





**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
          22**








**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)





Dated:  **September
      20, 2006**


By: /s/
      James W. Margulies


**James
      W. Margulies**


Chief
      Financial


Officer


Dated:  **September
        20, 2006**
 By: /s/
        John Mazzuto
 **John
        D. Mazzuto**
 Director,
        Chief Executive
 Officer,
        Chairman of the Board, President
 and
        Assistant Secretary