UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM
10-K





(Mark
One)


x
            ANNUAL REPORT PURSUANT TO
      SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For
the fiscal year ended December 31, 2009


OR


 ̈
            TRANSITION REPORT PURSUANT TO
      SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For
the transition period from 
to .




Commission file number 000-53287





Pure
Earth, Inc.


(Exact name of registrant as
specified in its charter)





Delaware
                  84-1385335(State
      or other jurisdiction of
                    incorporation
      or organization)
                  (I.R.S.
      Employer
                    Identification
      No.)One
      Neshaminy Interplex, Suite 201
                    Trevose, Pennsylvania
                  19053(Address
      of principal executive offices)
                  (Zip
      Code)





Registrant’s telephone number,
including area code:(215)
639-8755








Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
                    
                    Name
      of each exchange on which registeredNone.
                    
                    None.




Securities
registered pursuant to Section 12(g) of the Act:





Common Stock, par value
$0.001 per share







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes   ̈  No  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes   ̈   No  x





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   Yes   ̈   No   ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):




Large
      accelerated filer   ̈
                Accelerated
      filer  ̈Non-accelerated
      filer     ̈
                Smaller
      reporting company x(Do
      not check if a smaller reporting company)





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





As of June 30, 2009, the aggregate
market value of the registrant’s common stock held by non-affiliates of the
registrant was $6,207,703, based on the closing sale price of a
share of such common stock as reported on the OTC Bulletin
Board.  Solely for the purpose of calculating this aggregate market
value (and for no other purpose), the registrant has defined its affiliates to
include (i) those persons who were, as of June 30, 2009, its executive officers,
directors and beneficial owners of more than 10% of its common stock, and (ii)
such other persons who were, as of June 30, 2009, controlled by, or under common
control with, the persons described in clause (i) above.





The
number of shares outstanding of the registrant’s common stock as of April 10,
2010, was 17,587,899.





Documents
Incorporated by Reference:





Selected
portions of the Proxy Statement for the 2010 Annual Meeting of Stockholders have
been incorporated by reference into Part III of this Form 10-K.





PURE EARTH, INC.


ANNUAL
REPORT ON FORM 10-K


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009





TABLE
OF CONTENTS





PagePART
      I
                                                                                                                          
                                                                                                                          1Item1.
                                                                                                                          Business.
                                                                                                                          1Item1A.
                                                                                                                          Risk
      Factors.
                                                                                                                          22Item1B.
                                                                                                                          Unresolved Staff
      Comments.
                                                                                                                          47Item2.
                                                                                                                          Properties.
                                                                                                                          47Item3.
                                                                                                                          Legal
      Proceedings.
                                                                                                                          49Item4.
                                                                                                                          Submission of Matters to a Vote
      of Security Holders.
                                                                                                                          54PART
      II
                                                                                                                          
                                                                                                                          54Item5.
                                                                                                                          Market for Registrant’s Common
      Equity, Related Stockholder Matters and
    IssuerPurchases of Equity
      Securities.
                                                                                                                          54Item6.
                                                                                                                          Selected Financial
      Data.
                                                                                                                          56Item7.
                                                                                                                          Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations.
                                                                                                                          56Item7A.
                                                                                                                          Quantitative and Qualitative
      Disclosures About Market Risk.
                                                                                                                          99Item8.
                                                                                                                          Financial Statements and
      Supplementary Data.
                                                                                                                          99Item9.
                                                                                                                          Changes in and Disagreements With
      Accountants on Accounting and Financial
      Disclosure.
                                                                                                                          99Item9A(T).
                                                                                                                          Controls and
      Procedures.
                                                                                                                          99Item9B.
                                                                                                                          Other
      Information.
                                                                                                                          100PART
      III
                                                                                                                          
                                                                                                                          101Item10.
                                                                                                                          Directors, Executive Officers and
      Corporate Governance.
                                                                                                                          101Item11.
                                                                                                                          Executive
      Compensation.
                                                                                                                          101Item12.
                                                                                                                          Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters.
                                                                                                                          101Item13.
                                                                                                                          Certain Relationships and Related
      Transactions, and Director Independence.
                                                                                                                          102Item14.
                                                                                                                          Principal Accounting Fees and
      Services.
                                                                                                                          102PART
      IV
                                                                                                                          
                                                                                                                          103Item15.
                                                                                                                          Exhibits and Financial Statement
      Schedules.
                                                                                                                          103SIGNATURES
                                                                                                                          108





*           *           *





Pursuant
to Item 10(f) of Regulation S-K promulgated under the Securities Act of
1933, except as otherwise indicated, we have elected to comply throughout this
Annual Report on Form 10-K with the scaled disclosure requirements applicable to
“smaller reporting companies.”  In this Annual Report on Form 10-K,
unless otherwise stated or the context otherwise requires, the terms “we” “us,”
“our,” and the “Company” refer to Pure Earth, Inc. and our consolidated
subsidiaries taken together as a whole.







PART
I




Item
1.  Business.




Forward-Looking
Statements




Except
for the historical information presented herein, the matters discussed in this
Annual Report on Form 10-K and the information incorporated herein contain
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that relate to future events or future financial performance. These
statements can be identified by the use of forward-looking terminology such as
“believes,” “plans,” “will,” “intends,” “seek,” “scheduled,” “future,”
“projects,” “potential,” “continue,” “estimates,” “hopes,” “goal,” “objective,”
“expects,” “may,” “should,” “could” or “anticipates” or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties.




We
caution you that no statements contained in this annual report should be
construed as a guarantee or assurance of future performance or
results.  You should not place undue reliance upon any forward-looking
statements.  Forward-looking statements involve risks and
uncertainties, including those discussed in “Item 1A.  Risk Factors”
and elsewhere throughout this annual report and in other reports we file with
the Securities and Exchange Commission.  The actual results that we
achieve may differ materially from any forward-looking statements due to the
effect of such risks and uncertainties. These forward-looking statements are
based on current expectations, and, except as required by law, we assume no
obligation to update this information whether as a result of new information,
future events or otherwise.  Readers are urged to carefully review and
consider the various disclosures made by us in this annual report and in our
other reports filed with the SEC that attempt to advise interested parties of
the risks that may affect our business, financial condition and results of
operations.




Company
Overview




We are a
diversified environmental company that specializes in delivering innovative,
unique and sustainable solutions to alternate energy and recovery services in
the United States.  Our corporate objective is the management of
complex projects to maximize the beneficial energy, land resource reuse and
recycling potential of various materials throughout the United States. .We are a
provider of integrated environmental transportation, disposal, recycling,
consulting, engineering and related services, enabling the beneficial reuse of
soils and industrial waste streams into approved disposal facilities or
Brownfield sites. We operate in the following four reportable business segments,
which serve as strategic business units through which our environmental products
and services are generally organized:




·
            Transportation and Disposal –We provide transportation and disposal services for excavated clean
      and contaminated soils from urban construction projects in the
      mid-Atlantic region and the New York metropolitan
  area.




·
            Treatment and Recycling
      –We remove,
      process, treat, recycle and dispose of residual waste from a variety of
      different industrial and commercial sources, targeting customers along the
      U.S. eastern seaboard.




·
            Environmental Services – We provide a
      wide range of environmental consulting and related specialty services,
      including:




o
            environmental
      investigation and engineering services to commercial and residential
      customers; and




1


o
            locating
      and acquiring Brownfield sites for subsequent development, restoration and
      potential resale with capping material from our existing facilities or
      directly from our customer base.




·
            Materials – We produce
      and sell recycled construction materials for a variety of construction and
      other applications, including crushed stone and recycled
      aggregate.  Our construction materials are produced to meet all
      prevailing specifications for their
use.




Prior to
December 2009, we also maintained a Concrete Fibers operating
segment.  The Concrete Fibers business was acquired on April 1, 2008
and served to recycle used carpet fibers into environmentally sustainable, or
“green,” fiber material used to reinforce concrete.  In this segment,
we also repackaged and distributed various other fibers as additives to concrete
products.  In December 2009, we decided to seek a buyer for this
business segment.  For this reason, the operating results and assets
and liabilities previously presented within this segment have been reclassified
as discontinued operations in our audited financial statements as of and for the
years ended December 31, 2009 and 2008.  We sold substantially all of
the assets of our Concrete Fibers operating segment on March 31,
2010.  See “Acquisitions Related to Discontinued
Operations.”




Organizational
Summary




Pure
Earth, Inc., a Delaware corporation, is a holding company headquartered in
Trevose, Pennsylvania that conducts substantially all of its business through
its wholly-owned operating subsidiaries and a 50%-owned joint venture. The
following table summarizes the operations conducted through our wholly-owned
subsidiaries and 50%-owned joint venture.




Subsidiary/Joint
                                  Venture
                                
                                Immediate
                                  Parent Entity
                                
                                Business
                                  Segment
                                
                                Headquarters
                                
                                Primary
                                  Operations
                                
                                Primary Target
                                  MarketsPure
      Earth Transportation & Disposal, Inc. (“PE Disposal”)
                                
                                Pure
      Earth Materials, Inc.
                                
                                Transportation
      and Disposal
                                
                                Lyndhurst,
      New Jersey
                                
                                Transportation
      and disposal of contaminated and clean soils
                                
                                New
      York City metropolitan area and northern New JerseyJuda
      Construction, Ltd. (“Juda”)
                                
                                Pure
      Earth Materials, Inc.
                                
                                Transportation
      and Disposal
                                
                                Lyndhurst,
      New Jersey
                                
                                Owner
      and sublessor of trucks.
                                
                                New
      York City metropolitan area and northern New JerseyPEI
      Disposal Group, Inc. (“PEI Disposal Group”)
                                
                                Pure
      Earth, Inc.
                                
                                Transportation
      and Disposal
                                
                                Long
      Island, New York
                                
                                Transportation
      and disposal of contaminated and clean soils
                                
                                New
      York City metropolitan area and Long IslandPure
      Earth Treatment (NJ), Inc., formerly Casie Ecology Oil Salvage,
      Inc.  (“Casie”)1
                                
                                Pure
      Earth, Inc.
                                
                                Treatment
      and Recycling
                                
                                Vineland,
      New Jersey
                                
                                Processing
      and recycling of oils, solvents, refinery wastes, contaminated soils and
      filter cakes in solid and liquid form
                                
                                Northeastern
      United StatesPure
      Earth Recycling (NJ), Inc., formerly MidAtlantic Recycling Technologies,
      Inc. (“MART”)1
                                
                                Pure
      Earth, Inc.
                                
                                Treatment
      and Recycling
                                
                                Vineland,
      New Jersey
                                
                                Processing
      and recycling of oils, solvents, refinery wastes, contaminated soils and
      filter cakes in solid and liquid form
                                
                                Northeastern
      United
States


2





Subsidiary/Joint
                              Venture
                            
                            Immediate
                              Parent Entity
                            
                            Business
                              Segment
                            
                            Headquarters
                            
                            Primary
                              Operations
                            
                            Primary Target
                              MarketsRezultz,
      Incorporated (“Rezultz”)
                            
                            Pure
      Earth, Inc.
                            
                            Treatment
      and Recycling
                            
                            Vineland
      and Millville, New Jersey
                            
                            Owns
      32 acres of real property on which Pure Earth Treatment (NJ), Inc., Pure
      Earth Recycling (NJ), Inc. and New Nycon operations are conducted, as well
      as recycling equipment to process and recycle waste
    products
                            
                            Northeastern
      United StatesAdvanced
      Catalyst Recycling, LLC (50%-owned joint venture) (“ACR”)
                            
                            Pure
      Earth Treatment (NJ), Inc.
                            
                            Treatment
      and Recycling
                            
                            Hudson,
      New York
                            
                            Identify,
      develop and market recycling solutions for generators of spent metal
      catalysts
                            
                            United
      StatesPure
      Earth Energy Resources, Inc. (“PE Energy”)
                            
                            Pure
      Earth, Inc.
                            
                            Treatment
      and Recycling
                            
                            Trevose,
      Pennsylvania
                            
                            Start
      up business to explore recycling of alternative wastes into
      fuels
                            
                            Northeastern
      United StatesPure
      Earth Environmental, Inc. (“PE Environmental”)2
                            
                            Pure
      Earth, Inc.
                            
                            Environmental
      Services
                            
                            Waterbury,
      Connecticut
                            
                            Environmental
      engineering and consulting services for commercial and residential
      customers
                            
                            Connecticut
      and New
York


3





Subsidiary/Joint
                              Venture
                            
                            Immediate
                              Parent Entity
                            
                            Business
                              Segment
                            
                            Headquarters
                            
                            Primary
                              Operations
                            
                            Primary Target
                              MarketsBio
      Methods LLC (“Bio Methods”)
                            
                            Pure
      Earth, Inc.
                            
                            Environmental
      Services
                            
                            Waterbury,
      Connecticut
                            
                            Disposal
      of regulated medical waste from doctors’ offices, hospitals and nursing
      homes
                            
                            ConnecticutGeo
      Methods LLC (“Geo Methods”)2
                            
                            Pure
      Earth, Inc.
                            
                            Environmental
      Services
                            
                            Waterbury,
      Connecticut
                            
                            Environmental
      well drilling for commercial customers
                            
                            ConnecticutEcho
      Lake Brownfield, LLC (“Echo Lake”)
                            
                            PE
      Environmental
                            
                            Environmental
      Services
                            
                            Waterbury,
      Connecticut
                            
                            Owns
      Brownfield site
                            
                            Central
      ConnecticutHFH
      Acquisition Corp. (“HFH Acquisition”) 2
                            
                            Pure
      Earth, Inc.
                            
                            Environmental
      Services
                            
                            Trevose,
      Pennsylvania
                            
                            Formed
      for the purpose of purchasing an interest in a Brownfield
    site
                            
                            New
      Jersey and New YorkPure
      Earth Materials, Inc. (“PE Materials”)
                            
                            Pure
      Earth, Inc.
                            
                            Materials
                            
                            Lyndhurst,
      New Jersey
                            
                            Rock
      crushing and material recycling operation
                            
                            New
      York City metropolitan area and northern New JerseyPure
      Earth Materials (NJ) Inc. (“PE Materials (NJ)”)
                            
                            Pure
      Earth, Inc.
                            
                            Materials
                            
                            Trevose,
      Pennsylvania
                            
                            Holding
      company for material recycling operation
                            
                            NoneNew
      Nycon, Inc. (“New Nycon”)
                            
                            Pure
      Earth, Inc.
                            
                            As
      of March 31, 2010, discontinued operations (formerly the Concrete Fibers
      segment)
                            
                            Westerly,
      Rhode Island
                            
                            Formerly
      a distributor of fiber products and related accessories to the concrete
      industry
                            
                            None
      presently





1Effective January 1, 2010,
Pure Earth Treatment (NJ), Inc. was merged into Pure Earth Recycling, (NJ), Inc.
and the newly combined entity will conduct its operations under the name Pure
Earth Recycling (NJ), Inc. from January 1, 2010 going
forward.




2Effective
January 1, 2010, Geo Methods LLC was merged into Pure Earth Environmental
Inc.  The combined entity was then merged into HFH Acquisition Corp.,
and was renamed Pure Earth Environmental, Inc.




Pure
Earth, Inc.’s principal executive offices are located at One Neshaminy
Interplex, Suite 201, Trevose, Pennsylvania 19053, and its telephone number is
(215) 639-8755.




Formation
of Our Business




We were
originally formed as a Delaware corporation on February 13, 1997 under the
name Info Investors, Inc. with the original purpose of engaging in infomercial
marketing, but this business never actively developed and was abandoned in 2006.
On January 17, 2006, in connection with our acquisition of South Jersey
Development, Inc., we changed our name to Pure Earth, Inc. and began to focus
our efforts on the acquisition and operation of companies that provide services
related to the transportation and disposal of clean and contaminated soils,
while developing Brownfield sites for disposal purposes.


4


Development
of Our Business and Significant Acquisitions




Acquisition
of South Jersey Development, Inc.




Effective
January 20, 2006, we acquired all of the outstanding stock of South Jersey
Development, Inc. in exchange for 9,300,000 shares of our common stock. As a
result of this acquisition, the shareholders of South Jersey Development, Inc.
owned approximately 76% of our outstanding common stock and controlled our board
of directors, and the former director and officer of Info Investors resigned,
resulting in a change in control. We also repurchased and retired 1,894,528
shares of our common stock from certain of our existing stockholders at a cost
of $150,500. The name South Jersey Development, Inc. was subsequently changed to
Pure Earth Materials, Inc. on February 26, 2007.




Pure
Earth Materials, Inc., or PE Materials, was originally formed in
November 2005 by Mark Alsentzer, our President and Chief Executive Officer,
to provide alternative disposal services for lightly contaminated soils and
construction debris instead of disposing of it in a landfill. In addition, PE
Materials was formed to identify alternative quarry sites in Pennsylvania in an
effort to provide lower-cost waste disposal alternatives to customers in the
northern New Jersey and New York markets. By planning to dispose of wastes in
quarry sites approved to accept such wastes instead of in landfills, PE
Materials originally sought to provide disposal services to its customers at a
reduced cost and with less negative environmental impact as compared to landfill
disposal options.




Acquisitions
Related to Transportation and Disposal Segment




Effective
January 20, 2006, PE Materials completed the acquisition of all of the
issued and outstanding common stock of American Transportation & Disposal
Systems, Ltd. (now known as Pure Earth Transportation & Disposal, Inc., or
PE Disposal). PE Disposal, a wholly owned subsidiary of PE Materials, is in the
environmental disposal and transportation business within the New York City
metropolitan area. PE Disposal hauls and disposes of soils and helps customers
beneficially reuse those soils. At that time, we also acquired certain assets of
Whitney Contracting, Inc., a company that also operated in the transportation
and disposal business. We acquired the shares of American Transportation &
Disposal Systems, Ltd. and the Whitney assets in exchange for an aggregate of
1,250,000 shares of our common stock, valued at $1.00 per share for accounting
purposes. As a condition to closing this transaction, we completed a private
placement of 1,700,000 shares of our common stock at a price of $1.00 per share,
raising approximately $1.7 million in proceeds.




Effective
January 20, 2006, PE Materials also acquired all of the issued and
outstanding stock of Juda Construction, Ltd., a trucking and equipment company
that at the time had 34 company-owned trucks and the ability to subcontract up
to 100 additional trucks as needed to meet any increase in customer demand. In
connection with the acquisition, the sole shareholder of Juda received 300,000
shares of our common stock, valued for accounting purposes at $1.00 per
share.




On
November 19, 2007, we formed a new wholly owned subsidiary, PEI Disposal
Group, Inc., whose business includes the purchase, sale, treatment, processing,
transport and disposal of contaminated and clean soils. On November 20,
2007, PEI Disposal Group acquired certain intangible assets in the form of a
five-year sales representative agreement and a covenant not to compete from Soil
Disposal Group, Inc., a company operating in the soil disposal and
transportation business primarily in the New York City metropolitan area and on
Long Island. In connection with this asset acquisition, we entered into a
five-year sales representative agreement and a five-year non-competition
agreement with Soil Disposal and four of its sales representatives. Under these
agreements, Soil Disposal and these sales representatives will market and
promote our soil disposal and transportation services.. As consideration for
this acquisition, we issued to Soil Disposal a non-interest bearing promissory
note in the principal amount of $640,000 and 100,000 shares of our common stock
valued at $3.00 per share. Soil Disposal is also entitled to receive a maximum
of 300,000 additional shares of our common stock contingent upon the PEI
Disposal Group’s net sales meeting specified thresholds during the three years
after the closing date.


5


Acquisitions
Related to Treatment and Recycling Segment




Acquisition
of PE Recycling




On
March 30, 2007, we purchased all of the outstanding shares of common stock
from the shareholders of the following three entities located in Vineland, New
Jersey: Pure Earth Recycling (NJ), Inc., Pure Earth Treatment (NJ), Inc. (which
has since been merged into Pure Earth Recycling (NJ), Inc., and Rezultz,
Incorporated, collectively referred to as “PE Recycling”.  Under the
terms of the stock purchase agreement, as amended, as consideration for the
acquisition of the shares of the PE Recycling companies, we issued to the PE
Recycling selling stockholders an aggregate of 338,494 shares of our common
stock, net of certain post-closing adjustments settled through
November 2007. These shares of common stock were valued at $3.00 per share.
Until March 30, 2010, the PE Recycling selling stockholders could sell no
more than 10,000 of these shares during any calendar month in open-market
transactions.




Under the
amended stock purchase agreement, if PE Recycling and the former owners obtained
certain additional environmental permits and installed certain equipment, then
within 90 days thereafter we would be obligated to issue to certain of the
PE Recycling selling stockholders an aggregate of 400,000 additional shares of
our common stock. The recipients of these additional shares would not be
permitted to sell, assign or otherwise transfer the additional shares for a
period of one year from the date of issuance. In addition, under the stock
purchase agreement, certain of the PE Recycling former owners may be entitled to
receive up to in the aggregate 435,044 additional shares of our common stock,
based upon an evaluation of specified closing date accrued liabilities and the
potential settlement of an insurance claim. As of December 31, 2009, 102,288
additional shares of our common stock were deemed to have been earned under the
terms of the stock purchase agreement, however, we have not issued any shares of
additional stock relating to these contingencies as a result of ongoing
post-closing claim litigation and negotiations.




At
closing, we paid to Gregory Call , the former President of each of the PE
Recycling entities, the sum of $1.0 million in cash, in partial
satisfaction of an existing $4.2 million loan previously made by
Mr. Call to PE Recycling. After closing, the amount payable to
Mr. Call under this stockholder loan was reduced by approximately $973,000
in consideration of post-closing adjustments under the stock purchase agreement
and the acquisition by Mr. Call from PE Recycling of certain PE Recycling
loans receivable. Furthermore, as of November 15, 2007, Mr. Call
converted approximately $1.2 million of the amount payable to Mr. Call
under this stockholder loan into 373,615 shares of our common stock. The
remaining $1.0 million outstanding under these obligations was evidenced by
a subordinated promissory note dated as of November 15, 2007 payable and
guaranteed by PE Recycling. This subordinated promissory note bears interest at
a rate of 6.77% per year. An initial payment of $333,333 was due on December 31,
2009, with the remaining principal and accrued but unpaid interest due on
December 31, 2010.  As of December 31, 2009, the $1.0 million
note payable, plus accrued interest, remains outstanding.




On June
17, 2009, we issued a notice of setoff to Mr. Call notifying him of the our
intent to set-off post-closing claims in the amount of approximately $1.1million
against this note payable and shares of Pure Earth common stock that may
otherwise be due to the former owner as permitted under the stock purchase
agreement.  In September 2009, we filed a complaint in the United
States District Court for the Eastern District of Pennsylvania against the
former owner, alleging in excess of $4.0 million in damages resulting from Mr.
Call’s alleged breach of contract, and seeking from the Court a declaratory
judgment as to our right of setoff as to these post-closing claims. See “Part I,
Item 3 – Legal Proceedings – Litigation – PE Recycling
Litigation.”


6


Formation
of Catalyst Recycling Joint Venture




On
April 30, 2007, PE Recycling entered into an agreement to form Advanced
Catalyst Recycling, LLC, or ACR. ACR is a joint venture between a third party,
Advanced Recycling Technology, Inc., or ARTI, and Pure Earth Treatment (NJ),
Inc.. Each of Pure Earth Treatment (NJ), Inc. and ARTI contributed $1,000 in
start-up capital to this joint venture. Each of Pure Earth Treatment (NJ), Inc.
and ARTI owns a 50% voting and profit interest in ACR and possesses equal
decision making power. We have entered into this joint venture with ARTI to
identify and enter into recycling opportunities in the market for spent metal
catalysts and to develop and market recycling solutions to the generators of
those catalysts.  As a result of the economic downturn and generally
unfavorable pricing in the marketplace for precious metals, our operations
through ACR were minimal during the twelve months ended December 31, 2009, with
the exception of processing and disposing of certain waste materials from
existing inventory.




Formation
of PE Energy




On March
20, 2008, we formed PE Energy as a start-up business to explore recycling of
alternative wastes into fuels and other alternative energy
initiatives.  Since that date, PE Energy has been in the process of
seeking to identify opportunities and sites to begin the treatment and recycling
of alternative wastes.  In September of 2008, we began brokering the
disposal of certain industrial waste materials through the addition of a small
sales force.  The revenues derived from these operations have
experienced steady growth in 2009, and have provided additional capital to help
fund PE Energy during its start-up phase.




Acquisitions
Related to Environmental Services Segment




On
November 30, 2006, we acquired all of the issued and outstanding stock of
Terrasyn Environmental Corporation, now known as Pure Earth Environmental, Inc.,
an environmental consulting and engineering firm offering a wide range of
services to industrial, commercial and public clients. PE Environmental conducts
environmental investigations and provides project management and information and
data management services, as well as regulatory compliance support. In addition
to providing these services to our customers, we utilize these services to
support our Brownfield redevelopment efforts.




We
acquired PE Environmental in exchange for 280,000 shares of our common stock,
valued at $2.00 per share.  In connection with the acquisition of PE
Environmental, on November 30, 2006, we also acquired all of the
outstanding membership units of three Delaware limited liability companies:
Environmental Venture Partners, LLC, or EVP, Geo Methods, LLC (which has since
been merged into PE Environmental]) and Bio Methods, for a
combined purchase price of $250,000 in cash. Bio Methods is engaged in the
disposal of regulated medical waste from doctors’ offices, hospitals, and
nursing homes in Connecticut.  Geo Methods, LLC was initially engaged
in environmental well drilling for commercial customers that were primarily
located in Connecticut and New York.   EVP did not conduct any
business since we acquired it and was subsequently dissolved on January 5,
2007.




On
September 14, 2007, PE Environmental formed a wholly owned subsidiary, Echo
Lake Brownfield, LLC. Echo Lake was formed for the purpose of owning and
developing a Brownfield site in the state of Connecticut. On January 3,
2008, we completed the acquisition of this Brownfield site, located in central
Connecticut, for a purchase price of $50,000, and assumed estimated
environmental cleanup costs of approximately $233,000. We also spent
approximately $57,000 on site evaluation costs prior to purchasing the
Brownfield site. Since the date of acquisition in January of 2008, we have spent
approximately $0.3 million in additional legal, permitting and engineering costs
to prepare the site to accept incoming materials.




Acquisitions
Related to Materials Segment




Our
Materials segment was initially formed with the acquisition of South Jersey
Development, Inc., which operates our Lyndhurst, New Jersey rock crushing
facility and prior to October 2008, also operated a rock crushing facility
in North Bergen, New Jersey. In October 2008, we terminated our lease
agreement for the North Bergen facility and subsequently shifted the rock
crushing operations previously conducted there to the facility in Lyndhurst, New
Jersey.


7


Effective
January 20, 2006, we acquired a customer list from Alchemy Development,
LLC, the sole member of which was Philip Guenzer. Mr. Guenzer currently
serves as the Vice President of Technical Services for PE Materials. In exchange
for the customer list, we issued 75,000 shares of our common stock to
Mr. Guenzer, valued at $1.00 per share for accounting purposes. However,
due to the loss of these customers during 2007, we concluded that this asset had
been impaired and we therefore wrote off the remaining value of the
asset.




Acquisition
Related to Discontinued Operations




Effective
April 1, 2008, New Nycon, Inc., our wholly owned subsidiary, completed the
purchase of specified assets from Nycon, Inc., a concrete reinforcing fiber
company headquartered in Westerly, Rhode Island. New Nycon had a sales and
distribution network that included 35 domestic and 20 international sales
representatives with distribution centers located in California, Florida and
Connecticut.  Under the acquisition agreement, we acquired Nycon’s
accounts receivable, equipment and all intangible assets and intellectual
property. Prior to this acquisition, Nycon was engaged in the business of
processing, packaging and selling reinforcing fibers used as a component of
concrete materials. The purchase price for this acquisition included the
assumption of obligations of the seller under $225,000 in bank notes payable,
and our agreement to pay to Nycon 20% of the free cash flow derived from the
operation of the Nycon assets in each of the next four years, up to a maximum
cumulative amount of $900,000, not including $75,000 of debt that the former
owner has agreed to repay out of such cash flow.  In December 2008,
the former owner of Nycon agreed to cancel $150,000 of our repayment obligations
under the bank notes in exchange for the ability to earn an additional $120,000
of compensation in the form of contingent earn-out payments.  We were
also required to contribute a minimum of $300,000 to New Nycon on an as-needed
basis for working capital purposes.  As of December 31, 2009, we made
net advances of approximately $0.7 million to Nycon, and an additional $0.1
million of net advances in the first quarter of 2010.




As a
result of the additional capital contributions and performance of Nycon, we
amended the asset purchase agreement in June of 2009, reducing the former
owner’s earn-out from 20% to 10% and the maximum earn-out amount from $1,020,000
to $600,000.  In December of 2009, we eliminated the earn-out and
converted the $75,000 note payable to the former owner into shares of our Series
C Convertible Preferred Stock valued at $37,500.




In
connection with the original acquisition of Nycon, we entered into an exclusive
licensing agreement with the holder of a patent covering the process for making
and using reinforcing fiber from post-consumer carpet waste as a substitute for
new fibers. During the term of the license agreement, we agreed to pay the
licensor an annual royalty fee equal to 30% of New Nycon’s earnings before
taxes, depreciation and amortization, and we also paid the patent holder 15,000
shares of our common stock, which shares were placed in escrow pending the
satisfaction by New Nycon of certain financial objectives.  The
license agreement was to terminate upon the expiration of the last of the
licensor’s patent rights covered by the agreement.




In
December 2009, we decided to discontinue the operations of New Nycon and began
to actively seek to sell the company or dispose of its assets and
liabilities.  The decision to discontinue the operations of New Nycon
was precipitated by continuing working capital requirements at New Nycon, which
limited our liquidity and capital resources available for the operations of our
core business units.  On March 31, 2010, we completed the sale of
substantially all of the assets and liabilities of New Nycon and received at
closing approximately $0.2 million in cash, and the right to receive an
additional $50,000 in cash 90 days after the closing, subject to reduction for
any accounts receivable purchased by the buyer and which receivables are
ultimately not collected during such 90-day period.  We have agreed to
indemnify and hold the buyer harmless for certain liabilities, subject to a cap
of $300,000 and a $10,000 deductible.  We and New Nycon also entered
into non-competition and non-solicitation agreements with the buyer respect to
this business.  In connection with the asset sale, we and the licensor
terminated the license agreement for no additional consideration.  As
a result of doing so, we also have deemed the 15,000 shares in escrow forfeited
because the financial objectives were not satisfied prior to the termination of
the license agreement.


8


Our
Business Strategy




Our
overall business strategy consists of the following key elements:




·
            Continue to Focus on Our Core
      Transportation and Disposal Business.We intend to expand and grow
      this segment, which involves the management, transportation and disposal
      of excavated clean and contaminated soils from urban construction projects
      throughout the mid-Atlantic and New England regions. Since beginning our
      operations in this marketplace in 2006, we have expanded our sales force
      and sought to broaden and diversify customer base in an attempt to
      penetrate further the transportation and disposal market. We seek to
      market our transportation and disposal services to Fortune 500 companies,
      which we believe will present a significant source of large customer
      accounts.




·
            Develop and Grow Revenues from
      “Green” Construction Materials and Related Products.We will seek
      to sell a growing variety of construction materials produced by reusing
      materials transported from construction job sites. We seek to identify new
      construction sites strategically located in the New York City metropolitan
      area. These new sources of reusable material, when coupled with the
      operation of our higher-capacity rock crushing unit, will serve to
      generate additional revenues for our Materials
  segment.




·
            Strive to Be a Leading
      Provider of Treatment and Recycling Services.Waste disposal and
      recycling can be a costly problem for owners and developers of various
      real estate projects and properties. Our Treatment and Recycling segment
      maintains a permitted facility to process hazardous and non-hazardous
      waste for beneficial reuse, which costs the customer on average 50% less
      than incineration. We also intend to leverage our geographic breadth and
      services portfolio to offer our customers a single source for treatment
      and recycling services, thereby simultaneously expanding the options
      available to our customers and reducing the cost of providing those
      services. We plan to expand our permits to accept higher levels of
      contaminated wastes as well as increased volumes of
  waste.




·
            Recycle Waste Products into
      Alternate Fuels.  We plan to develop and process high BTU
      waste products into a form of fuel that can be used in place of or
      together with fossil fuels such as coal, natural gas and oil. We are
      currently investigating potential sites in the northeastern United States
      to commence operations.




We are
also exploring various initiatives to process selected energy materials and
provide technical support for the use of alternative fuels in an effort to
reduce costs, conserve fossil fuels and reduce the carbon footprint of the
energy consumer.  Specifically, we are seeking to provide alternative
fuel and raw materials services and solutions to the cement industry and other
industrial users of fossil fuels, produce alternative fuels from a variety of
recyclable materials, including bio-solids, and to provide engineering and
environmental support for our products and services.




We
believe that these alternative fuels can serve, in part, as replacements for
conventional fossil fuels and can be recycled from post-industrial and
post-consumer byproducts.  A significant degree of processing is
typically required in order to use these materials as an alternative fuel source
in the conventional combustion process.  We seek to partner with the
end users of these alternative fuels to provide the procurement of the raw
materials, processing and engineering of the material into alternative fuels,
and delivery of the alternative fuels to the end user.




·
            Expand Geographic Reach and
      Capacity of Environmental Recycling Facilities.We will generate
      additional revenues through the growth and expansion of our existing PE
      Recycling soil treatment and processing facilities. We intend to seek
      opportunities to grow our existing refinery waste treatment and processing
      business through increased capacity and by providing the ability to treat
      or recycle additional waste
streams.




9


·
            Leverage Brownfield Sites to
      Drive Environmental Services Revenue.We intend to increase, over
      the long-term, the number of Brownfield sites that we own, control,
      operate or develop. We believe that, by obtaining access to new disposal
      sites closer to the markets for our transportation and disposal business,
      these properties will provide us with potential sources of revenue and
      lower operating costs, as well as promote additional opportunities for our
      environmental consulting and engineering
  services.




Our
Integrated Environmental Services




We
provide a wide array of integrated environmental services in our four reportable
business segments: Transportation and Disposal, Treatment and Recycling,
Environmental Services and Materials.  Additional financial
information regarding our reportable segments appears in Note 20 to our
consolidated financial statements as of and for the years ended
December 31, 2009 and 2008.




Transportation
and Disposal Segment




Disposal
of Urban Construction Site Materials




Our core
business is the management of excavated clean and contaminated soils, liquids
and other materials at urban construction projects in New York, New Jersey and
Pennsylvania for beneficial reuse. We provide transportation services through
subcontractors which we use to transport materials to various disposal
facilities throughout these areas. Our disposal network handles the following
types of facilities:




·
            clean
      soil reuse


·
            quarry
      reclamation


·
            landfill
      cover


·
            demolition
      debris


·
            hazardous
      waste


·
            residual
      waste


·
            contaminated
      soils reuse and recycling





We have
exclusive and preferred arrangements with several soil reuse facilities,
landfills and other disposal outlets, allowing us to offer our customers
competitive pricing on a variety of soils and waste types. These types of
agreements allow us to manage the various types of waste and quantities from our
customers into the most economical disposal outlets by providing fixed prices
over varying periods of time. Our technical staff is knowledgeable in waste
classification and the capabilities and limits of area soil reuse facilities,
which gives us the ability to provide our customers with a greater number of
disposal and cost options.




Landfill
Services




Currently,
New Jersey is burdened with over 300 abandoned landfills in need of
governmentally mandated attention. With restrictions on suburban sprawl taking
hold in New Jersey and increasing financial incentives available for cleanup of
contaminated sites, former landfills — many of which were closed in the 1970s
and 1980s for environmental reasons — and other contaminated lands are becoming
increasingly popular as sites for industrial, retail and residential
development. Recent legislation has extended the parameters within which closure
can be completed privately using beneficial reuse of new materials through New
Jersey’s Brownfield law. These landfill sites provide an outlet for recycled
material from our Treatment and Recycling facilities and from our other
customers, depending upon the level of contamination and type of waste
material.




10


Treatment
and Recycling Segment




Years of
heavy concentrated industrial activity in the northeastern United States have
created a large volume of residual waste that must be managed economically and
in compliance with solid waste regulations. Although each jurisdiction may have
a different definition of what may constitute residual waste, it is generally
defined as unprocessed garbage, refuse or other discarded material. Typically,
residual waste must either be beneficially reused or placed in a
landfill.




We
specialize in developing long-term beneficial reuses of residual waste in
response to market needs. Our technical specialists have developed an expertise
in beneficial reuse of wastes through years of experience in the area. We
provide services to transport, process and dispose of a variety of residual
waste streams, including:




·
            metal
      processing slags and spent sands


·
            inert
      filter cakes


·
            refinery
      tank bottoms


·
            biosolids


·
            coal
      tar soils


·
            demolition
      debris


·
            high
      BTU, or heat value, materials for alternative energy
    sources





We have
access to the following facilities available for residual waste
reuse:




·
            land
      application sites


·
            cement
      kilns


·
            asphalt
      plants


·
            landfill
      cover projects





We also
research and identify other residual waste reuse facilities for a particular
waste stream that we do not process ourselves. To be able to provide our
customers with cost- and time-efficient service, we seek to obtain and maintain
strategic partnerships with other facilities that process a wide variety of
residual wastes.




PE
Recycling owns and operates a parallel-flow thermal desorption unit, or TDU.
Thermal desorption is a process that uses heat to physically separate
contaminants from the soil.  This process is different from
incineration, which uses extreme heat to destroy the contaminants in the
soil.  Thermal desorption systems work well at, among other things,
separating organic components from refining wastes.  These systems can
separate solvents, pesticides, polychlorinated biphenyls, or PCBs, dioxins and
fuel oils from contaminated soil.  Thermal desorption generally does
not work on most metals, which require higher temperatures to vaporize the
metallic particles.  Nevertheless, thermal desorption is the treatment
method of choice at many Superfund sites.




Our TDU
treats mainly petroleum and coal tar contaminated soils by heating them in a
primary treatment unit, or PTU, to predetermined temperatures ranging from about
400 to 1,000 degrees Fahrenheit. The PTU consists of a rotary drum in which the
contaminated materials enter at the burner end of the PTU and the gases and hot
treated materials exit the opposite end.  At the appropriate and
predetermined temperature, the contaminants turn to vapor and separate from the
soil. At the soil discharge end of the PTU, clean, treated soil exits, which
after cooling is ready for re-use.




The
vaporized airborne contaminants exit the PTU and are subjected to further
heating in a secondary treatment unit, or STU. The STU thermally treats the
exhausted airborne contaminants from the PTU to predetermined temperatures
ranging from approximately 1,400 to 1,800 degrees Fahrenheit. The hydrocarbons
that were separated from the previously contaminated soils are then converted
into carbon dioxide and water vapor, which are then cooled and filtered through
a device called a baghouse. The baghouse collects and filters the fine, treated
soil dust that remains in the exhaust gases.




11


We
believe that our parallel-flow TDU system is safer than the conventional
counter-flow TDUs. The typical counter-flow system requires the baghouse to
follow the PTU and filter the airborne particulate from the exhaust gases prior
to the gases entering the STU. As a result, in a counter-flow system, the
evaporated hydrocarbon contaminants from the PTU can condense on the baghouse
bags, which can cause catastrophic fires in the baghouse.




Refinery
Services




We
believe the refinery industry is responding to increased demand for gasoline and
other fuels by investing capital obtained through higher fuel prices into
refinery expansion. Regulatory restrictions impact the handling and disposal of
these hazardous wastes. For example, U.S. environmental regulations require
incineration as the only method of disposal of these
materials.  Historically, an alternative was to transport these wastes
to Canada to be placed in a landfill.  The Province of Ontario has
enacted the Land Disposal Restriction Program, or LDR, which, effective January
1, 2010, requires that these waste materials be treated prior to being disposed
of into a landfill.  We believe PE Recycling is currently one of three
facilities in the United States, and the only facility in the Northeast, with
the proper permits to process this hazardous waste into non-hazardous reusable
material. We process this material through a centrifuge system to reclaim the
oil, discharge the water, and treat the solids. As a result of this process, we
can cause this material to be reclassified from a hazardous to a non-hazardous
status. Recycled oil from tank bottoms and other sources is sold to local
industrial furnaces as fuel blend stock or to cement kilns for use as
fuel.




In
March 2008, we formed PE Energy for the purpose of exploring the recycling
of wastes into alternative fuels on a “green” basis.  We have
identified a process of recycling of waste that had originally been destined for
landfills to be treated and transformed into a reusable, alternative fuel that
can be sold back to various industries. A specific and targeted application can
be used with cement kilns. This process has been successfully developed and
utilized in Europe and we believe it can successfully bring this process to the
US markets. We currently have one facility under agreement to begin installation
of this process in 2010.  Our business strategy to recycle high BTU
waste streams into alternative fuels is driven by our efforts to provide lower
cost recycling outlets and “green” recycling alternatives to customers seeking
price differentiation or demanding 100% recycling of their waste products, as
well as by the significantly higher cost of fossil fuels.




Many
waste streams have high BTU value but yet are currently being disposed of in
landfills. We believe that market demand exists for alternative commercial fuel
products that can be recycled from these high BTU wastes. We are seeking to
develop or acquire operations that will allow us to identify these wastes and
process them into a readily accepted alternative fuel, which then can be sold to
end users at a discounted price compared to fossil fuel prices. We believe that
many customers will seek to have their waste streams recycled and converted into
alternative energy fuels once they are educated as to the “green” and
cost-effective characteristics of these processes and materials.




Environmental
Services Segment




Engineering
and Consulting Services




We offer
environmental consulting and engineering services to industrial, commercial and
other third party clients. We also have several well drilling rigs used
exclusively in connection with providing consulting services to our customers.
We have designed and implemented programs that have blended technical, business
and compliance-related strategies on behalf of our clients. All of these
services are required for Brownfield site redevelopment. The projects that we
undertake range in size from simple one-time tasks, to multi-phase complex
engineering programs.




12


Medical
Waste Disposal




We have a
small medical waste collection and disposal business that services customers in
Connecticut and New York.




Brownfield
Site Redevelopment




We seek
to identify Brownfield sites that we can own, operate, control or develop to
provide disposal outlets to customers and facilities in the northeastern United
States, which in turn will place our services closer to their markets. We select
these Brownfield sites based upon cost, capacity, permit considerations and
proximity to these customers and facilities. At present, we currently own one
Brownfield site in central Connecticut. Subject to the availability of
resources, our goal is to identify and acquire additional Brownfield sites that
will complement our existing integrated environmental services.




Where
feasible, we intend to utilize our own Environmental Services, Transportation
and Disposal and Treatment and Recycling business segments to assist in these
efforts. By doing so, we will be able to perform the necessary work to
revitalize these properties on a more cost-effective basis. Our integrated
environmental services platform will allow us to conduct environmental
consulting and engineering work efficiently and reduce the amount of time needed
to rehabilitate the property. Further, our consulting and regulatory expertise
will help us to navigate among the relevant and numerous environmental
regulatory agencies, requirements and personnel without having to engage costly
outside consultants or contractors to do so. Ultimately, we intend to sell our
Brownfield sites as productive, usable land for industrial, commercial or
residential development, depending on the particular property and location. By
decreasing our costs of rehabilitation, we believe that our Brownfield site
redevelopment program will become a successful part of our overall business
strategy.




Materials
Segment




We
recognize the opportunity and value in recycling, reprocessing and reselling
materials that we remove from jobsites, especially to support “green”
construction efforts. We currently produce a variety of clean, recycled
construction materials for customers throughout our service area. For example,
we accept material such as large rock from construction sites. We then crush the
stone and aggregate from those materials at our rock crushing and recycling
facility in Lyndhurst, New Jersey and resell the recycled stone back to
contractors, wholesalers and retail construction materials
suppliers.




We
recycle and resell crushed stone (11/2”, 3/4” and 3/8” stone and stone
dust) and recycled aggregate, including dense grade aggregate.  All
materials offered for sale are intended to meet prevailing specifications for
their proper use.




Discontinued
Operations – Concrete Fibers




Effective
April 1, 2008, New Nycon, our wholly owned subsidiary, acquired certain of
the assets of Nycon, Inc.  As part of our acquisition of Nycon, we
entered into an exclusive, worldwide license agreement with the holder of
certain patented technology for making and using a produce line of concrete
fibers.  Upon entering into this license agreement, we paid the
licensor a fee of 15,000 shares of our common stock, which were placed in escrow
pending the satisfaction by New Nycon of certain financial objectives. We agreed
to pay the licensor a consulting fee of $7,740 per month for the first
12 months of the license agreement, and an annual royalty fee of 30% of the
earnings before taxes, depreciation and amortization generated by New Nycon’s
fiber and fiber-related products, equipment, technology and
services.




13


In
December 2009, we decided to discontinue the operations of New Nycon and began
to actively seek to sell the company or dispose of its assets and
liabilities.  See “— Development of Our Business and Significant
Acquisitions — Acquisition Related to Discontinued Operations.”  On
March 31, 2010, we completed the sale of substantially all of the assets and
liabilities of New Nycon.  In connection with the asset sale, we and
the licensor terminated the license agreement for no additional
consideration.  As a result of doing so, we also have deemed the
15,000 shares in escrow forfeited because the financial objectives were not
satisfied prior to the termination of the license agreement.




Impact
of 2009 Stimulus Plan




In
February of 2009, President Barack Obama and Congress approved a $787 billion
economic stimulus package that included among its list of priorities additional
funding of $120 billion for infrastructure and science and $37.5 billion for
energy.  We believe that the earmarking of funding for infrastructure
projects and renewable energy plans could have a positive impact on our future
operating results.  The most immediate effects of the stimulus plan
have been and are expected to continue to be in our Transportation and Disposal
segment, which benefits from the portion of the funding allocated to
construction and development projects in the northeastern United
States.  We currently have a backlog of approximately $4.0 million
relating to infrastructure and public works jobs in the northeastern United
States, as well as additional infrastructure and public work on which we are
currently bidding.




Other
significant impacts of this stimulus plan are expected to be in relation to our
Treatment and Recycling segment and the development of PE Energy, which is
currently exploring various initiatives to process selected energy materials and
provide technical support for the use of alternative fuels in an effort to
reduce costs, conserve fossil fuels and reduce the carbon footprint of the
energy consumer.  We believe that the additional funding allocated to
renewable energy and energy research should serve to assist us in the
development of our PE Energy initiatives by providing for access to additional
funding and incentives for companies to engage in increased renewable energy
strategies.




Raw
Materials




Our
Materials segment requires us to obtain raw material in the form of uncrushed
and unprocessed rock. We typically obtain this material from local construction
and excavating job sites, whereby the supplier pays us to dispose of the rock
taken away from the construction site. We believe that the current marketplace
contains a sufficient amount of raw materials, not from any one particular
supplier, to meet our supply needs for the Materials segment.




Sales
and Distribution




Transportation
and Disposal, and Materials Segments




Our
Transportation and Disposal and our Materials segments share an independent
sales force consisting of four representatives, as well as several other sales
personnel and consultants, with significant experience in the soil
transportation and disposal industry. This sales team utilizes publicly
accessible sources to identify companies with potential excavation,
transportation and disposal needs. These potential sales leads might include,
among others, construction contractors, tank contractors, remediation
contractors and environmental consultants. Once identified, members of our sales
team introduce themselves to these companies by direct contact. Our sales team
can assist potential customers in developing a cost-effective excavation,
transportation and disposal plan, in part by identifying a suitable disposal
matrix to various facilities for the materials. Factors that typically guide our
facility selection include tonnage, type and level of contaminants present,
jobsite location and geophysical characteristics of the site. Where appropriate,
our Transportation and Disposal segment’s sales force may also generate internal
leads for other of our segments, including Treatment and Recycling and
Materials.




Treatment
and Recycling Segment




Our
Treatment and Recycling segment is staffed by an internal sales force that
focuses on commercial, industry and refinery companies. This internal sales
force also focuses on construction, tank and remedial contractors who have
complex environmental projects requiring equipment and personnel on site to
facilitate the removal of wastes.




14


Environmental
Services Segment




Our
Environmental Services segment has several project managers who call on
engineers, consultants and contractors to market their services. They also
receive leads from sales personnel working for our other segments. On large and
complex projects, it may require several of our sales and marketing personnel
working together with company managers to sell and perform the services
necessary to complete the project on time and within cost
parameters.




Customer
Concentration




Our four
largest customers comprised approximately 20% of our consolidated revenues for
the year ended December 31, 2009 and three customers comprised 19% of our
consolidated revenues for the year ended December 31, 2008.




With
respect to our four current operating segments, our customer concentration was
as follows:




·
            Transportation and Disposal.Three customers accounted for approximately 22% of this segment’s
      revenues for the year ended December 31, 2009 and three customers
      accounted for 36% of its revenues for the year ended December 31,
      2008.




·
            Treatment and
      Recycling. Three customers accounted for approximately 34% of
      revenues in this segment for the year ended December 31, 2009. Five
      customers accounted for approximately 15% of revenues in this segment for
      the year ended December 31,
2008.




·
            Environmental Services.One customer accounted for approximately 13% of revenues in this
      segment for the year ended December 31, 2009. Two customers accounted for
      approximately 49% of revenues in this segment for the year ended
      December 31, 2008.




·
            Materials. Five
      customers accounted for approximately 31% of revenues in this segment for
      the year ended December 31, 2009. Two customers accounted for
      approximately 49% of such revenues for the year ended December 31,
      2008.




With
respect to our former Concrete Fibers segment that is now classified as
discontinued operations, one customer accounted for 11% of revenues in this
segment for the year ended December 31, 2009.  Three customers
accounted for 17% of revenues in this segment for the period from April 1,
2008, the date that this segment’s operations began, through December 31,
2008.




Competition




We
operate in highly competitive markets and face substantial competition in all
phases of operations from a variety of different competitors, depending on the
industry and service area. Within the waste treatment and recycling industry
generally, price, transportation logistics, processing capacity and liability
management are key decision drivers for potential clients. The following is a
description of key competitive factors for each of our reportable business
segments.




15


Transportation
and Disposal Segment




Our
Transportation and Disposal segment bases its pricing on the cost to dispose of
waste into landfills or other facilities and subcontractor costs, which are
impacted by the cost of fuel and the distance from the job site to the disposal
outlet. The Transportation and Disposal segment faces competition from other
similar trucking and disposal operations in the Northeast region, including
Andrews Trucking, Ltd., Impact Environmental, Clean Earth, Inc., Leticia, Inc.
and other smaller independent brokerage operations. We believe that our
Transportation and Disposal operations are competitive due to our long-standing
and existing contacts and customer relationships within the construction
industry, and particularly in the New York metropolitan area.




Treatment
and Recycling Segment




We
believe our Treatment and Recycling segment offers competitive pricing due to
the competitive cost structure of our recycling facilities, our ability to match
waste streams to the appropriate technology, and our ability to transform
contaminated wastes into reclaimed material for beneficial use. In addition, our
throughput capacity and source of cost-advantaged fill materials from our
Treatment and Recycling segment have allowed us to be in a position to capture
the larger recycling jobs in the Northeast region. Our current Treatment and
Recycling operations compete with those of, among others, Clean Earth, Inc.,
Clean Harbors, Inc., EMSI Services, Inc., Pure Soil Technologies, Inc. and Soil
Safe, Inc. We anticipate that our proposed operations to convert high-energy BTU
waste into alternative fuels will compete with the similar operations of Synagro
Technologies, Inc., New England Fertilizer Company, EnerTech Environmental,
Inc., Veolia Environnement and N-Viro International Corporation.




Environmental
Services Segment




Within
the Environmental Services segment, we believe we differentiate our operations
based on several key competitive factors, including the breadth of our service
offerings, price and track record. Our rehabilitation of Brownfields within this
segment is aided by the use of materials and soils from our other business
segments, which we believe will contribute to the success of this segment in
future periods. The Environmental Services segment faces competition from other
mid-size environmental consulting firms and real estate development companies,
some of which may also invest in and seek to rehabilitate Brownfield sites,
including Langan Engineering & Environmental Services, Roux Associates, Inc.
and Birdsall Engineering, Inc.




Materials
Segment




Our
Materials segment faces competition from construction and contracting companies
that also operate in the market for recycling construction material. The pricing
of our crushed rock products is dependent upon the supply and demand of the
construction industry in the New York metropolitan area for our products. Our
ability to compete in this segment is also dependent on our ability to obtain
unprocessed rock material from construction projects and excavation sites. We
believe that our Materials segment is well positioned to compete in this area
given the synergies created between this segment and our Transportation and
Disposal segment, which allow us to obtain and sell materials through the same
customer contacts. Our Materials segment competes with Haines & Kibblehouse,
Inc., Armored, Inc., Tilcon Connecticut Inc. and Tilcon New York
Inc.




Government
Regulation




Our
business is subject to extensive and evolving federal, state and local
environmental, health, safety and transportation laws and regulations. These
laws and regulations are administered by the EPA and various other federal,
state and local environmental, zoning, transportation, land use, health and
safety agencies in the United States. Many of these agencies regularly examine
our operations to monitor compliance with these laws and regulations and have
the power to enforce compliance, obtain injunctions or impose civil or criminal
penalties in case of violations.




Because
the major component of our business is the collection, disposal and beneficial
reuse of residual waste, we expect that a significant amount of our capital
expenditures will be related, either directly or indirectly, to environmental
protection measures, including compliance with federal, state and local laws.
For the years ended December 31, 2009 and 2008, we spent approximately $0.5
million and $0.4 million, respectively, on costs associated with complying
with federal, state and local environmental regulations.




16


Our
facilities are also subject to local siting, zoning and land use restrictions.
Although our facilities occasionally have been cited for regulatory violations,
except as described in “Item 3. Legal Proceedings — Environmental Matters,” we
believe that each of our facilities is in substantial compliance with the
applicable requirements of federal, state and local laws regulating our
business, the regulations thereunder, and the licenses which we have obtained
pursuant thereto.




Federal
Environmental Laws and Regulations




There are
many federal laws and regulations that have been enacted to regulate the
environment and human health and safety. The following section summarizes just a
few of the key federal laws and regulations that may affect our operations and
business.




RCRA




The
Resource Conservation and Recovery Act of 1976, or RCRA, is the principal
federal statute governing hazardous waste generation, treatment, storage and
disposal. The EPA administers compliance with RCRA and has adopted regulations
implementing RCRA. These regulations govern, among other things, the handling of
wastes classified as “hazardous.” The 1984 amendments to RCRA substantially
expanded its scope by, among other things, providing for the listing of
additional wastes as “hazardous” and providing for the regulation of hazardous
wastes generated in lower quantities than under previous law. Additionally, the
amendments impose restrictions on land disposal of certain hazardous wastes,
prescribe more stringent standards for hazardous waste land disposal sites, set
standards for underground storage tanks and provide for “corrective” action at
or near sites of waste management units. Under RCRA, liability and stringent
operating requirements may be imposed on a person who is either a “generator” or
a “transporter” of hazardous waste, or an “owner” or “operator” of a waste
treatment, storage, or disposal facility.




CERCLA




The
Comprehensive Environmental Response, Compensation and Liability Act of 1980, or
CERCLA, which is also known as “Superfund”, provides for federal authority to
respond directly to releases or threatened releases of hazardous substances into
the environment that have created actual or potential environmental hazards.
CERCLA imposes strict liability for cleanup of disposal sites upon current and
former site owners and operators, generators of the hazardous substances at the
site, and transporters who selected the disposal site and transported hazardous
substances thereto, and those who arranged for the disposal, treatment or
transport of such substances. Liability under CERCLA is not dependent on the
intentional disposal of hazardous substances; it can be based upon the release
or threatened release of hazardous substances as defined by CERCLA and other
applicable statutes and regulations, even as a result of lawful, unintentional
and non-negligent action. Liability may exist for damage to publicly owned
natural resources. We are subject to potential liability under CERCLA as an
owner or operator of facilities at which hazardous substances have been disposed
or as a generator, arranger or transporter of hazardous substances disposed of
at other locations.




Hazardous
Materials Transportation Act




The
Hazardous Materials Transportation Act, or HMTA, aims to protect the public
against the risks to life and property inherent in the transportation of
hazardous materials in commerce.  The HMTA empowers the Secretary of
Transportation to designate as hazardous material any “particular quantity or
form” of a material that “may pose an unreasonable risk to health and safety or
property.”  By regulation, the HMTA generally applies to persons, who,
among other things, transport or cause to be transported hazardous materials in
commerce.  Under the HMTA, the transportation of hazardous materials
in commerce requires a shipper to:




17


·
            use
      Department of Transportation-approved
  containers;


·
            properly
      mark and label those containers;


·
            use
      specified shipping papers; and


·
            properly
      placard vehicles carrying hazardous
materials.




Penalties
for violating the HMTA can include compliance orders, civil penalties, and
injunctive relief.  Civil penalties may range from $250 to $50,000 per
violation, and each day of occurrence is considered to be a separate
violation.




Clean
Air Act




The Clean
Air Act was initially passed by Congress in 1955 to control the emissions of
pollutants into the air. This law requires permits to be obtained for certain
sources of toxic air pollutants, such as vinyl chloride, or criteria pollutants,
such as carbon monoxide. In 1990, Congress amended the Clean Air Act to require
further reductions of air pollutants with specific targets for non-attainment
areas in order to meet certain ambient air quality standards.  These
amendments also require the EPA to promulgate regulations that control emissions
of 189 hazardous air pollutants, create uniform operating permits for major
industrial facilities similar to RCRA operating permits, mandate the phase-out
of ozone depleting chemicals, and provide for enhanced enforcement. The Clean
Air Act requires the EPA, working with the states, to develop and implement
regulations that result in the reduction of volatile organic compound emissions
and emissions of nitrogen oxides in order to meet certain ozone air quality
standards specified by the Clean Air Act.




Clean
Water Act




The Clean
Water Act establishes the basic structure for regulating discharges of
pollutants into the waters of the United States and regulating quality standards
for surface waters. The Clean Water Act prohibits discharges into the waters of
the United States without governmental authorization and regulates the discharge
of pollutants into surface waters and sewers from a variety of sources,
including disposal sites and treatment facilities. Under the Clean Water Act,
the EPA has implemented pollution control programs such as setting wastewater
standards for industry and water quality standards for contaminants in surface
waters. The EPA’s National Pollutant Discharge Elimination System permit program
controls discharges. Industrial, municipal and other facilities must obtain
permits if their discharges go directly to surface waters.




Under the
authority of the Clean Water Act, the EPA has also adopted the Oil Pollution
Prevention regulations that set forth requirements for prevention of,
preparedness for, and response to oil discharges at specific
non-transportation-related facilities. To prevent oil from reaching navigable
waters and adjoining shorelines, and to contain discharges of oil, the
regulation requires these facilities to develop and implement spill prevention,
control and countermeasure plans and establishes procedures, methods and
equipment requirements. In 1990, the Clean Water Act was amended to require some
oil storage facilities to prepare facility response plans that direct facility
owners or operators to prepare and submit plans for responding to a worst-case
discharge of oil. While our PE Recycling operations have had an oil spill plan
in place for approximately 18 years with the New Jersey Department of
Environmental Protection, or NJ DEP, we have recently been charged by the EPA
with not having an EPA-approved facility response plan in place. We are
currently working with the EPA to address this matter to the satisfaction of
both parties.  See “Item 3. Legal Proceedings — Environmental
Matters.”




OSHA




The
Occupational Safety and Health Act of 1970 establishes certain employer
responsibilities, including maintenance of a workplace free of recognized
hazards likely to cause death or serious injury, compliance with standards
promulgated by the Occupational Safety and Health Administration, or OSHA, and
various record keeping, disclosure and procedural requirements. Various
standards for notices of hazards, safety in excavation and demolition work and
the handling of asbestos, may apply to our operations. The Department of
Transportation and OSHA, along with other federal agencies, have jurisdiction
over certain aspects pertaining to safety, movement of hazardous materials,
movement and disposal of hazardous waste and equipment standards. Various state
and local agencies have jurisdiction over disposal of hazardous waste and may
seek to regulate hazardous materials in areas not otherwise preempted by federal
law.




18


State
and Local Regulations




There are
also various state and local regulations that affect our operations. State law
and regulations can be stricter than comparable federal laws and regulations
when they are not otherwise preempted by federal law. Currently primarily all of
our business is conducted in the Northeastern region of the United States,
specifically New York, New Jersey, Pennsylvania and Connecticut. Accordingly, we
must comply with those states’ requirements for recycling, transporting, storing
and disposing of regulated wastes and other substances, and, when necessary,
obtain licenses for recycling, processing, treating and storing such wastes at
our facilities.




Pennsylvania
Surface Mining Conservation and Reclamation Act




Our mine
reclamation activity in Pennsylvania is governed by Pennsylvania’s Surface
Mining Conservation and Reclamation Act, or SMCRA. The SMCRA provides for the
conservation and improvement of land affected by the surface mining of coals and
metallic and nonmetallic minerals. Through the SMCRA, the Environmental Quality
Board, or EQB, is authorized to propose regulations for the administration of
the reclamation and mining program by the Pennsylvania Department of
Environmental Protection, or the PA DEP. The EQB’s regulations include a
comprehensive system for operators of mines to obtain a permit and post the
required bond. The regulations describe the procedures for obtaining a permit,
such as providing public notice and allowing for public objection, and the
payment of permit and reclamation fees. The regulations also contain the
criteria for permit approval or disapproval.




Permit
applications must contain detailed information on the affected area’s
environmental resources, its geology, hydrology, vegetation, fish and wildlife,
land use and viability as farmland. The applicant must also describe in detail
all proposed mining and reclamation activities, including the procedures to be
used, a timetable of the operation broken into discrete phases, blasting and
topsoil disposal plans, projected costs, and proposals for restoring vegetation.
This explanation must include the applicant’s strategy for preserving the
hydrologic balance, preventing soil erosion, controlling air pollution, and
maintaining the region’s geology and wildlife. In addition, the applicant’s
activities are regulated by environmental protection performance standards that
give specific instructions for topsoil removal and redistribution, maintenance
of the hydrologic balance, the use of explosives, revegetation, and the
preservation of prime farmland. Additional rules apply to the remining of areas
with pollutional discharges. These rules require enhanced monitoring of the
region’s geology and hydrology, as well as the implementation of an abatement
plan to eliminate further pollution.




Prior to
obtaining a permit, the mine operator also must file with the PA DEP a bond for
the land affected by each operation. The amount of the bond required is
determined by the PA DEP based upon the total estimated cost to Pennsylvania of
completing the approved reclamation plan. Liability under the bond will continue
for a period of five years after reclamation is completed.




Voluntary
Cleanup Programs




Where
advantageous, we will seek to participate in voluntary cleanup programs in
states that offer them. By allowing focused investigations and alternative
cleanup standards, some of these programs may enable us to rehabilitate
Brownfield sites in a more flexible and cost-effective manner than might
otherwise be the case.  Satisfying the requirements of such programs
may not, however, insulate us from all liability for pre-existing contamination
at these sites.




19


Licenses
and Permits




In
connection with our acquisition, development or expansion of a facility, we must
spend considerable time, effort and money to obtain or maintain required permits
and approvals. There cannot be any assurances that we will be able to obtain or
maintain necessary governmental approvals. Once obtained, operating permits are
subject to modification, suspension or revocation by the issuing agency.
Compliance with these and any future regulatory requirements could require us to
make significant capital and operating expenditures. However, most of these
expenditures are made in the normal course of business and do not place us at
any competitive disadvantage.




We hold a
number of permits, licenses and approvals, which allow us to operate in certain
states or jurisdictions and to perform certain activities that require
governmental approval. These permits and licenses are primarily held by PE
Recycling and consist of the following types of licenses, among
others:




·
            hazardous
      waste storage and transfer permits;




·
            recycling
      center approvals;




·
            pollution
      control and discharge permits and approvals;
and




·
            environmental
      laboratory permits.




We
believe that we have acquired the necessary permits required by governmental
authorities in order to conduct our current business operations. These permits
were appraised and valued at $2.2 million on March 30, 2007 in connection
with the acquisition of PE Recycling. Once issued, our licenses have maximum
fixed terms of a given number of years, which differ from state to state,
ranging generally from three to ten years, and are generally renewable for an
additional term or terms. The issuing state agency may review, modify or revoke
a license at any time during its term. We anticipate that once a license is
issued with respect to a facility, the license will be renewed at the end of its
term if the facility’s operations are in compliance with applicable
requirements. However, there can be no assurance that regulations governing
future licensing will remain static, or that we will be able to comply with such
requirements.




PE
Recycling has several permit modifications in process to significantly improve
our ability to accept, manage and treat different types of waste. For example,
we have applied to expand our hazardous material permit to allow us to treat and
control certain government-regulated emissions that were not previously covered
by this permit. We have also submitted numerous proposals to expand our existing
New Jersey Class B recycling permit, which, if approved, would allow us to
increase two-fold our daily volume, product storage and production capacity at
PE Recycling.




We are
also in the process of obtaining zoning permits for our Brownfield site located
in central Connecticut. The property is currently zoned for general Brownfield
redevelopment, but we are required to obtain approval for our specific
activities on the property. We are also currently seeking a pollutant discharge
permit from the EPA, which permit would specify the acceptable level of
pollutants that may be present in the wastewater discharged from the
site.




Product
Liability and Warranties




Our
operations involve providing crushed stone, crushed aggregate and recycled oil,
which are all products that must meet, or be used in products that must meet,
various codes or other regulatory requirements and contractual specifications.
If we fail or are unable to provide products that meet these requirements and
specifications, damage to life or property may occur, material claims may arise
against us and our reputation could be damaged.  We expect that in the
future there may be claims of this kind asserted against us. If a significant
product-related claim is resolved against us in the future, that resolution may
have a material adverse effect on our business, financial condition, results of
operations and cash flows.




20


Insurance
and Financial Assurance




Insurance




Our
insurance programs cover the potential risks associated with our operations from
two primary exposures: direct physical damage and third party liability. Our
insurance programs are subject to customary exclusions.




We
maintain a casualty insurance program providing automobile coverage and
commercial general liability insurance in the amount of $1.0 million per
occurrence and $2.0 million in the aggregate per year, subject to a $1,000
per occurrence deductible. As part of this liability insurance coverage, we have
obtained pollution liability and professional liability insurance coverage to
protect us from potential risks in three areas:




·
            as
      a contractor performing services at customer
  sites;




·
            as
      a transporter of waste; and




·
            for
      waste processing and recycling at our
  facilities.




We
maintain coverage of $1.0 million per occurrence and $1.0 million in
the aggregate per year, covering third party bodily injury, property damage,
remedial activities and associated liabilities for all operations performed by
or on behalf of us. In addition to these coverages, we have obtained umbrella
liability coverage of $10.0 million per occurrence and $10.0 million
in the aggregate per year.




As part
of our operations, we may be required to maintain designated levels of product
liability insurance, which would generally apply to our Materials segment. We
currently maintain product liability insurance in the amount of up to
$2.0 million in the aggregate which, based on our experience and industry
practice, we believe to be adequate for our present operations. No assurance can
be given that our insurance coverage will be sufficient to fully insure against
all claims that may be made against us. Any failure to maintain product
liability insurance when we are required to do so could harm our business and
operations.




Federal
and state regulations require liability insurance coverage or other financial
assurance mechanisms for facilities that treat, store or dispose of hazardous
waste. For example, RCRA and comparable state hazardous waste laws typically
require hazardous waste handling facilities to maintain pollution liability
insurance in the amount of $1.0 million per occurrence and
$2.0 million in the aggregate for both gradual and sudden occurrences. We
have a policy insuring our treatment, storage and disposal activities that meets
the regulatory requirements.




Under our
insurance programs, coverage is obtained for catastrophic exposures, as well as
those risks required to be insured by law or contract. It is our policy to
retain a significant portion of certain expected losses related primarily to
employee benefit, workers’ compensation, commercial general and vehicle
liability. Provisions for losses expected under these programs are recorded
based upon our estimates of the aggregate liability for claims. We believe that
policy cancellation terms are similar to those of other companies in other
industries.




Financial
Assurance




We are
required to have escrow accounts in which we deposit funds in the event of
closure and post-closure events involving waste management
facilities.  As of December 31, 2009, we had an aggregate of $0.3
million in these escrow accounts.  We do not maintain any letters of
credit or bonds that specifically support these obligations.




21


Intellectual
Property




We
actively seek and in the future will continue to seek, when appropriate and
available, protection for our products and proprietary information by means of
U.S. and foreign patents, trademarks, trade names, trade secrets, copyrights and
contractual arrangements. We believe that we hold adequate rights to all of our
intellectual property used in our business and that we do not infringe upon any
intellectual property rights held by other parties. We have invested
significantly in the development of technology and have established an extensive
knowledge of the leading technologies, which we incorporate into the products
and services that we offer and provide to our customers. Specifically, we rely
upon confidentiality and non-disclosure agreements with our joint venture
partner, customers, employees, consultants and other third parties, where
appropriate, to protect our confidential and proprietary information. To the
extent that we rely on confidentiality and non-disclosure agreements and trade
secret protections, there can be no assurance that our efforts to maintain the
secrecy of our proprietary information will be successful or that third parties
will not develop similar inventions, works or processes
independently.




Employees




As of
December 31, 2009, our consolidated operations had 125 full-time employees and
one part-time employee.   Of these employees, 10 represent
executives and management and 22 are employed in administrative and accounting
roles. The remaining individuals are employed in operational, sales and
technical services roles.  All of our subsidiaries’ employees are
employed directly by each respective subsidiary.




As of
December 31, 2008, Juda had a collective bargaining agreement with Teamsters
Local 282, I.B.T., a local affiliate of the International Brotherhood of
Teamsters, expiring in June 2009. As a result of our initiative to
subcontract trucking operations for the Transportation and Disposal segment to
third parties, only one employee previously located at our Bronx, New York
facility was covered under this agreement as of December 31, 2008.  At
its expiration, in June of 2009, we did not renew this collective bargaining
agreement and as of December 31, 2009, we do not believe this collective
bargaining agreement is currently in force. We believe that we had and continue
to have a good relationship with both our union and non-union
employees.




Item
1A.  Risk Factors.




This section sets forth the material risks we face in our
business and the risks in investing in us and our securities.  The
risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. If any of
these risks or uncertainties actually occur, our business, financial condition
and results of operations could be materially and adversely affected. In that
case, the value of our securities could decline substantially.




You
should carefully consider the risks described below in conjunction with the
other information in this annual report on Form 10-K and our consolidated
financial statements included in it.  The risks discussed below also
include forward-looking statements, and our actual results may differ
substantially from those discussed in, or implied by, the forward-looking
statements. See “Item 1.  Business — Forward-Looking
Statements.”




Risks
Inherent in Our Business




Challenges
posed by the current economic environment may materially and adversely affect us
or our stock price.




The
recent and current challenges in the U.S. and foreign credit markets have
negatively impacted the business environment at large. Upheaval among investment
banking firms, tightened lending standards and the actual, potential or
perceived insolvency, bankruptcy or governmental seizure of financial
institutions or their assets, may prevent us from being able to predict the
terms, if any, under which we will be able to obtain new or refinance existing
indebtedness or otherwise raise additional debt or equity capital, should we
desire or need to do so.




22


Former
President George W. Bush signed into law the Emergency Economic Stabilization
Act of 2008, or EESA, on October 3, 2008.  Pursuant to EESA, the
Secretary of the U.S. Treasury established the Troubled Asset Relief Program, or
TARP, to purchase from financial institutions up to $700 billion of residential
or commercial mortgages and any securities, obligations or other instruments
that are based on or related to such mortgages, which in each case was
originated or issued on or before March 14, 2008.  In addition, under
TARP, the U.S. Treasury could purchase any other financial instrument deemed
necessary to promote financial market stability. However, the U.S. Treasury is
not obligated to do so, and has expressed both negative and positive views
regarding the use of limited TARP program funds to purchase illiquid
assets.




In
response to the continued economic crisis, President Barack Obama signed the
American Recovery and Reinvestment Act of 2009, or ARRA, into law on February
17, 2009.  The ARRA is intended to create jobs and stabilize the
economy by modernizing infrastructure, enhancing the United States’ energy
independence, expanding educational opportunities, preserving and improving
health care, and providing tax relief, among other things.




While
some improvements in the condition of the credit and debt markets have been
observed in the latter part of 2009 and into the first quarter of 2010, there
can be no assurance that the ARRA or EESA will have a beneficial impact on the
financial markets, real estate markets or the general economy.  The
ultimate effects of both laws on the financial markets and the economy in
general could materially and adversely affect our business, financial condition
and results of operations, or the trading price of our common
stock.




Our
customers and vendors may be faced with similar challenges, and they may also
experience serious cash flow problems. Customers may modify, delay or cancel
plans to use our environmental services or purchase our recycled construction
materials or concrete fibers, and vendors, suppliers or others with whom we do
business may significantly and quickly increase their prices or reduce their
output. Any inability of current or potential customers to pay us for our
services or products or any increases in the costs we incur to generate such
revenues or to operate our business may materially and adversely affect our
earnings and cash flow.




We
may need additional financing and may not be able to raise funding on favorable
terms or at all, which could increase our costs, limit our ability to operate or
grow our business and dilute the ownership interests of existing
stockholders.




We
require substantial working capital to fund our business.  We believe
that our current working capital, including our existing cash balance, together
with our future cash flows from operations and available borrowing capacity
under our line of credit, will be adequate to support our current operating
plans at least until December 31, 2009, based on several large committed jobs
within the Transportation and Disposal segment which are scheduled to begin in
April and May of 2010.  If we experience significant delays associated
with these jobs or are unable to begin this work as scheduled due to unforeseen
circumstances, we may need to seek additional sources of
financing.  If necessary, we would seek such future financing from
sources of public or private debt and equity.  There can be no
assurance such financings will be available on terms favorable to us or at
all.




The
negative conditions  in the equity and debt markets, the tightening of
the credit markets and the general economic slowdown in the United States has
made it difficult for us to raise additional capital or obtain additional
financing, and we expect these trends to continue to varying degrees in
2010.  Our inability to raise additional financing when necessary or
desired could adversely affect our ability to maintain, develop or enhance our
services and operations, take advantage of future opportunities, respond to
competitive pressures or continue operations.  If additional financing
is required but not available, we would have to implement further measures to
conserve cash and reduce costs, including limiting or reducing our business
operations and considering the sale or disposal of non-productive or
under-productive assets or operations.  However, there is no assurance
that any such measures would ultimately be successful.




23


Although
we believe that the lender under our current line of credit will be able to
provide financing in accordance with its contractual obligations, the current
economic environment may adversely impact our ability to access these funds on
reasonable terms (or at all) in a timely manner.  Continued
disruptions in the credit markets also may negatively affect the ability of our
customers and suppliers to conduct business on a normal basis.  The
deterioration of our future business performance, beyond our current
expectations, could also result in our non-compliance with applicable covenants
under our debt and Series B Preferred Stock.




To the
extent any future financings involve the issuance of equity securities, existing
stockholders could suffer significant dilution.  If we raise
additional financing through the issuance of equity, equity-related or debt
securities, those securities may have rights, preferences or privileges senior
to those of the rights of our common stock or may be convertible into or
exchangeable for a significant amount of our common stock, and thus our existing
stockholders may experience substantial dilution of their ownership interests as
a result of such additional financing.




We
have a relatively limited operating history on which to base an analysis of our
future performance.




We had
been a development stage company with no active business from our formation in
1997 until we acquired our wholly owned subsidiary, South Jersey Development,
Inc. (now known as Pure Earth Materials, Inc.) in January 2006, at which
time we began to operate our environmental services business.  As a
result, we have a relatively limited operating history upon which investors may
base an evaluation of our potential future performance.  As a result,
there can be no assurance that we will be able to develop consistent revenue
sources, or that our operations will be profitable.  Our prospects
must be considered in light of the risks, expense and difficulties frequently
encountered by companies in a relatively early stage of development. Such risks
include, but are not limited to:




·
            operating
      under an evolving business model;




·
            developing
      our business plan;




·
            managing
      growth;




·
            ensuring
      positive relationships with federal, state and local governmental
      authorities;




·
            complying
      with federal, state and local environmental
  regulations;




·
            operating
      in a competitive business market;




·
            maintaining
      our properties, equipment and
facilities;




·
            staying
      abreast of, and being able to acquire and utilize, the latest
      technological advances in the environmental services industry;
      and




·
            being
      able to locate suitable properties for
  redevelopment




We must,
among other things, determine appropriate risks, rewards and level of investment
in each project, respond to economic and market variables outside of our
control, respond to competitive developments and continue to attract, retain and
motivate qualified employees. There can be no assurance that we will be
successful in meeting these challenges and addressing such risks and the failure
to do so could have a materially adverse effect on our business, results of
operations and financial condition.


24


To
date, we have had fluctuating operating results, including net losses, and we
cannot guarantee that we will be profitable in the future.




We
incurred net losses available to common stockholders of approximately $6.9
million for the year ended December 31, 2009 and $3.0 million for the
year ended December 31, 2008.  We will need to, among other
things, improve our gross margins and revenues to regain and maintain
profitability, and we cannot give any assurances that we will be able to do so.
If we are unable to raise sufficient capital to support our expenses, or if we
cannot manage or control our cost of revenues or operating expenses where
feasible or appropriate, we may not be able to operate profitably and our
financial performance and results of operations would be adversely
affected.




Our
results of operations depend on new contract awards, and the selection process
and timing for performing these contracts are not within our
control.




A
substantial portion of our revenues is directly or indirectly derived from new
contract awards of domestic projects. It is difficult to predict whether and
when we will receive such awards due to the lengthy and complex bidding and
selection process, which is affected by a number of factors, such as market
conditions, financing arrangements, governmental approvals and environmental
matters. Because a significant portion of our revenues is generated from large
projects, our results of operations and cash flows can fluctuate from quarter to
quarter depending on the timing of our contract awards. In addition, many of
these contracts are subject to client financing contingencies and environmental
permits, and, as a result, we are subject to the risk that the customer will not
be able to timely secure the necessary financing and approvals for the project,
which could result in a significant delay or the cancellation of the proposed
project. Finally, current market conditions and restrictions on capital
available for construction may mean that there are materially fewer contracting
opportunities available to us.




Demand
for our products and services is cyclical and vulnerable to sudden economic
downturns and reductions in private industry. If general economic conditions
continue to weaken and current constraints on the availability of capital
continue, then our revenues, profits and our financial condition may rapidly
deteriorate.




The
industries we serve historically have been, and will likely continue to be,
cyclical in nature and vulnerable to general downturns in the domestic economy.
Consequently, our results of operations have fluctuated, and may continue to
fluctuate depending on the demand for products and services from these
industries.




Due to
the current economic downturn caused by the decline in the real estate and
credit markets, many of our customers have faced, and will continue to face,
considerable budget shortfalls or may delay capital spending that may decrease
the overall demand for our services.  In addition, our clients have
experienced increasing difficulty to obtain cash to fund their operations or
raise capital in the future due to substantial limitations on the availability
of credit and other uncertainties in the municipal and general credit markets.
Also, global demand for commodities has increased raw material costs, which
increases the overall project cost and more rapidly depletes the funds already
allocated to be spent on projects.




In
addition, during 2009 our clients have demanded better pricing terms, and their
ability to timely pay our invoices may be affected by a continuing weakened
economy.  We expect these trends to continue for much of
2010.  Our business traditionally lags any recovery in the economy;
therefore, our business may not recover immediately upon any economic
improvement. If
the economy were to weaken further, then our revenues, net income and overall
financial condition may deteriorate.


25


We
may be required to record material charges against our earnings due to any
number of events that could cause impairments to our assets.




In
accordance with generally accepted accounting principles, we capitalize certain
expenditures and advances relating to disposal site development, expansion
projects, acquisitions and other projects.  Events that could, in some
circumstances, lead to an impairment include, but are not limited to, shutting
down a facility or operation, abandoning a development project, the denial of an
expansion permit or the non-use of assets.  If we determine a
development or expansion project is impaired, we will charge against earnings
any unamortized capitalized expenditures and advances relating to such facility
or project reduced by any portion of the capitalized costs that we estimate will
be recoverable, through sale or otherwise.  We may be required to
incur charges against earnings if we determine that events such as those
described cause impairments.  Any such charges could have a material
adverse effect on our results of operations.




If
we were required to write down all or part of our goodwill, our net earnings and
net worth could be materially adversely affected.




We had
$0.8 million of goodwill recorded on our consolidated balance sheet at December
31, 2009. Goodwill represents the excess of cost over the fair market value of
net assets acquired in business combinations. If our market capitalization drops
significantly below the amount of net equity recorded on our balance sheet, it
might indicate a decline in our fair value and would require us to further
evaluate whether our goodwill has been impaired. We also perform an annual
review of our goodwill to determine if it has become impaired, in which case we
would write down the impaired portion of our goodwill. If we were required to
write down all or a significant part of our goodwill, our net earnings and net
worth could be materially adversely affected.




We
may seek to grow our business through the acquisition of other environmental
services companies, which strategy may expose us to a variety of
risks.




We have
historically grown our business in part through a strategy of acquiring existing
businesses and forming new ones.  Competition for acquiring attractive
facilities and businesses in our industry is substantial.  When we
seek to continue to grow further through acquiring other businesses, we may
experience difficulty in identifying suitable acquisition candidates or in
completing selected transactions.  From time to time, we may be in
discussions to acquire either the assets or stock of companies in the
environmental services industry those companies. No assurances can be given that
we will be successful in completing any acquisitions or integrating acquired
companies into our business, and we may not derive a profitable rate of return
from these acquisitions.




If we are
able to identify acquisition candidates, such acquisitions may be financed with
substantial debt or with potentially dilutive issuances of equity
securities.  Our ability to successfully complete acquisitions in the
future may also depend on the continued availability of financing.  We
cannot assure you that financing for acquisitions will be available on terms
acceptable to us, if at all.  Additionally, with respect to some of
our acquisitions, governmental, lender, investor or other third-party approvals
may be required and there can be no assurance that we will receive such
approvals.




We
have grown quickly and if we fail to manage our growth, our business could
suffer.




Since
January 2006, we have rapidly expanded our operations and anticipate that
further significant expansion, including the possible acquisition of third-party
assets, technologies or businesses, will be required to address potential growth
in our customer base and market opportunities. This expansion has placed, and is
expected to continue to place, a significant strain on our management,
operational and financial resources. If we are unable to manage our growth
effectively or if we are unable to successfully integrate any assets,
technologies or businesses that we may acquire, our business could be affected
adversely.




If
we fail to successfully integrate our recent and future acquired facilities and
businesses, our financial performance may be adversely affected.




The
implementation of new ownership, management teams and business strategies in a
newly acquired business, including those we have recently acquired, frequently
involves risks, expenses and uncertainties that may adversely affect our
business, results of operations, financial condition and
prospects.  See “ Item 1.  Business – Development of Our
Business and Significant Acquisitions.”  Since selectively pursuing
strategic acquisitions remains a part of our overall business strategy, any
acquisitions we make could result in:


26


·
            difficulty
      integrating our operations, services, products, technologies, financial
      controls and information systems with those of the acquired
      business;




·
            difficulty
      in managing and operating numerous businesses in different geographic
      locations;




·
            diversion
      of capital and management’s attention away from other business
      issues;




·
            an
      increase in expenses and working capital
  requirements;




·
            failure
      to achieve potential revenue enhancements, cost savings and other expected
      benefits of the acquisition as rapidly or to the extent anticipated by us
      or others;




·
            payment
      of acquisition consideration that exceeds the fair value of the acquired
      business for purposes of our financial statements, resulting in the
      recognition of goodwill that must be continually reviewed for impairment
      and may potentially be written down or written off
    altogether;




·
            our
      inability to apply to the acquired business controls and procedures we are
      and will be required to establish as an SEC reporting
    company;




·
            potential
      loss of management, key employees and customers of facilities or
      businesses we acquire; and




·
            financial
      risks, such as:




o
            potential
      liabilities of the facilities and businesses acquired, including
      employees;




o
            ongoing
      cash or equity payment obligations, which may not directly relate to our
      economic or financial performance;




o
            our
      assumption of debt, liabilities or other obligations of the acquired
      company, and other financial risks;




o
            the
      impact of impairment charges that we may need to recognize, and other
      expenses that we may incur, with respect to tangible and intangible assets
      of the acquired business;




o
            the
      need to incur additional indebtedness;
and




o
            dilution
      to existing security holders if we issue additional equity
      securities.




We may
not successfully integrate any operations, technologies, systems, products or
services that we acquire, and we cannot assure you that our recent or future
acquisitions will be successful. If our recent or future acquisitions are not
successful, it is likely that our financial performance will be adversely
affected.


27


We
have assumed liabilities associated with businesses and assets we have acquired,
which may expose us to additional risks and uncertainties that we would not face
if the acquisitions had not occurred.




As a
result of many of our previous acquisitions, we have succeeded to liabilities
associated with the businesses and assets we have acquired. As a result, we have
assumed, among other things:




·
            environmental
      risks and liabilities related to the operation of the acquired assets,
      properties and facilities;




·
            existing
      litigation, claims and tax liabilities involving the acquired
      business;




·
            existing
      debt, payables and other liabilities of the acquired
    business;




·
            liens
      and mortgages on acquired assets;
and




·
            employee
      and employee benefit obligations and liabilities, and obligations pursuant
      to collective bargaining
agreements.




In
addition to the risks set forth above, we may discover additional information,
risks or uncertainties about these businesses that may adversely affect us.
Following an acquisition, we may have no recourse under applicable
indemnification provisions for any of these risks or liabilities, and thus we
may be responsible to pay unforeseen additional expenses and costs. Based on all
of the foregoing liabilities, risks and uncertainties, there can be no assurance
that these acquisitions will not, in fact, have a negative impact on our
financial results.




The
significant future liquidity and capital needs of our acquired companies,
together with our current agreements, commitments and contingencies to fund
those needs and to repay obligations we incurred or assumed in the acquisitions,
may have a negative impact on our earnings and cash flow.




Many of
the companies or assets we have acquired, such as PE Recycling and our current
Brownfield site, have required us and will continue to require us to make
substantial future contributions to support their needs for property, machinery,
equipment and other capital expenditures and working capital needs. Some of
these acquisitions require us to provide future capital infusions to them at
stated times or from time to time, or to assume and repay indebtedness of the
acquired company or their affiliates. We must continue to provide these
companies with the necessary capital they need to develop and sustain their
business and operations, and to pay any assumed obligations as and when they
come due. Doing so, however, will drain precious financial and other resources
from our other objectives and activities, and there is no assurance that our
management will successfully allocate our resources among our product lines and
potential products. Our failure to do so successfully may have a harmful effect
on our financial condition, results of operations and ability to succeed as to
our business strategy.




Certain
investors may have significant influence over our capital raising
efforts.




The
holder of our Series B preferred stock has certain control over our ability
to raise debt and equity capital in the future.  For certain and
varying periods of time, the terms of the Series B preferred stock and the
related warrant and other agreements include limitations on our ability
to:




·
            issue
      common stock or common stock equivalents, by requiring us first to satisfy
      our investors’ preemptive rights;




·
            incur
      secured or unsecured indebtedness;




·
            dispose
      of our assets or enter into sale-leaseback
  transactions;


28




·
            issue
      shares of preferred stock senior or equal in rank to our outstanding
      series of preferred stock; and




·
            issue
      common stock or common stock equivalents to Mr. Alsentzer, our
      President and Chief Executive Officer, and Mr. Kopenhaver, our
      Executive Vice President and Chief Financial Officer, for less than fair
      market value.




These
rights may inhibit or prevent us from entering into certain capital raising
transactions that we may believe necessary or desirable for the growth of our
business or our continued operations. Alternatively, the operation of these
rights may increase the cost of entering into future capital raising
transactions. The existence and enforcement of these rights may have a material
adverse effect on us and our financial condition.




The
holders of our Series B preferred stock and Series C convertible preferred
stock also have registration rights that last as long as 10 years from the date
of the agreement. These investors may require us to file registration statements
under the Securities Act of 1933 with the SEC to register shares of common stock
underlying the warrant sold as part of the Series B preferred stock offering and
underlying the Series C convertible preferred stock. We must also seek to obtain
the effectiveness of the registration statement, and to maintain such
effectiveness for specified periods of time. These registration rights may make
it more difficult for us to raise capital by depressing the market price of our
stock and by providing a significant risk of future dilution in the market for
our common stock. Further, we may enter into financing arrangements in the
future that may contain similar or other limitations on our ability to raise
capital or issue debt or equity securities should we ultimately decide that we
need or want to do so.




Our
substantial indebtedness, including our Series B preferred stock, could
adversely affect our ability to complete future acquisitions, grow our business
and obtain new capital.




We now
have, and will continue to have for the foreseeable future, a significant amount
of debt. As of December 31, 2009, we had approximately $14.0 million of
total debt outstanding, including $5.4 million of obligations under our
Series B preferred stock that we are required to classify as a liability
for accounting purposes. The remaining portion of the $6.3 million received in
the Series B preferred stock issuance was allocated to a warrant with a
contingent redemption provision, which was issued in connection with this
transaction. The fair value of this warrant as of December 31, 2009 was $0.4
million. The degree to which we are leveraged could have important adverse
consequences to us, limiting management’s choices in responding to business,
economic, regulatory and other competitive conditions. In addition, our ability
to generate cash flow from operations sufficient to make scheduled payments on
our debts as they become due will depend on our future performance, our ability
to successfully implement our business strategy and our ability to obtain other
financing. Our indebtedness could also adversely affect our financial
position.




Our
substantial indebtedness could have important consequences to us and our
investors. For example, it could:




·
            make
      it more difficult for us to acquire additional companies or assume debt in
      connection with such acquisitions;




·
            make
      it more difficult for us to continue to satisfy our obligations under our
      existing and any future
indebtedness;




·
            increase
      our vulnerability to general adverse economic and industry
      conditions;




·
            limit
      our ability to fund future working capital, capital expenditures, research
      and development and other general corporate
  requirements;


29




·
            require
      us to dedicate a substantial portion of our cash flow from operations to
      service payments on our debt;




·
            limit
      our flexibility to react to changes in our business and the industry in
      which we operate;




·
            limit
      our ability to make certain changes to our
  management;




·
            place
      us at a competitive disadvantage to any of our competitors that have less
      debt; and




·
            limit,
      along with the financial and other restrictive covenants in our
      indebtedness, among other things, our ability to borrow additional
      funds.




Upon the
occurrence of various events, such as a change in control, some or all of our
outstanding debt obligations may come due prior to their maturity date, which
could serve to prevent the occurrence of a change in control or other
transaction that may ultimately benefit our equity holders.




Our
ability to pay principal and interest on our indebtedness, and to pay dividends
upon our Series B preferred stock and Series C convertible preferred stock, may
depend upon our receipt of dividends or other intercompany transfers from our
subsidiaries, which we may be prohibited from making.




We are a
holding company and substantially all of our properties and assets are owned by,
and all our operations are conducted through, our subsidiaries. As a result, we
may be dependent upon cash dividends and distributions or other transfers from
our subsidiaries to meet certain of our debt service obligations, including
payment of the interest on and principal of our indebtedness when due, and our
other obligations. The ability of our subsidiaries to pay dividends and make
other payments to us may be restricted by, among other things, the terms of our
indebtedness, applicable corporate, tax and other laws and regulations in the
United States and agreements made by us and our subsidiaries, including under
the terms of future indebtedness or other obligations. These restrictions may
make it more difficult or may prevent us from obtaining cash from a subsidiary
necessary to repay the obligations of our holding company or those of our other
subsidiaries to our creditors or investors, including the holders of our Series
B preferred atock and Series C convertible preferred stock.




We
may not be able to pay the redemption price pursuant to any required redemption
of the Series B preferred stock.




We may
not have sufficient cash to pay, or may not be permitted to pay, the redemption
price upon any redemption of our Series B preferred stock.  Upon
certain events, we will be required to pay to the holder of Series B
preferred stock a cash redemption payment of up to 103% of the liquidation value
of the shares being redeemed. As a result, we may be required to pay significant
amounts in cash to holders of the Series B preferred stock upon any
redemption of those shares. If we do not have sufficient cash on hand at the
time of any such redemption, we may have to borrow funds under our credit
facilities or raise additional funds through other debt or equity financing. Our
ability to borrow the necessary funds under our revolving line of credit will be
subject to our ability to remain in compliance with the terms under the
respective line of credit and loan agreements and to have borrowing availability
thereunder. In addition, our ability to raise any additional financing, if
necessary, will depend on prevailing market conditions. Further, we may not be
able to raise such financing within the period required to satisfy our
obligation to make timely payment upon any redemption. In addition, the terms of
our revolving line of credit agreement or any future debt may prohibit us from
making these redemption payments or may restrict our ability to make such
payments by requiring that we satisfy certain covenants relating to the making
of restricted payments.


30




Events of default have occurred under
our former revolving line of credit and PE Recycling’s term loan, which may
increase the likelihood that in the future our lenders may be permitted to
accelerate repayment of our outstanding obligations under the line of credit and
our other indebtedness and obligations.





During
2009, certain events of default occurred under our former revolving line of
credit and PE Recycling’s current $8.0 million term loan.  The
occurrence of an event of default generally permits the lender to accelerate
repayment of all amounts due and to terminate any commitments
thereunder.  The provisions of our PE Recycling term loan include as
an event of default any failure to pay any amounts due under the term loan
documents (a “nonpayment default”) or to comply with a covenant or obligation
under other obligations of the borrower of over $500,000 (a
“cross-default”).  Once in default, the lender under our term loan may
accelerate our obligations thereunder immediately upon the occurrence of a
nonpayment default and, in the event of a cross-default, if such default
has not been cured or waived after the expiration of any applicable cure period
under the terms of the other obligation.  We would not have
sufficient cash resources to repay these obligations should the lender
accelerate these obligations in the event of any default under the term
loan.  Acceleration of the amounts outstanding under the term loan
would have a material adverse impact on our liquidity, financial condition and
operations.





Nonpayment
of dividends on our Series B preferred stock may trigger an event of
noncompliance, which could require us to redeem the Series B preferred
stock.





The
nonpayment of dividends to the holder of our Series B preferred stock would
constitute an event of noncompliance under Series B preferred stock investment
agreement and related agreements if such nonpayment is not remedied prior to the
expiration of certain notice and cure periods as set forth in the investment
agreement.  An event of noncompliance for nonpayment of dividends
could permit the Series B preferred stockholder to cause us to redeem all of its
Series B preferred stock and related warrants at stated repurchase
prices.  We would not have sufficient cash resources to redeem these
securities should the Series B preferred stock holder require us to do so, and
we would need to immediately seek additional liquidity or capital resources in
order to meet such obligations.  Such an occurrence would have a
material adverse effect on us, our financial condition and our
operations.





Dividends
under our Series C convertible preferred stock may ultimately require us to
issue to the holders thereof additional shares of Series C preferred stock,
which would increase our ongoing obligations to those holders upon liquidation
or any conversion of the Series C preferred stock.





Under the
terms of our Series C convertible preferred stock, we are required to pay
dividends to the holders thereof when, as and if declared by the board of
directors.  Beginning on March 31, 2010, unpaid dividends began to
cumulate, or compound, quarterly.  Dividends may be paid in cash, by
issuing additional shares of Series C convertible preferred stock, or by
adjusting the number of shares of common stock that may be received upon a
conversion thereof.  Presently, no dividends have been declared or
paid on our Series C convertible preferred stock and in the future we may be
restricted or prohibited under applicable law from doing so.





To the
extent we choose to issue additional shares of Series C convertible preferred
stock to satisfy these dividend obligations, the amount of such shares issued
would increase, which in turn would substantially increase the amount of assets
that would be distributable to such holders upon any redemption of the
Series C convertible preferred stock or upon our liquidation (prior to any
holders of common stock).  Moreover, the number of shares of common
stock we would ultimately be required to issue upon conversion would also
increase substantially.  If we choose instead to adjust the conversion
price of the Series C preferred stock, these dividend provisions would require
us to ultimately issue greater amounts of common stock upon a conversion in
full of all outstanding Series C convertible preferred stock.  Thus,
the dividend provisions of our Series C convertible preferred stock may cause
substantial dilution to the economic interests and voting power of the holders
of our common stock.


31





To
service our indebtedness and pay required dividends on our preferred stock, we
may require a significant amount of cash, and our ability to generate cash
depends on many factors beyond our control.




Our
ability to make cash payments, if required, to service our indebtedness and pay
required dividends under the terms of our Series B preferred stock will depend
on our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.  We believe our cash flows
from operating activities and our existing capital resources, including the
liquidity provided by our existing indebtedness, will be sufficient to fund our
operations and commitments at least until December 31, 2010, based on several
large committed jobs within the Transportation and Disposal segment which are
scheduled to begin in April and May of 2010.  If we experience
significant delays associated with these jobs or are unable to begin this work
as scheduled due to unforeseen circumstances, we may need to seek additional
sources of financing.  We cannot assure you, however, that our
business will continue to generate sufficient cash flows from operations or that
future sources of funds will be available to us in an amount sufficient to
enable us to pay our indebtedness, to make required dividend payments, or to
fund our other liquidity needs.  To do so, we may need to refinance
all or a portion of our indebtedness or Series B preferred stock on or before
maturity, sell assets, or seek additional equity financing. We cannot assure you
that we will be able to refinance any of our indebtedness or Series B preferred
stock on commercially reasonable terms or at all.




Failure
to comply with covenants in our existing or future financing agreements could
result in defaults, which could jeopardize our ability to operate our business
successfully or at all.




Various
risks, uncertainties and events beyond our control could affect our ability to
comply with the covenants and financial tests required by our existing
indebtedness and our Series B preferred stock. Failure to comply with any of the
covenants in our existing or future financing agreements, including the terms of
our term loans and our Series B preferred stock, could result in a default
under our indebtedness, the Series B preferred stock, or other financing
arrangements. An event of default would permit the lenders to accelerate the
maturity of the debt under these agreements or declare an event of noncompliance
under the Series B preferred stock.  Under these circumstances, we
might not have sufficient funds or other resources to repay or satisfy all of
our obligations.  In addition, the limitations imposed by our
indebtedness and the Series B preferred stock on our ability to incur
additional debt and to take other actions might significantly impair our ability
to obtain other financing.




The
agreements and instruments that govern our and our subsidiaries’ indebtedness
and our Series B preferred stock contain various covenants that limit our
discretion in the operation of our business.




Covenants
related to our and our subsidiaries’ indebtedness and our Series B preferred
stock require us to, among other things, comply with certain financial tests and
restrictions, including:





·
            requirements
      associated with the tendering of our accounts receivable to our lender
      under our revolving line of credit
facility;





·         maintenance
of specific leverage ratios; and





·         maintenance
of a specified reserve account.





Furthermore,
these instruments restrict our and our subsidiaries’ ability to:





·         incur
more debt;





·         create
liens;





·         make
certain investments and payments;





·         enter
into transactions with affiliates;





·         merge
or consolidate with, or acquire all or substantially all of the assets of,
another company;





·         amend
our and their constituent governing documents;


32





·         pay
dividends or make other distributions on our or their common or preferred
stock;





·
            redeem
      or repurchase any preferred stock, common stock or common stock
      equivalents, even if we may be required under the terms of those
      securities to do so; and





·         make
any loans, advances or guarantees.





Our
ability to comply with these covenants is subject to various risks and
uncertainties. In addition, events beyond our control could affect our ability
to comply with and satisfy the financial tests required by our and our
subsidiaries’ indebtedness and our Series B preferred stock. Any failure by us
to comply with all applicable covenants could result in an event of default with
respect to, and the acceleration of the maturity of, a substantial portion of
our debt, and would require us to redeem our Series B preferred stock. Even if
we are able to comply with all applicable covenants, the restrictions on our
ability to operate our business in our sole discretion could harm our business
by, among other things, limiting our ability to take advantage of financing,
mergers, acquisitions and other corporate opportunities.





Upon
the occurrence of any event of default under our secured debt, the holders of
our secured debt could acquire control of some or all of our and our
subsidiaries’ assets.




We have
incurred debt, the repayment of which has been secured by certain of our and our
subsidiaries’ assets, including our real property, machinery, equipment,
accounts receivable and other property. As a result of these liens and
mortgages, a default upon our secured debt could permit the lenders to foreclose
on the assets securing the debt, and to liquidate those assets. The loss of any
of our assets arising from a default under our debt would hinder our ability to
operate our business and may cause our security holders to lose some or all of
the value of their investment in our securities.




Seasonality
makes it harder for us to manage our business and for investors to evaluate our
performance.




Our
operations may be affected by seasonal fluctuations due to weather and budgetary
cycles influencing the timing of customers’ spending for remedial activities.
Typically, during the first quarter of each calendar year there is less demand
for environmental remediation due to weather-related reasons, particularly in
the Northeastern United States, and increased possibility of unplanned
weather-related site shutdowns. Certain weather conditions may result in the
temporary suspension of our operations, which can significantly affect our
operating results. This seasonality in our business makes it harder for us to
manage our business and for investors to evaluate our performance. Additionally,
due to these and other factors, operating results in any interim period are not
necessarily indicative of operating results for an entire year, and operating
results for any historical period are not necessarily indicative of operating
results for a future period. Specifically, PE Recycling’s TDU is more expensive
to run during the first quarter of each fiscal year due to colder and wetter
weather coupled with higher natural gas costs.




Illiquidity
of our current and future Brownfield sites and other real estate investments
could significantly impede our ability to respond to adverse changes in the
performance of our properties.




Because
real estate investments are relatively illiquid, our ability to promptly sell
properties in our developing portfolio of Brownfield sites (or any interest
therein) or any of our other real estate in response to changing economic,
financial and investment conditions may be limited. The real estate market is
affected by many factors, such as general economic conditions, availability of
financing, interest rates and other factors, including supply and demand, that
are beyond our control. We cannot predict whether we will be able to sell any
real property for the price or on the terms set by us or whether any price or
other terms offered by a prospective purchaser would be acceptable to us. We
also cannot predict the length of time needed to find a willing purchaser and to
close the sale of a property.


33




A
significant portion of our business depends upon the robustness of the real
estate construction industry and the demand for customers to engage in major
environmental remedial projects, and thus our ability to generate revenues may
be subject to a wide array of events over which we have no control.




Our
ability to generate revenues from our operations is and will be significantly
dependent upon the continued strength of the real estate construction and
environmental services industries, especially in the northeastern United States.
These events are subject to a number of risks and uncertainties, most of which
are out of our control, including:




·
            the
      imposition of building or development moratoria or changes in building
      codes;




·
            the
      continued ability for project owners and developers to obtain financing
      for construction and environmental engineering and consulting projects,
      including risks imposed as a result of recent difficulties in the
      financial and lending sectors;




·
            the
      continued health and strength of the local, regional, national and
      international economies; and




·
            budgetary
      cycles influencing the timing of customers’ spending for remedial
      activities.




As a
result, our success and results of operations may be materially dependent on
these and other factors that we cannot control.




Our
operations are also significantly affected by the decisions of our customers
regarding the commencement and completion of construction and major site
remedial projects and the cleanup of major spills or other events, as well as
the timing of regulatory decisions relating to waste management projects and the
propensity for delays in projects attributable to the remedial
market.  We do not control these and other material factors and, as a
result, we anticipate our revenue and income may vary significantly from quarter
to quarter, and past financial performance for certain quarters may not be a
reliable indicator of future performance for comparable quarters in
subsequent years.




Our
investments in Brownfield properties will require us to accept and incur
significant costs to return the property to beneficial use, which costs may be
greater than we anticipate.




We will
be required to expend significant funds to make improvements in our Brownfield
properties to redevelop them for commercial, residential or other use before we
may resell them. We cannot assure you that we will have funds available to
complete these efforts or to make those improvements, and the costs may be
significantly more than we anticipate, even after conducting a careful
evaluation of the specific environmental problems. In acquiring a property,
transfer restrictions or other limitations may materially restrict us from
selling that property before we complete any improvements, or even thereafter.
These transfer restrictions would impede our ability to sell a property even if
we deem it necessary or appropriate.




Rehabilitating
Brownfield properties may take more time to complete than we anticipate, which
could delay our ability to sell these properties or preclude us from doing
so.




We
envision that the time necessary to locate, acquire, rehabilitate, market and
sell our current and any future Brownfield site will be substantial. It is often
difficult to predict the time necessary to acquire or obtain appropriate
environmental permits and approvals. Furthermore, if we acquire a direct or
indirect interest in a Brownfield through a joint venture or other structure,
our ability to recognize revenue from the sale of the Brownfield may be delayed
by the investor’s inability to remediate the Brownfield, its lack of funding or
other difficulties. We cannot assure you that these and other delays will not be
greater than we anticipate, even after conducting a careful evaluation of the
property and any potential investing partner.


34




Our
ability to profitably rehabilitate Brownfield sites may be adversely affected by
economic and regulatory changes pertaining to the ownership and development of
real estate, which may prevent us from realizing growth in the value of
Brownfield properties.




Our
operating results will be subject to risks generally incident to the ownership
and development of real estate, including:




·
            changes
      in general economic or local
conditions;




·
            our
      ability to borrow or obtain funds for the costs of
      development;




·
            periods
      of high interest rates and tight money
supply;




·
            changes
      in supply of or demand for similar or competing properties in an
      area;




·
            changes
      in interest rates and availability of permanent mortgage funds that may
      render the sale of a property difficult or
  unattractive;




·
            the
      illiquidity of real estate investments
  generally;




·
            changes
      in tax, real estate, environmental and zoning
  laws;




·
            perceptions
      of the safety, convenience and attractiveness of our properties and the
      areas in which they are located;
and




·
            our
      ability to provide adequate management, maintenance and
      insurance.




In
addition, local conditions in the markets in which we own or intend to own and
develop Brownfield sites or in which the collateral securing our loans is
located may significantly affect our ability to successfully convert these
properties for beneficial residential, commercial or industrial use. For these
and other reasons, we cannot assure you that our Brownfield redevelopment
strategy will be profitable or that we will realize growth in the value of the
Brownfield properties we acquire.




The
environmental services industry is highly competitive, and if we cannot
successfully compete in the marketplace, our business, financial condition and
operating results may be materially adversely affected.




We
encounter intense competition in all phases of operations from a variety of
different competitors, depending on the service area. In the United States, the
industry consists of large national environmental companies, and local and
regional companies of varying sizes and financial resources. Competitors may
reduce their prices to expand their sales volume or to win bids on
contracts.  As an example, we believe that, as a result of the
expansion of our Transportation and Disposal segment, our competitors are
currently decreasing established market rates to retain customers. When this
happens, we may reduce prices or offer lower pricing to attract or retain our
customers, resulting in a negative impact to our revenue growth from business
operations.  There can be no assurance that we will be able to offset
the effects of price reductions with an increase in the number of customers,
higher sales, cost reductions, or otherwise. Such pricing pressures could result
in an erosion of our market share, revenues and operating margins, any of which
could have a material adverse effect on our business.




We
must keep up with technological and market changes to succeed.




The
markets in which we compete are characterized by new product and service
introductions, evolving industry standards, and the changing needs of
customers.  There can be no assurance that our existing services will
continue to be properly positioned in the market or that we will be able to
introduce new or enhanced products into the market on a timely basis, or at all.
There can be no assurance that enhancements to existing services or new services
will receive customer acceptance.


35




A central
part of our business plan is to develop or acquire new recycling technologies
for the beneficial reuse of different waste streams. For example, we are
presently exploring the acquisition or development of technologies to recycle
wastes into alternative fuels, instead of incinerating these waste streams or
disposing them into landfills. Our ability to achieve profitability and future
growth is dependant on our ability to improve our knowledge and implementation
of these waste processing and recycling technologies. Our inability to
successfully implement or acquire these technologies, as a result of
insufficient capital or otherwise, would have a material adverse effect on our
business and results of operations.




Our
business may be affected by catastrophic or other unforeseen events, which could
cause us to incur substantial liabilities and increased operating
costs.




Our
operations are subject to the many hazards inherent in the storage and
transportation of hazardous materials, including extreme weather conditions,
such as hurricanes and rough seas, which are common along the East Coast,
explosions, fires, accidents, mechanical malfunctions, faulty measurement and
other operating errors, and acts of war, terrorism or vandalism. If any of these
events were to occur, we could suffer substantial losses because of personal
injury or loss of life, severe damage to and destruction of property and
equipment, and pollution or other environmental damage resulting in curtailment
or suspension of our related operations and potentially substantial
unanticipated costs for the repair or replacement of property and environmental
cleanup. Furthermore, events such as hurricanes can affect large geographical
areas, which can cause us to suffer additional costs and delays in connection
with subsequent repairs and operations because contractors and other resources
are not available, or are only available at substantially increased costs
following widespread catastrophes.




Our
business is geographically concentrated and is therefore subject to local and
regional economic downturns.




While we
plan to expand the geographic scope of our business, our operations and
customers are currently located primarily in the northeastern United States and
in the mid-Atlantic region.  Therefore, our entire business, financial
condition and results of operations are especially susceptible to local and
regional economic downturns in these areas. We do not have the benefit of
geographic or regional diversity, which could lessen the impact of local or
regional downturn in financial or economic conditions. In addition, as we expand
in our existing markets, opportunities for growth within these regions will
become more limited and the geographic concentration of our business will
increase. The costs and time involved in permitting and the scarcity of
available landfills, transfer stations and other disposal facilities could make
it difficult for us to expand in these markets. We may not be able to lessen our
regional geographic concentration through acquisitions or internal expansion of
our business.




If
we do not successfully manage our costs, our income from operations could be
lower than expected.




We are
working on several profit improvement initiatives aimed at lowering our costs
and enhancing our revenues, and we continue to seek ways to reduce our operating
expenses. While generally we may be successful in managing our selling, general
and administrative costs, disposal costs, transportation costs, direct labor and
subcontractor costs, our initiatives may not be sufficient. Even as our revenues
increase, if we are unable to control variable costs or increases to our fixed
costs in the future, we will be unable to maintain or expand our
margins.




Significant
shortages in fuel supply or increases in fuel prices will increase our operating
expenses and therefore adversely affect our results of operations.




The price
and supply of fuel are unpredictable, and can fluctuate significantly based on
international, political and economic circumstances, as well as other factors
outside our control, such as actions by OPEC and other oil and gas producers,
regional production patterns, weather conditions and environmental concerns.
During 2008, the cost of gasoline, diesel fuel and other petroleum-based or
other fuel products was at record high levels. The cost of natural gas, which we
use in our TDU, has also fluctuated significantly in the past, especially during
the colder months, and we believe that this trend will continue in the
future.


36




We
purchase fuel to run our trucks and equipment used in our operations and as fuel
prices increase, our direct operating expenses increase.  We do not
currently engage in fuel hedging transactions or purchase gasoline or fuel
future contracts in an effort to mitigate the risk of future fuel price
increases.  While we may in the future initiate programs or means to
guard against the rising costs of fuel, there can be no assurances that we will
be able to do so or that any of such programs will be successful. Regardless of
any hedging transactions or offsetting surcharge programs, the increased
operating costs will decrease our operating margins.




We
are subject to strict regulations regarding employee safety at many of our
facilities, and failure to comply with these regulations could adversely affect
us.




Many of
our facilities are subject to the requirements of OSHA and comparable state
statutes that regulate the protection of the health and safety of workers. In
addition, the OSHA hazard communication standard requires that we maintain
information about hazardous materials used or produced in our operations and
that we provide this information to our employees, state and local government
authorities, and local residents. Failure to comply with OSHA’s requirements,
including general industry standards, record keeping requirements and monitoring
of occupational exposure to regulated substances, could adversely affect our
results of operations if we are subjected to fines or significant additional
compliance costs.




Environmental
and transportation regulations and litigation could subject us to fines,
penalties and judgments, and may limit our ability to expand our
business.




We are
subject to significant potential liability and restrictions under environmental
and transportation laws, including those relating to handling, transportation,
disposal, processing, recycling, treatment and storage of waste materials,
discharges into the ground, air and water, and the remediation of contaminated
soils, surface water and groundwater. The environmental services and waste
management industry has been, and will continue to be, subject to significant
regulation, including permitting and related financial assurance requirements,
as well as to attempts to further regulate the industry through new
legislation.




The U.S.
Congress has been actively considering legislation, and more than one-third of
the states have already taken legal measures to reduce emissions of carbon
dioxide and other “greenhouse gases” believed to be contributing to warming of
the Earth’s atmosphere. On September 22, 2209, the EPA released issued a final
rule requiring the monitoring and reporting of greenhouse gas emissions from
certain large emission sources.  On October 30, 2009, the EPA
published a final rule requiring the monitoring and reporting of greenhouse gas
emissions from all sectors of the economy.  On December 15, 2009, the
EPA published its final “Endangerment and Cause or Contribute Findings” in which
it determined that the current and projected concentrations of six greenhouse
gases in the atmosphere, including carbon dioxide and methane, threatens the
public health and welfare of current and future generations.  This
finding will allow EPA to adopt and implement regulations to restrict greenhouse
gas emissions under existing provisions of the Clean Air Act.  The
adoption and implementation of laws and regulations restricting the emission of
greenhouse gases such as carbon dioxide in areas of the United States that we
conduct business could result in increased compliance costs or additional
operating restrictions, and could have a significant effect on our
business.




The level
of enforcement of these laws and regulations also affects the demand for many of
our services, since greater or more vigorous enforcement of environmental
requirements by governmental agencies creates greater demand for our
environmental services. Any perception among our customers that enforcement of
current environmental laws and regulations has been or will be reduced decreases
the demand for some services. Future changes to environmental, health and safety
laws and regulations or to enforcement of those laws and regulations could
result in increased or decreased demand for certain of our services. The
ultimate impact of the proposed changes will depend upon a number of factors,
including the overall strength of the economy and clients’ views on the
cost-effectiveness of remedies available under the changed laws and regulations.
If proposed or enacted changes materially reduce demand for our environmental
services, our results of operations could be adversely
affected.


37




While
increasing environmental regulation often presents new business opportunities
for us, it often results in increased operating and compliance costs. Efforts to
conduct our operations in compliance with all applicable laws and regulations,
including environmental rules and regulations, require programs to promote
compliance, such as training employees and customers, purchasing health and
safety equipment, and in some cases hiring outside consultants and lawyers. Even
with these programs, we and other companies in the environmental services
industry are routinely faced with governmental enforcement proceedings, which
can result in fines or other sanctions and require expenditures for remedial
work on waste management facilities and contaminated sites. Certain of these
laws impose strict and, under certain circumstances, joint and several liability
for cleanup of releases of regulated materials, and also liability for related
natural resource damages.




If we are
not able to comply with the requirements that apply to a particular facility or
if we operate without necessary approvals, we could be subject to civil, and
possibly criminal, fines and penalties, and we may be required to spend
substantial capital to bring an operation into compliance or to temporarily or
permanently discontinue operations or take corrective actions.  From
time to time, we also have paid fines or penalties in governmental environmental
and trucking enforcement proceedings, usually involving our waste treatment,
storage and disposal facilities. Although none of these fines or penalties that
we have paid in the past has had a material adverse effect on us, we might in
the future be required to make substantial expenditures as a result of
governmental proceedings, which would have a negative impact on our
earnings.




In
addition to the costs of complying with environmental laws and regulations, if
governmental agencies or private parties brought environmental litigation
against us, we would likely incur substantial costs in defending against such
actions. We currently face claims by governmental agencies for environmental
liabilities with respect to properties we own, operate or have acquired, and
such claims and future claims may impose material financial and operating
sanctions on us. See “Item 3. Legal Proceedings — Environmental
Matters.”




We may
also be, in the future, a defendant in lawsuits brought by parties alleging
environmental damage, personal injury or property damage, particularly as a
result of the contamination of drinking water sources or soils. Under current
law, we could even be held liable for damage caused by conditions that existed
before we owned, operated or acquired the assets or operations
involved.  We may not have sufficient insurance coverage for any
environmental liabilities that may be covered by the terms of such insurance.
Those costs or actions could be significant to us and significantly impact our
results of operations, as well as our available capital.  A judgment
against us, or a settlement by us, even if covered in whole or in part by
insurance, could harm our business, our prospects and our reputation and could
have a material adverse effect on our financial condition, results of operations
and cash flows.




We
may be unable to obtain or retain environmental and other permits required to
operate our business.




The
facilities, properties, plants, vehicles and equipment that we own, operate or
lease require a variety of environmental and other permits and licenses needed
to operate them. For example, PE Recycling has several permit modifications in
process to significantly improve our ability to accept, manage and treat
different types of waste. Also, we are seeking permits so that we may prepare
our existing Brownfield site for redevelopment, and ultimately, resale. There
are no assurances that we will be successful in obtaining these permits on terms
acceptable to us or at all.




Permits
we may seek to obtain also restrict how the property, facility or equipment may
be used. Permits to operate waste processing and recycling facilities have
become increasingly difficult and expensive to obtain and retain as a result of
many factors, including the need to have public hearings and to comply with
stringent zoning, environmental and other regulatory measures. The granting of
these permits is also often subject to resistance from citizens and
environmental groups and other political pressures. Our failure to obtain or
retain the required permits to operate our facilities could have a material
negative effect on our future results of operations.


38




Regulators
have the power to modify, suspend or revoke these permits or licenses, based on,
among other factors, our compliance with applicable laws, rules, regulations and
their interpretations thereof or our use of the properties, facilities or
equipment and customers may decide not to use a particular disposal facility or
do business with us because of concerns about our compliance record. Any
modification, suspension or revocation of permits or licenses would impact our
operations and could have a material adverse impact on our financial results. As
to properties, facilities, plants, vehicles or equipment that we lease from
third parties, a permit or license may face suspension or revocation based upon
acts or omissions of the third party owner, which may not be within our control.
We may not have any sufficient legal remedies to compensate us for any loss of a
permit or license, and any legal remedies that we do have may require
significant financial and other resources to pursue.




Potential
liabilities involving customers and third parties may harm our reputation and
financial condition.




In
performing services for our customers, we potentially could be liable for breach
of contract, personal injury, property damage (including environmental
impairment), and negligence, including claims for lack of timely performance or
for failure to deliver the service promised (including improper or negligent
performance or design, failure to meet specifications, and breaches of express
or implied warranties). The damages available to a customer, should it prevail
in its claims, are potentially large and could include consequential
damages.




Industrial
waste recycling and environmental services companies, in connection with work
performed for customers, also potentially face liabilities to third parties from
various claims including claims for property damage or personal injury stemming
from a release of hazardous substances or otherwise. Claims for damage to third
parties could arise in a number of ways, including, among other things,
through:




·
            a
      release or discharge of contaminants or pollutants during transportation
      of wastes or the performance of
services;




·
            the
      inability, despite reasonable care, of a remedial plan to contain or
      correct an ongoing seepage or release of
  pollutants;




·
            the
      inadvertent exacerbation of an existing contamination problem;
      or




·
            a
      customer’s reliance on reports prepared by or consulting work performed by
      the environmental services company.




Personal
injury claims could arise contemporaneously with performance of the work or long
after completion of projects as a result of alleged exposure to toxic or
hazardous substances. In addition, claimants may assert that companies
performing environmental services should be adjudged strictly liable for damages
even though their services were performed using reasonable care, on the grounds
that such services involved “abnormally dangerous activities.”




Customers
of industrial waste management companies frequently attempt to shift various
liabilities arising out of the disposal of their wastes or remediation of their
environmental problems to contractors through contractual indemnities. Such
provisions seek to require the contractors to assume liabilities for damage or
personal injury to third parties and property and for environmental fines and
penalties (including potential liabilities for cleanup costs arising under
federal and state environmental laws).


39


Although
we attempt to investigate thoroughly each company that we acquire, there may be
liabilities that we fail or are unable to discover, including liabilities
arising from non-compliance with environmental laws by prior owners, and for
which we, as a successor owner, might be responsible. We may seek to minimize
the impact of these liabilities by obtaining indemnities and warranties from the
sellers of companies, which may be supported by deferring payment of or by
escrowing a portion of the purchase price. However, these indemnities and
warranties, even if obtained, may not fully cover the liabilities we might be
required to assume due to their limited scope, amounts, or duration, the
financial limitations of the indemnitors or warrantors or other
reasons.




We
plan to generate significant revenue from the sale of our recycled materials,
and the potential for product liability exposure from these products could be
significant.




We plan
to generate an increasing amount of our revenue from the sale of our recycled
crushed stone, aggregate and oil. These materials are used in a diverse line of
applications, including residential and commercial construction projects,
highways, tunnels and airports. As a result, we may face exposure to product
liability claims in the event that any failure of our materials results, or is
alleged to result, in property damage, bodily injury or death. In addition, if
any of our products are, or are alleged to be, defective, we may be required to
make warranty payments or to participate in a recall involving those
products.




The
future costs associated with defending product liability claims or responding to
product warranties could be material and we may experience significant losses in
the future as a result. A successful product liability claim brought against us
in excess of available insurance coverage or a requirement to participate in any
product recall could substantially reduce our profitability and cash generated
from operations.




We may be
legally or contractually required to maintain specified levels of product
liability insurance. Any failure to maintain product liability insurance at the
required level or at all when we are required to do so could harm our business
and operations.




We
have a relatively new management team, which may make it difficult for you to
evaluate its ability to work individually and together to successfully lead our
operations.




Our
executive management team has worked together for a relatively brief period,
with two of our executive officers having joined us only since January 2006
and another having joined us in September 2007.  Thus, the ability of
current members of management to work individually and together successfully has
not been tested to any significant degree. Our success is also dependent upon
these executive officers’ ability to lead and direct our other officers and key
personnel in charge of our various operations. We may not be able to hire and
retain our executive officers, our other officers and key employees and other
additional qualified executive, sales and other personnel.




The
loss of one of our key personnel may adversely affect our business.




Our
future performance will depend to a significant extent upon the efforts and
abilities of Mark Alsentzer, our President and Chief Executive Officer, and
Brent Kopenhaver, our Chairman, Executive Vice President, Chief Financial
Officer and Treasurer. Under the terms of our Series B preferred stock, we
would face a potential redemption of the Series B preferred stock should
either of these individuals fail to continue to serve in these roles. We do not
maintain “key person” life or other insurance that would pay us benefits in the
event of the death or disability of Messrs. Alsentzer or
Kopenhaver.  Thus, the loss of service of either of them would have a
material adverse effect on our business and financial condition.




Our
success and plans for future growth will also depend on our ability to hire,
train, and retain skilled personnel in all areas of our business. The
competition for qualified management personnel in our industry is very intense.
There can be no assurance that we will be able to attract, train, and retain
sufficient qualified personnel to achieve our business objectives. Any failure
to do so could have a material adverse effect on our business.


40




The
loss of one or more of our significant customers could significantly reduce our
revenues and profits.




In 2008
and to a lesser extent in 2009, a significant amount of our revenues were
generated from a relatively small number of customers, and we anticipate that
this will continue in 2010and in the foreseeable
future. For example, historically our two largest customers prior to 2009 were
two major excavation and construction companies in the New York City
metropolitan area. Revenues from these customers comprised 36% of our revenues
in 2008.  In 2009, we did not have as large a concentration with these
customers due to the economic downturn; however, we anticipate a high
concentration with these same customers again in 2010.  Additionally,
a large portion of the revenues and profitability expected to be derived within
the Treatment and Recycling segment are dependent upon waste generated from
three or four large refineries.  We generally do not enter into
long-term contracts or agreements with our customers, and any relationships we
have with our customers can be cancelled or terminated by them at any time
without penalty. The loss of revenues associated with any of our significant
customers would, if not replaced, have a material adverse effect on our
business, financial condition, cash flows and results of
operations.




We
are not subject to certain of the corporate governance provisions of the
Sarbanes-Oxley Act of 2002.




Since our
common stock is not listed for trading on a national securities exchange, we are
not subject to certain of the corporate governance requirements established by
the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002.
These rules relate to, among other things, independent directors, director
nominations, audit and compensation committees and the retention of an audit
committee financial expert.  Until we voluntarily elect to fully
comply with those obligations, which we have not to date, the protections that
these corporate governance provisions were enacted to provide do not and will
not exist with respect to us.




We
only have one independent director and may be unable to appoint any qualified
independent directors.




We
currently have one independent director on our board, out of a total of three
directors. If and when we seek to list our common stock on a national securities
exchange, we will need to have a majority of the members of our board of
directors be independent, but we may not be able to identify independent
directors qualified to be on our board who are willing to serve. We do not
currently have an audit committee and have not established independent oversight
over our management and internal controls. Therefore, we are exposed to the risk
that material misstatements or omissions caused by errors or fraud with respect
to our financial statements or other disclosures may occur and not be detected
in a timely manner or at all. In the event there are deficiencies or weaknesses
in our internal controls, we may misreport our financial results or lose
significant amounts due to misstatements caused by errors or fraud. These
misstatements or acts of fraud could also cause our company to lose value and
investors to lose confidence in us.




If
we fail to achieve and maintain adequate internal controls, we may not be able
to produce reliable financial reports in a timely manner or prevent financial
fraud.




As an SEC
reporting company, we are required to document and test our internal control
procedures on an ongoing basis.  Commencing with this annual report on
Form 10-K, regulations adopted by the SEC under Section 404 of the
Sarbanes-Oxley Act of 2002, or SOX, require us to provide annual management
assessments of the effectiveness of our internal control over financial
reporting, and beginning with the year ended December 31, 2010, we will be
required to provide an attestation report by our independent registered public
accounting firm as to these assessments.  We are also required to
disclose any changes in our internal control over financial reporting in our
quarterly and annual reports.


41


During
the course of testing, we may, from time to time, identify deficiencies that we
may not be able to remedy. In addition, if we fail to achieve or maintain the
adequacy of our internal controls, as such standards are modified, supplemented
or amended from time to time, we may not be able to ensure that we can conclude
on an ongoing basis that we have effective internal control over financial
reporting in accordance with applicable standards.  Effective internal
controls, particularly those related to revenue recognition, are necessary for
us to produce reliable financial reports and are important in helping prevent
financial fraud.  If we cannot provide reliable financial reports on a
timely basis or prevent financial fraud, our business and operating results
could be harmed, investors could lose confidence in our reported financial
information, and the trading price of our common stock could decrease
significantly.




We
are incurring increased costs as a result of becoming a reporting company, which
may adversely affect our results of operations.




We are
currently an SEC reporting company.  SOX, as well as a variety of
related rules implemented by the SEC, have required changes in corporate
governance practices and generally increased the disclosure requirements of
public companies.  For example, as a result of becoming a reporting
company in 2008, we have been required to file periodic and current reports,
proxy statements and other information with the SEC.  Further, we were
required to establish disclosure controls and procedures and we are currently
required to regularly evaluate those controls and procedures.  As a
reporting company, we incur significant additional legal, accounting and other
expenses in connection with our public disclosure and other
obligations.  Management may also be engaged in assisting executive
officers, directors and, to a lesser extent, stockholders, with matters related
to insider trading and beneficial ownership reporting.  Beginning with
this annual report on Form 10-K, management is required to evaluate our internal
control over financial reporting and to provide a report with respect to that
evaluation.  Beginning with the year ended December 31, 2010, we will
also be required to have our registered independent public accounting firm
provide an attestation report on this evaluation.  We expect to incur
increased operating expenses in 2010 as a result of complying with Section 404
of SOX and these evaluation and attestation requirements.




We have
incurred, and expect to continue to incur, increased operating expenses in
relation to becoming and remaining an SEC reporting company.  We also
believe that compliance with the full panoply of rules and regulations
applicable to reporting companies and related compliance issues will divert time
and attention of management away from operating and growing our
business.




Being a
public company also increases the risk of exposure to class action stockholder
lawsuits and SEC enforcement actions and increases the expense to obtain
appropriate director and officer liability insurance on acceptable or even
reduced policy limits and coverage. As a result, we may find it difficult to
attract and retain qualified persons to serve on our board of directors or as
executive officers.




We
rely on a combination of provisions and agreements to protect our own
proprietary rights, which may not sufficiently shield these rights from use,
devaluation or appropriation by others.




We rely
on a combination of trade name and trade secret protections for our own
proprietary rights. We may also in the future rely on additional patent,
copyright, trademark, trade name and other similar protections as to these
rights, and acquire other proprietary rights from others with similar
protections in place. We also rely upon confidentiality agreements with our
current and former employees, consultants and contractors. These agreements may
be breached, and we may not have adequate remedies for any breaches. In
addition, our trade secrets may become otherwise known or independently
discovered by our competitors. Litigation may be required to defend against
claims of infringement, to enforce our present or future intellectual property
rights, to protect trade secrets and to protect us or our management or
personnel against claims that our products or personnel have violated the
intangible property rights of others, including trade secret rights and
purported rights under non-competition, non-solicitation, confidentiality and
non-disparagement clauses. Litigation to protect these rights could result in
substantial costs and diversion of management efforts regardless of the results
of the litigation. An adverse result in litigation could subject us to
significant liabilities with third parties, require disputed rights to be
licensed or require us to cease using proprietary technologies or
rights.


42




Risks
Related to Our Common Stock





There
is limited liquidity in the market for shares of our common stock, which may
make it more difficult for you to sell your shares at times and prices that you
feel are necessary or desirable.




Our
shares of common stock currently are quoted on the OTC Bulletin Board. There is
relatively limited trading of our common stock in this market, and this may
impose significant practical limitations on any stockholder’s ability to achieve
liquidity at any particular quoted price. Efforts to sell significant amounts of
our common stock on the open market may precipitate significant declines in the
prices quoted by market makers. A public trading market in our common stock
having the desired characteristics of depth, liquidity and orderliness depends
on the presence in the market of willing buyers and sellers of our common stock
at any time. This presence depends on the individual decisions of investors and
general economic and market conditions over which we have no control. In the
event an active market for the shares of our common stock does not develop, you
may be unable to resell your shares of common stock at or above the price you
paid for them or at any price.




In
addition, offerings of our securities are subject to state securities laws. The
National Securities Markets Improvement Act of 1996, or NSMIA, which is a
federal statute, generally prevents or preempts states from regulating the sale
of securities covered by NSMIA, subject to exceptions. Because our common stock
is not listed on any national securities exchange, our securities may not be
deemed to be covered securities under NSMIA in all circumstances and, as a
result, persons offering or selling our securities may be subject to regulation
in each state in which our securities are offered or sold. It is the individual
investors desiring to sell our securities who must determine whether such
compliance is required, maintain such compliance, if any, and bear the sole
financial responsibility for doing so.




Failure
to remain eligible for quotation on the OTC Bulletin Board may require us to
transfer the quotation of our securities to the Pink Sheets®, which
would adversely affect the trading market and price of our common stock and our
ability to raise capital.




If our
common stock fails to remain eligible for quotation on the OTC Bulletin Board,
it will be removed from the OTC Bulletin Board following a certain grace
period.  Although we are currently eligible for quotation, there is no
assurance that we will always satisfy the OTC Bulletin Board’s quotation
requirements.




If our
securities are removed from the OTC Bulletin Board and we fail to meet the
listing standards of a national securities exchange, we would try to have our
securities quoted on the Pink Sheets® operated
by Pink OTC Markets Inc.  The quotation of our common stock on the
Pink Sheets® may
reduce the price of our common stock.  In addition, the quotation of
our common stock on the Pink Sheets® may
materially adversely affect our ability to raise capital on terms acceptable to
us or at all.




Our
stock price is, and we expect it to remain, volatile, which could limit your
ability to sell our stock at a profit.




The
volatile price of our stock will make it difficult for investors to predict the
value of their investment, to sell shares at a profit at any given time, or to
plan purchases and sales in advance. A variety of factors may affect the market
price and volatility of our common stock. These include, but are not limited
to:




·
            announcements
      of pending or completed acquisitions by our competitors or
    us;




·
            announcements
      of new operations or businesses by our competitors or
  us;




·
            industry
      and general economic
conditions;


43




·
            economic
      or other crises and other external
factors;




·
            period-to-period
      fluctuations in our actual or anticipated sales, earnings and other
      quantitative or qualitative measures of our financial
      performance;




·
            changes
      in financial estimates by securities
analysts;




·
            future
      sales of our common stock; and




·
            a
      variety of other factors discussed elsewhere in this annual report on Form
      10-K and in “Risk Factors.”




We will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance. In addition, the stock market in general,
and for smaller companies in particular, has experienced extreme price and
volume fluctuations that may have been unrelated or disproportionate to the
operating performance of individual companies. These broad industry and market
factors may materially and adversely affect our stock price, regardless of our
operating performance.




We
may engage in strategic transactions that may fail to enhance stockholder
value.




We may
investigate potential strategic transactions, including the acquisitions of
products, technologies and companies, and other alternatives within and outside
of our industry with the goal of maximizing stockholder value. We may never
complete any such strategic transaction, and in the event that we do complete
such a transaction, it may not be consummated on terms favorable to us. Further,
such transactions may impair stockholder value or otherwise adversely affect our
business. Any such transaction may require us to incur non-recurring or other
charges and may pose significant integration challenges or management and
business disruptions, any of which could harm our results of operation and
business prospects.




Restrictions
on the transfer of shares of our capital stock may prohibit or restrict
stockholders from liquidating their investment in our shares.




Many of
our outstanding shares of common and preferred stock were issued pursuant to
exemptions from registration under the Securities Act of 1933. As such, these
shares of common stock are “restricted securities” as defined under the
Securities Act. Restricted securities cannot be resold or transferred, except in
a transaction that is exempt under applicable federal and state securities laws
or that has been registered thereunder. For many reporting companies,
Rule 144 under the Securities Act provides an exemption from registration
for certain public resales of restricted securities by persons who are not our
affiliates, if at least six months have elapsed since the securities were
acquired and paid for in full by the non-affiliate, and assuming that we are
current in filing our quarterly and annual reports with the SEC at the time of
the sale.




However,
under Rule 144 as currently in effect, our former status as a shell company
generally prohibits holders of our common stock from relying on Rule 144 as
to any resale of our securities if, among other requirements, we are no longer a
reporting company or if we have not filed all required periodic reports during
the past 12 months, even if the six-month period referred to above has
elapsed.  Moreover, our affiliates may be subject to additional
restrictions on the resale or transfer of restricted securities or other shares
that we may issue to them in a transaction registered under the Securities Act,
by virtue of their status as affiliates. These and other securities law
limitations on the transfer of our common stock may prevent many of our
stockholders from obtaining immediate liquidity for their shares should they
desire or need to do so.


44




We
have not paid dividends on our common stock in the past, and we do not
anticipate doing so in the foreseeable future.




The terms
of our existing Series B preferred stock require us to pay dividends to the
holder thereof quarterly.  The terms of our Series C convertible
preferred stock require us to pay specified dividends, when, as and if declared
by our board of directors.  As a result, we do not currently
anticipate paying cash dividends on our common stock in the foreseeable future.
Any such future dividend would be declared and paid at the discretion of our
board of directors and would depend on our financial condition, results of
operations, capital requirements, contractual obligations, the terms of our
financing agreements at the time such a dividend is considered and other
relevant factors. The terms of our Series B preferred stock currently
prohibit us from paying a dividend on our common stock without satisfying
certain conditions or obtaining the consent of the Series B
investor.  The terms of our Series C convertible preferred stock
currently prohibit us from paying a dividend on our common stock unless we have
paid all dividends required to be paid on our preferred stock, and such dividend
is permitted under the terms thereof.




We
have a classified board of directors, which may make it more difficult to change
our management or effect a change in control.




Our board
of directors is divided into three classes of directors in accordance with our
amended and restated certificate of incorporation. The board of directors is
presently made up of Mark Alsentzer, our Class I director, Charles M.
Hallinan, our Class II director, and Brent Kopenhaver, our Class III
director. This structure is intended to provide us with a greater likelihood of
continuity of management, which may be necessary for us to realize the full
value of our investments. A classified board of directors may also serve to
deter hostile takeovers or proxy contests because a person could only seek to
change no more than one-third of the members of the board of directors in any
given year. These provisions or measures also may limit the ability of our
stockholders to sell their shares at a premium over the then current market
price by discouraging a third party from seeking to obtain control of
us.




Our
chief executive officer and other directors and executive officers, as a group,
will be able to exercise substantial influence over matters submitted to our
stockholders for approval.




As of
April 10, 2010, Mr. Alsentzer, our President and Chief Executive Officer,
Mr. Kopenhaver, our Chairman, Executive Vice President, Chief Financial Officer
and Treasurer, and our other directors and executive officers beneficially own
in the aggregate approximately 34.7% of our outstanding common stock. As a
result, members of management will likely be able to exercise substantial
influence over matters submitted to our stockholders for approval, including the
election of directors, any merger, consolidation or sale of all or substantially
all of our assets, or any other significant corporate
transactions.  These stockholders may also delay or prevent a change
in control, even if such a change in control would benefit our other
stockholders. The significant concentration of stock ownership might cause the
trading price of our common stock to decline if investors were to perceive that
conflicts of interest may exist or arise over any such potential
transactions.




Future
sales, or the availability for future sales, of substantial amounts of our
common stock could adversely affect the market price of our common
stock.




As of
April 10, 2010, we had 17,587,899 shares of common stock outstanding. As of that
date, approximately6,845,023 shares of our
common stock are freely tradable without restriction (including non-restricted
securities owned by certain of our affiliates). We have also entered into
registration rights agreements covering the potential registration under the
Securities Act of up to 3,621,024shares of our common
stock, including up to approximately 1.0 million shares of common stock
underlying certain warrants.  These registration rights last for up to
a maximum of 10 years from the date of the registration rights
agreement.


45




As a
result, holders of a substantial amount of our existing shares and shares
underlying outstanding warrants and other convertible securities have or will
have the ability to sell, individually or in the aggregate, significant amounts
of our common stock in the public market now and in the future. We may also
register for resale or grant new registration rights to investors with respect
to our common stock or common stock underlying other securities, which would
increase the number of shares of common stock that may be subsequently sold in
the public market.




Generally,
increased numbers of freely tradable shares in the market reduce the market
price of such shares. As stock prices decline, it becomes more difficult to
raise additional capital through the sale of equity securities on acceptable
terms, because the dilutive effect on the existing stockholders becomes more
significant in these circumstances. Accordingly, substantial sales of our common
stock in reliance upon Rule 144 and otherwise may significantly reduce the
market price of our stock, which would, among other things, hinder our ability
to raise funds through sales of equity or equity-related securities in the
future at a time and price that our management deems acceptable.




The
rights of our preferred stockholders are superior to the rights of our common
stockholders.




The
holders of our outstanding shares of preferred stock have certain rights that
are superior to the rights of holders of our common stock, including dividend
and liquidation preferences over our common stock. For example, the holders of
our preferred stock are entitled, subject to certain limitations and exceptions,
to receive dividends on their shares of preferred stock.  We are
currently prohibited from paying dividends on our common stock without the
consent of the Series B preferred stockholder so long as any shares of
Series B preferred stock remain outstanding or without the consent of the
Series C convertible preferred stockholders if any accrued dividends under our
preferred stock have not been paid or if such payment is not permitted by the
terms of the preferred stock.  Also, we are required to pay a
preferential liquidating distribution to the holders of our preferred stock,
approximately equal to the amount the holder originally paid for its preferred
stock, subject to adjustment, plus all accrued but unpaid dividends thereupon
and other amounts owed to the holder (amounting to an aggregate of approximately
$7.1 million as of December 31, 2009) before any distributions can be made
to the holders of our common stock or other future junior ranking classes of
preferred stock in the case of our liquidation, dissolution or winding up. Under
the terms of the Series B preferred stock, a liquidation may be deemed to
occur upon other circumstances.




We
may issue additional series of preferred stock without stockholder approval,
which could be used to deter a takeover attempt and have a material adverse
effect on the market value of the common stock.




As of
April 10, 2010, we had two series of preferred stock outstanding — our
Series B preferred stock and Series C convertible preferred stock. Subject
to limitations contained in our existing series of preferred stock and other
agreements, as of April 10, 2010, our board of directors had the authority to
issue a total of up to 388,350 additional shares of preferred stock and to fix
the rights, preferences, privileges, and restrictions, including voting rights,
of any additional series of such stock, without any further vote or action by
our common stockholders. As preferred stock typically has rights that are senior
to the rights of the common stockholders, the rights of our common stockholders
will be subject to, and may be adversely affected by, the rights of the holders
of the preferred stock that we have issued, or that we might issue in the
future. As a result, the existence and issuance of additional shares or series
of preferred stock could have a material adverse effect on the market value of
the common stock. Preferred stock also could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock. This could delay, defer or prevent a change in control. We have in the
past issued, and may from time to time in the future issue, preferred stock for
financing or other purposes with rights, preferences or privileges senior to the
common stock.


46




Our
issuance of additional shares of common stock, preferred stock, options or other
rights to purchase those shares would dilute the proportionate ownership and
voting rights of existing stockholders.




We are
authorized under our amended and restated certificate of incorporation to issue
up to 25,000,000 shares of common stock and 500,000 shares of preferred stock.
As of April 10, 2010, the following securities were issued and
outstanding:




·
            17,587,899
      shares of our common stock;




·
            6,300
      shares of our Series B preferred
stock;




·
            105,350
      shares of our Series C convertible preferred stock;
  and




·
            warrants
      to purchase in the aggregate 1,091,818 shares of common
    stock.




Thus, our
amended and restated certificate of incorporation currently permits us to issue
substantial amounts of additional shares. We have also entered into contingent
obligations to issue up to 1,135,044 shares of common stock in connection with
certain of our acquisitions and other transactions, which are dependent upon
specific performance and earn-out criteria. Substantial sales of our common
stock in the public market, including shares that may be issued in the future
pursuant to these warrants and other rights, or the perception that these sales
could occur, may have a depressive effect on the market price of our common
stock. Such sales or the perception of such sales could also impair our ability
to raise capital or make acquisitions through the issuance of our common
stock.




Our board
of directors may generally approve the issuance of shares of our common stock,
preferred stock, options, warrants or other rights to purchase shares without
stockholder consent based upon such factors as it may deem relevant at that
time. Our growth and strategy has been and will continue to be driven by
acquisitions, and we have historically used our common stock and other
securities to fund the purchase price for these acquisitions. We have sought to
raise capital from time to time through the issuance of our securities, and we
may in the future continue to do so. Furthermore, we intend to issue additional
securities to directors, officers, employees, vendors, consultants, advisors and
others in compensation for their services. As a result, existing stockholders
could face substantial dilution of their investment in us by future issuances of
our securities.




Item
1B.  Unresolved Staff Comments.




Not
applicable to smaller reporting companies.




Item
2.   Properties.




We own or
lease the following properties, which are used by each of our four reporting
segments as described below.  We believe that all of the facilities
described below are adequate and suitable for our current and future
use.




Transportation
and Disposal Segment




We lease
approximately 5,000 square feet of warehouse space and a small two-story office
building in Bronx, New York for approximately $23,622 per month, which rent
increases by 4% annually. This lease expires on December 31, 2010. In June
of 2009, we consolidated the office and administrative functions for the
Transportation and Disposal segment previously done out of this location into
our existing office space in Lyndhurst, NJ.  We have subleased a
portion of this space, which sublease generates income of $12,800 per month
through December 2009.  On October 15, 2009, we obtained a six
month reduction in the lease payments from October 1, 2009 through March 31,
2010, during which time we were required to make monthly payments of $12,800 per
month.  The remaining portion of the monthly payment
amount  was deferred until the final nine months of the lease
agreement beginning on April 1, 2010 through December 31, 2010, during which
time the deferred amounts are to be repaid in nine equal payments, plus 10%
interest.  Subsequent to December 31, 2009, we continue to sublease
this space at a rate of $12,000 per month, on a month to month basis, and we
have also subleased the remaining portion of this space at a rate of $8,500 per
month through December 31, 2010.


47




We lease
an apartment located in Lyndhurst, New Jersey at a monthly rate of $1,700 per
month.  This property is used by corporate employees when working and
traveling in the New York City metropolitan area for our sales and marketing
operations.  Our lease began on April 1, 2008 and expired on
March 31, 2009, after which we have continued to lease this apartment on a
month-to-month basis at the same rental rate.




We lease
property of 1,500 square feet located in East Meadow, New York at a monthly rate
of $3,922 per month. The monthly rent increases to $4,157 per month in 2010.
This lease expires November 15, 2010.  We use this office space
to conduct the operations of PEI Disposal Group.




Treatment
and Recycling Segment




We own
approximately 1.83 acres of land located in Millville, New Jersey. This property
includes oil tanks and approximately 6,400 square feet of warehouse space. We
use this facility to store oil inventory and idle equipment. This property
serves as collateral for PE Recycling’s $8.0 million term loan.




We own
approximately 20.27 acres of land in Vineland, New Jersey, which includes
various warehouse and office buildings in a commercial industrial park totaling
approximately 59,647 square feet. We maintain our TDU unit and our soil and oil
recycling operations on this property. The buildings are used as offices for
administrative, operational, maintenance and technical employees. This property
serves as collateral for PE Recycling’s $8.0 million term
loan.




Environmental
Services Segment




During
2009, we leased approximately 4,300 square feet of office space in Waterbury,
Connecticut for the main offices of PE Environmental.  On December 1,
2009 we vacated this office space and leased a smaller office space consisting
of 1,320 square feet in Waterbury, Connecticut for $950 per month with a 3%
increase each year.  This lease expires on November 30, 2012 and
automatically renews for an additional three-year term unless written
notification is provided at least 180 days in advance of the term
expiration.




We own a
24 acre Brownfield site located in an industrial park in central Connecticut.
Our plan is to seek the necessary permits and approvals to allow us to transport
soils over the next two to three years needed to cap this site.




Materials
Segment




We
operate a rock crushing facility on approximately five acres located in
Lyndhurst, New Jersey, which includes office space of approximately 5,100 square
feet. Under the lease, we pay base rent of up to $35,000 per month, plus taxes
and specified utilities and other charges.  The lease term expires
October 1, 2010 and may be extended for up to five two-year
periods.




Corporate
Headquarters




In
addition to the foregoing, we lease approximately 2,500 square feet for our
principal executive offices in Trevose, Pennsylvania under a lease that began on
June 1, 2008 and expires on May 31, 2010.  We pay monthly rent of
$4,100 under this lease.


48




Item
3.   Legal Proceedings.




We may be
involved in litigation and other legal proceedings from time to time in the
ordinary course of our business. Except as otherwise set forth in this annual
report, we believe the ultimate resolution of these matters will not have a
material effect on our financial position, results of operations or cash
flows.




Litigation




Local
282 Benefit Fund Litigation




On March
8, 2010, we and Juda, PE Materials, PE Disposal and PEI Disposal Group were sued
in the U.S. District Court for the Southern District of New York. The plaintiffs
are the trustees of several boards of trustees of employee benefit funds which
are associated with the Teamsters Local Union 282, or Local 282.  The
funds are the Local 282 Welfare Fund, the Local 282 Pension Fund, the Local 282
Annuity Fund, the Local 282 Job Training Fund, and the Local 282 Vacation and
Sick Leave Trust Fund.  All of these Local 282 funds are
multi-employer benefit funds governed by the Taft-Hartley Act and by ERISA.
Other named defendants are Whitney Trucking, Inc., and three individuals who are
alleged to have owned and/or controlled Whitney Trucking and Juda and caused an
under-reporting and failure to make payments of contributions to the Local 282
funds.




The
plaintiffs are seeking collection of moneys allegedly due for delinquent
contributions to them in accordance with the terms of various collective
bargaining agreements which existed between Local 282 and either Whitney
Trucking or Juda. The plaintiffs allege that these companies owe contributions
to the Local 282 funds for the period from 2000 to 2004 and from January 19,
2006 to the present.




The Local
282 funds have calculated that the amounts due from 2000 to 2004 consist of
$1,355,378 in unpaid contributions, $1,483,933 in interest calculated through
the dates of the audits conducted by those funds’ auditors and $97,535 in audit
fees. In the aggregate the amount sought for the period 2000 to 2004 is
$2,936,847.




The
plaintiffs have also asserted pursuant to our January 19, 2006 acquisition of
certain assets of Whitney Contracting, Inc. and the January 19, 2006 purchase of
100% of the stock of Juda that we and the subsidiaries named as defendants
became liable for the obligations of Juda which included the delinquent
contributions owed to the Local 282 funds for the period from 2000 to
2004.  The Local 282 funds acknowledge that they have not conducted
audits nor have reviewed the books and records of us and the defendant
subsidiaries to determine the amount of delinquent contributions being sought
for the period from January 19, 2006 to present.  Rather, plaintiffs
assert until such audit is completed that the Local 282 funds are permitted in
accordance with the language of the respective trust agreements to “estimate”
the amount of contributions due in their sole discretion. In this regard, the
plaintiffs have noted that they are seeking $6,000,000 for allegedly unpaid
contributions for the period from December 1, 2007 to September 30, 2009, plus
any additional contributions which the auditors might determine are owing for
the periods from January 20, 2006 through November 2007 and from October 1, 2009
to the present. Notably, the Local 282 funds have failed to disclose any
information about the methodology or basis used in their “estimation” exercise
for the period from December 1, 2007 to September 30, 2009, and have otherwise
failed to justify the $6,000,000 “estimate”.




Additionally,
the Local 282 funds are claiming that we and the defendant subsidiaries became
bound to the terms of the collective bargaining agreements which had been
executed between Juda and Local 282 for the period from 2004 to 2012 and to the
terms of the 2006-2009 Metropolitan Truckers’ Association and Independent
Trucker’s Agreement, or MTA.  Moreover, the plaintiffs assert that we
and those subsidiaries have failed to comply with the terms of the collective
bargaining agreements with Local 282 and with the MTA agreement for the period
commencing on January 20, 2006. As a result the Local 282 funds are seeking to
conduct an audit of those companies’ books and records by the Local 282 funds’
auditors to determine the amount of contributions due to the Local 282 funds
from that date. The Local 282 funds are seeking the remedies permitted by ERISA
which include payments of contributions, interest, liquidated damages, costs and
disbursements and reimbursement of reasonable counsel fees.


49




The
litigation was only filed very recently. As a result, we are still evaluating
the merits of the lawsuit as well as the potential impact of the allegations in
the complaint, and we are in the early stage of preparing defenses and responses
to those allegations.  However, we and the defendant subsidiaries
intend to contest plaintiffs’ claims in this lawsuit and to vigorously assert
their defenses.




Soil
Disposal Litigation




On
December 12, 2007, subsequent to our asset purchase of Soil Disposal in November
of 2007, Clean Earth, Inc., which was the former employer of the Soil Disposal
sales representatives and certain of its affiliates filed a complaint against
us, PEI Disposal Group, Soil Disposal, the Soil Disposal sales representatives
individually, one of our officers and other named parties.  The
complaint alleges, among other things, that the defendants breached certain
covenants not to compete and a non-solicitation covenant with respect to
customers and employees of the plaintiff.  The complaint also claims
that we interfered with contractual relations of the plaintiff and aided and
abetted the Soil Disposal sales representatives’ breach of certain fiduciary
duties to the plaintiff, unfair competition by the defendants, and
misappropriation of trade secrets and confidential information.  The
plaintiffs are seeking injunctive relief, unspecified compensatory,
consequential and punitive damages and attorneys’ fees against all
defendants.




With the
filing of this complaint, the plaintiffs applied for a temporary restraining
order, a preliminary injunction and expedited discovery against all defendants,
which were denied by the court on December 20, 2007.  In September
2008, the plaintiff amended its claim and also moved to compel us and the other
defendants to produce additional documents.  The defendants opposed
these motions and cross-moved for summary judgment dismissing the
case.  On April 15, 2009, the court referred the case to an
alternative dispute resolution program for a 45-day period during which time the
parties were unable to resolve the case. In the meantime the court, at the
defendants’ request, ordered a stay of all further discovery.  On July
6, 2009, the court initially denied the defendants’ motion for summary judgment,
but on October 22, 2009 granted re-argument on the motion, ordered a stay of all
further discovery and ordered the plaintiff to produce proof of
damages.  The defendants have also sought dismissal of the case on the
grounds that the plaintiff has failed to produce documents relevant to its
claims.  The motion for summary judgment presently remains undecided
and no hearings are scheduled while the parties await the court’s decision on
reargument of the summary judgment motion.  The defendants have denied
all material claims, believe the plaintiffs’ claims are without merit and intend
to continue to contest this lawsuit vigorously.




Defamation
Litigation




On
January 14, 2008, a lawsuit was filed in the Superior Court of New Jersey,
Camden County, by James Sanford, Corsan Technologies, Inc., Elite Management,
Inc. and Donna Pantaleo alleging that we, one of our consultants and one of our
officers defamed the plaintiffs by sending a letter to the Pennsylvania Office
of the Attorney General. The complaint alleges that the letter included numerous
false and defamatory statements and assertions about the plaintiffs arising out
of their business. The plaintiffs are seeking unspecified compensatory and
punitive damages against all defendants.  On May 29, 2009, we issued
30,000 shares of Pure Earth common stock to settle this lawsuit and entered into
an agreement with the plaintiff whereby PE Recycling will accept a specified
quantity of soils from the plaintiff at a stated price.




Juda
Litigation




On
April 17, 2006, a lawsuit was filed in the U.S. District Court for the
District of New Jersey by Duraport Realty Two, LLC against Whitney Contracting,
Juda and certain of their affiliates. This lawsuit involved an alleged breach of
a lease agreement between Duraport and Whitney Contracting, and personal
guarantees made by certain of the defendants. The complaint named Juda, our
wholly owned subsidiary, as a defendant and claimed that in 2005, Juda
misrepresented Whitney Contracting’s creditworthiness, which fraudulently
induced Duraport to enter into the lease agreement, that Juda was unjustly
enriched by its use of the leased premises, and that Juda was liable for
property damage. Duraport had sought aggregate damages in excess of
$1.0 million.  In March 2009, without defendants admitting any
liability or wrongdoing or acknowledging the validity of any of the plaintiff’s
allegations, the parties settled this lawsuit for $350,000, of which Juda paid
$50,000 and all other defendants but one paid the remaining
$300,000.


50


During
the year ended December 31, 2007, we, Juda and the former owners of Juda were
named as co-defendants in a lawsuit filed in the U.S. District Court for the
Southern District of New York relating to the withdrawal liability owed to the
Local 282 pension trust fund.  On January 10, 2008, this case was
settled for $650,000, plus 10% annual interest, payable over a two-year
period.  Although all defendants agreed to be jointly and severally
liable for payment of this settlement, the former owners of Juda have agreed to
reimburse us for any costs and liabilities incurred as a result of this
litigation and to indemnify and hold us harmless against any claims, suits,
causes of action or losses.  We and the former owners of Juda agreed
to settle this liability as follows:




·
            $250,000
      was payable upon execution of the settlement agreement;
  and




·
            two
      consecutive payments of $200,000 each, plus accrued interest, are to be
      made on or before December 10, 2008 and 2009,
  respectively.




To
facilitate this settlement, we posted a $400,000 letter of credit to serve as a
credit enhancement.  Pursuant to a Reimbursement and Indemnity
Agreement with the former owners of Juda, we have the right to offset any
amounts owed by them against salary compensation or annual bonuses that they
would otherwise be entitled to receive from us.  We also required the
former owners of Juda to pledge 150,000 shares of our common stock held by them
as collateral for the letter of credit.  The pledged shares were
deposited into an escrow account that is jointly held by the
parties.  On December 10, 2008, we made a payment of $200,000, at
which time the outstanding letter of credit was reduced to
$200,000.  At that time, we also required the former owners of Juda to
post an additional 125,000 shares of our common stock as additional
collateral.  In May 2009 we retired 200,000 shares of these shares
held in escrow as reimbursement for the December 2008 payment made on behalf of
the former owners of Juda.  On December 10, 2009, we permitted the
Local 282 pension trust fund to draw down on the outstanding $200,000 letter of
credit in order to satisfy the remaining portion of the outstanding
liability.  On December 14, 2009, at our request, the former owners of
Juda posted an additional 150,000 shares of Pure Earth common stock as
collateral for their obligation to repay the second $200,000 payment that we
made in December 2009.  In January of 2010, we notified the
indemnitors of our intention to offset the $200,000 receivable due and owing to
us against salaries and other compensation amounts due to these individuals over
the remaining term of their employment agreements.




Accounts
Receivable Litigation




In
September of 2007, we began transportation and disposal work on a large
construction job in New York City to redevelop several city
blocks.  Beginning in September 2007 and through September 30, 2008,
we billed a total of $9.2 million to this customer for which it received
payments totaling $7.3 million, leaving an outstanding receivable balance of
$1.9 million.  In addition, we also billed an additional $0.9 million
in September of 2008 relating to this same job through another one of our major
customers and for which we had a payment bond in the amount of $0.9 million in
place.  In August of 2008, the we were notified by the customers that
they were stopping payment due to a dispute over the tonnage of material removed
from the construction site.  We promptly ceased work on the job and
filed a mechanics’ lien on the properties in September of 2008.  In
December of 2008, we filed three lawsuits in the Supreme Court for the State of
New York, County of New York, against these customers and other lien holders,
alleging that approximately $2.8 million in amounts owed to us for
transportation and disposal fees, plus applicable interest, have not been
paid.  We sought to foreclose on a mechanics’ lien and alleged breach
of contract, unjust enrichment and account stated claims.  Certain of
the defendants have filed counterclaims against us for breach of contract, fraud
and willful lien exaggeration, and seek at least $2.0 million in damages in each
of the three cases, plus punitive damages and attorneys’ fees in an amount to be
proven at trial.  On May 29, 2009, we agreed to a settlement whereby
we will receive a total of $2.0 million in satisfaction of the $2.8 million of
outstanding accounts receivable and dismissal of the
counterclaims.  Of this settlement amount, $1.0 million was to be
received within 15 days of the final settlement and the remaining $1.0 million
is scheduled to be repaid in 18 monthly installments of $55,555 beginning on
September 1, 2009.  On July 1, 2009, we received the first installment
of $1.0 million, and have received subsequent monthly payments totaling $222,220
for the months of September, October, November and December 2009.  The
remaining note receivable is secured by approximately $888,000 in payment bonds
held by us in the event of nonpayment by the customers.


51




New
Jersey Sales and Use Tax Audit




The State
of New Jersey conducted a sales and use tax audit of PE Recycling. The audit
covered the period from October 2002 through December 2006, prior to
our acquisition of PE Recycling in March 2007.  We estimated the
total potential sales and use tax liability, including estimated interest and
penalty, to be approximately $0.5 million, and we established a reserve in
this amount.  On June 16, 2008, New Jersey offered to settle this
matter for the full five years at issue for approximately $265,000, if paid
before July 20, 2008. We accepted this offer on June 28, 2008 and paid
the proposed settlement amount in full.




As a
result of the resolution of this liability, we would be obligated to issue
additional shares to the former owner of PE Recycling for the reduction in the
liability amount pursuant to the PE Recycling stock purchase
agreement.  As of December 31, 2008, we have recorded a liability of
approximately $72,000 for the present estimated value of these
shares.  However, we have not issued these shares to the former owner,
as the actual amount of shares to be issued, if any, remains subject to the
resolution of the remaining PE Recycling post-closing liabilities, as provided
for in the PE Recycling stock purchase agreement.




PE
Recycling Litigation




On
September 14, 2009, we filed a complaint in the United States District Court for
the Eastern District of Pennsylvania against Gregory Call, a former owner of PE
Recycling, claiming that Mr. Call breached the terms of a stock purchase
agreement by which we acquired PE Recycling.  Under the terms of the
stock purchase agreement, Mr. Call is legally obligated to indemnify us and hold
us harmless against all liabilities, losses, damages, costs and expenses arising
from his breach of any representation or warranty in the stock purchase
agreement.  We have alleged that Mr. Call has breached numerous
representations and warranties in the stock purchase agreement and thereby has
triggered his obligation to indemnify us, which the former owner has
disputed.  In the complaint, we allege that Mr. Call’s failure to
indemnify us has breached the terms of the stock purchase
agreement.  We are seeking to recover in excess of $4.0 million in
monetary damages (as well as attorney’s fees and expenses) and a declaratory
judgment as to our right to set off our damages under the stock purchase
agreement against any amounts we may owe the former owner
thereunder.




On
November 5, 2009, Mr. Call filed an answer to this complaint, generally denying
our claims and asserting a number of affirmative defenses.  In his
answer, Mr. Call also asserted counterclaims and third-party claims against us
and our chief executive officer and chief financial officer for fraudulent
inducement, violations of specified antifraud provisions of the federal
securities laws, breach of contract, breach of fiduciary duty, unjust
enrichment, civil conspiracy and breach of an implied covenant of good faith and
fair dealing.  Mr. Call seeks against the counterclaim defendants an
unspecified amount of compensatory and punitive damages, as well as attorney’s
fees and costs of suit, and any other relief deemed equitable and
just.  We deny any liability to Mr. Call, we believe that his defenses
and counterclaims are without merit and we will seek to vigorously contest these
counterclaims.


52


On
February 12, 2010, Mr. Call commenced an action against PE Recycling, our chief
executive officer, and our chief financial officer in the Superior Court of New
Jersey in Cumberland County.  Mr. Call alleges our chief executive
officer and chief financial officer made material misrepresentations and
omissions to induce him to enter into an employment agreement on March 30, 2007,
and that the employment agreement was breached when he was terminated in July
2009.  Mr. Call also asserts a claim under the New Jersey
Conscientious Employee Protection Act, alleging that he was terminated in
retaliation for disclosing to a governmental agency alleged acts of his employer
that he reasonably believed violated the law.  Mr. Call also seeks a
declaratory judgment that the non-compete provisions contained in the employment
agreement are void.  PE Recycling, and our chief executive officer and
chief financial officer have responded to this complaint denying  any
liability to the former owner and we believe that his claims are without merit
and we will seek to vigorously contest these claims.




Environmental
Matters




On
February 15, 2007, the NJ DEP asserted multiple violations against PE
Recycling of its Class B Recycling Facility Permit through the issuance of
an Administrative Order and Notice of Civil Administrative Penalty
Assessment.  The NJ DEP fined PE Recycling approximately $0.6 million,
which was accrued for at the date we purchased PE Recycling. In June 2009, PE
Recycling and the NJ DEP agreed to settle the outstanding fines and penalties
for approximately $228,000 to be paid in four equal quarterly installments of
$56,988 on September 1, 2009, December 1, 2009, March 1, 2010 and December 31,
2010.  In this settlement agreement the NJ DEP also determined that
the asserted violations had been corrected. The most significant of these
alleged violations, in terms of cost to remedy, was the storage of approximately
253,000 tons of processed and unprocessed soil in areas beyond the limits of PE
Recycling’s permit, and the ongoing processing of soil in areas where this
activity was not authorized.  To address these violations, we
installed our own supervisory team to oversee the processing and off-site
disposal of this soil, requiring an investment in PE Recycling of approximately
$3.7 million from June 30, 2007 through December 31, 2009. In
addition, we have invested approximately $150,000 to install impermeable
high-density polyethylene liners over an additional area of approximately one
acre to expand the footprint of its soil processing operation. We believe PE
Recycling’s unprocessed soil stockpile is currently in compliance with the
requirements of the NJ DEP permit. PE Recycling has also recently submitted a
permit amendment application to formalize its expanded soil processing operation
over the newly-lined area.




On
September 28, 2007, the EPA brought an administrative complaint against PE
Recycling, alleging that it failed to submit a response plan under the Clean
Water Act with respect to its facility in Millville, New Jersey. The complaint
proposes to assess a civil penalty in the amount of $103,000. On or about
December 11, 2009, PE Recycling submitted a detailed technical response to the
EPA summarizing the reasons why it is not subject to the facility response plan
requirements.   That submission is under review by the EPA, which has
advised PE Recycling that no further action is required until the EPA completes
its review.  PE Recycling intends to vigorously defend this matter, as the
technical review confirms that it has not been and is not now subject to the
facility response plan requirements.




In
October 2007, PE Recycling received a notice of violation from the EPA under
RCRA, asserting that our PE Recycling facility, since at least 2003, has been
improperly processing used oil, alleged to be a hazardous waste, for
distribution into commerce.  The EPA has alleged that PE Recycling
over a three year period from 2006 to 2009 processed and sold at least 2 million
gallons of used oil for fuel that should have been processed as a hazardous
waste.  The EPA has requested under RCRA specific information with
regard to this notice of violation.  PE Recycling has been cooperating
with the EPA’s information requests.  We believe that we can assert
valid defenses to the EPA’s allegations; however, in an effort to resolve this
matter amicably, in August 2009 we initiated settlement discussions with the
EPA.  The EPA responded that it would need to receive additional
information from us before it could properly consider a settlement
offer.  To support our settlement efforts, we intend to comply with
the EPA’s requests for information.  However, should these settlement
efforts be unsuccessful, we intend to contest the EPA’s allegations in the
notice of violation vigorously.




From time
to time, we may pay fines or penalties in environmental proceedings relating our
businesses. We do not believe that the fines or other penalties in any of these
matters will, individually or in the aggregate, have a material adverse effect
on our financial condition or results of operations.


53




Item
4.  [RESERVED].




PART
II




Item
5.   Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.




Market
for Our Common Equity




The
acquisition of South Jersey Development, Inc. took place on January 20,
2006. From February 6, 2006 to December 23, 2008, our common stock was
quoted on the Pink SheetsÒ
automated electronic quotation service under ticker symbol
“PREA.PK.”  Prior to February 6, 2006, our stock was quoted on
the Pink SheetsÒ
under ticker symbol “INFV.PK.”  Beginning on December 24, 2008, our
common stock has been quoted on the OTC Bulletin Board under ticker symbol
“PREA.OB.”




The
following table sets forth the range of the high and low trading prices for our
common stock for each fiscal quarter of our last two fiscal years, as provided
by Commodity Systems, Inc. through Yahoo! Inc.’s Yahoo!Ò
Finance web site.  These prices reflect actual transactions, without
retail mark-up, mark-down or commission.




High
                    
                    
                    LowFiscal
      Year Ended December 31, 2008First
      Quarter
                    
                    $
                    3.50
                    
                    
                    $
                    1.01Second
      Quarter
                    
                    
                    2.50
                    
                    
                    
                    1.45Third
      Quarter
                    
                    
                    2.45
                    
                    
                    
                    1.21Fourth
      Quarter
                    
                    
                    1.79
                    
                    
                    
                    1.26Fiscal
      Year Ended December 31, 2009First
      Quarter
                    
                    $
                    1.45
                    
                    
                    $
                    0.71Second
      Quarter
                    
                    
                    1.10
                    
                    
                    
                    0.57Third
      Quarter
                    
                    
                    0.94
                    
                    
                    
                    0.40Fourth
      Quarter
                    
                    
                    0.63
                    
                    
                    
                    0.18




As of
April 10, 2010, there were 17,587,899 shares of our common stock outstanding
held by approximately 201 stockholders of record, solely based upon the count
our transfer agent provided us as of that date. This number does not include any
beneficial owners of common stock whose shares are held in the names of various
dealers, clearing agencies, banks, brokers and other fiduciaries.  It
also does not include broker-dealers or other participants who hold or clear
shares directly or indirectly through the Depository Trust Company, or its
nominee, Cede & Co.




We have
not paid dividends on our common stock in the past and do not anticipate paying
dividends on our common stock in the foreseeable future.  We
anticipate that we will retain future earnings, if any, to fund the development
and growth of our business.  While outstanding, the terms of our
Series B preferred stock do not permit us to pay any cash dividends on our
common stock.  The terms of our Series C convertible preferred stock
do not permit us to pay dividends on our common stock unless all dividends with
respect to our preferred stock have been paid in full and such payment is not
prohibited by the terms of our preferred stock.  In the future, we may
be a party to other agreements that limit or restrict our ability to pay
dividends.  In addition, the General Corporation Law of the State of
Delaware prohibits us from declaring and paying a dividend on our capital stock
at a time when we do not have (as defined under that law):


54




·
            a
      surplus, or, if we do not have a
surplus,




·
            net
      profit for the year in which the dividend is declared and for the
      immediately preceding year.




Recent
Sales of Unregistered Securities




We have
listed below sales and issuances of our unregistered securities made during 2009
that were not otherwise reported in a Form 10-Q or Form 8-K.




·
            On
      October 22, 2009, we issued 25,000 shares of common stock valued at $0.50
      per share and on December 17, 2009 we issued 25,000 additional shares of
      common stock valued at $0.50 per share to a marketing firm for services
      received.  These shares were issued under an exemption from
      Securities Act registration in reliance upon Section 4(2) of the
      Securities Act.




·
            On
      December 10, 2009, we issued 3,750 shares of our Series C convertible
      preferred stock valued at $10.00 per share to the former owner of Nycon,
      in exchange for a release from our obligation to repay $75,000 of the
      former owner’s notes payable.  These shares were issued under an
      exemption from Securities Act registration in reliance upon Section 4(2)
      of the Securities Act and/or Rule 506 promulgated
    thereunder.




We
believe that the offers and sales indicated as being exempt from Securities Act
registration under Section 4(2) of the Securities Act were so exempt for, among
other things, the following reasons:




·
            the
      subject securities were sold to a limited group of
  persons;




·
            we
      reasonably believed that each investor was purchasing our securities for
      investment without a view to resale or further distribution, except in
      compliance with the Securities Act;




·
            each
      investor was reasonably believed to possess one or more of the following
      characteristics:




o
            the
      investor was a sophisticated investor at the time of the
    sale;




o
            the
      investor had a pre-existing business or personal relationship with us, our
      management or a placement agent engaged by us;
  or




o
            the
      investor received all material information about us and our business, or
      was given reasonable access to such information a reasonable period of
      time prior to any sale of our
securities;




·
            restrictive
      legends stating that the securities may not be offered and sold in the
      United States absent registration under the Securities Act or an
      applicable exemption therefrom were placed on certificates evidencing the
      securities or agreements relating thereto;
and




·
            no
      form of general solicitation or general advertising was made by us in
      connection with the offer or sale of these
  securities.




We
believe that the offers and sales indicated as being exempt from Securities Act
registration under Rule 506 under the Securities Act were so exempt for, among
other things, the following reasons:




·
            We
      complied with the applicable information requirements of Rule 502(b) under
      the Securities Act at a reasonable time prior to sale with respect to all
      purchasers who were not accredited
investors.




·
            We
      made available to each purchaser a reasonable time prior to his or her
      purchase the opportunity to ask questions and receive answers concerning
      the terms and conditions of the offering and to obtain any additional
      information that we possessed or were able to acquire without unreasonable
      effort or expense that was necessary to verify the accuracy of information
      furnished under Rule 502(b)(2)(ii) under the Securities
    Act.


55




·
            Neither
      we nor any person acting on our behalf offered or sold the securities by
      any form of general solicitation or general
  advertising.




·
            We
      exercised reasonable care to assure that the purchasers of the securities
      were not underwriters within the meaning of Section 2(a)(11) of the
      Securities Act.




·
            There
      were no more than 35 purchasers of the securities, as determined in
      accordance with Rule 501(e) under the Securities
  Act.




·
            If
      any purchaser was not an accredited investor, we had reason to believe
      that each such purchaser either alone or with his or her purchaser
      representative(s) had such knowledge and experience in financial and
      business matters that he or she was capable of evaluating the merits and
      risks of an investment in the
securities.




·
            We
      filed a notice on Form D no later than 15 calendar days after the first
      sale of the securities in the
offering.




Item
6.    Selected Financial Data.




Not
applicable to smaller reporting companies.




Item
7.    Management’s Discussion and Analysis of Financial
Condition and Results of Operations.




The
following discussion and analysis of our results of operations and financial
condition should be read together with our consolidated financial statements and
the notes thereto, which are included elsewhere in this annual report on Form
10-K.




This
section contains forward-looking statements.  These forward-looking
statements are subject to various factors, risks and uncertainties that could
cause actual results to differ materially from those reflected in these
forward-looking statements.  Further, as a result of these factors,
risks and uncertainties, the forward-looking events may not
occur.  Relevant factors, risks and uncertainties include, but are not
limited to, those discussed in “Item 1.  Business,” “Item
1A.  Risk Factors” and elsewhere in this annual
report.  Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management’s beliefs and opinions as
of the date of this annual report.  We are not obligated to publicly
update or revise any forward looking statements, whether as a result of new
information, future events or otherwise.  See “Item 1. Business —
Forward-Looking Statements.”




Information
contained in this section and expressed in dollars has generally been presented
in round numbers.  Percentages contained in this section have been
calculated, where possible, using the information from our consolidated
financial statements, and not the rounded information provided in this
section.  As a result, these percentages may differ slightly from
calculations obtained based upon the rounded figures provided in this section
and totals contained in this section may be affected by rounding.




Overview
and Strategy




We are a
diversified environmental company that specializes in delivering innovative,
unique and sustainable solutions to alternate energy and recovery services in
the United States.  Our corporate objective is the management of
complex projects to maximize the beneficial energy, land resource reuse and
recycling potential of various materials throughout the United States. .We are a
provider of integrated environmental transportation, disposal, recycling,
consulting, engineering and related services, enabling the beneficial reuse of
soils and industrial waste streams into approved disposal facilities or
Brownfield sites


56




We were
originally formed as a Delaware corporation on February 13, 1997 under the name
Info Investors, Inc. with the original purpose of engaging in infomercial
marketing, but this business never actively developed and was abandoned in
2006.  On January 17, 2006, in connection with our acquisition of
South Jersey Development, Inc., we changed our name to Pure Earth, Inc. and
began to focus our efforts on the acquisition and operation of companies that
serve our objectives.




As we are
a relatively new company, a key element of our formation and growth to date has
been our ability to identify potential complementary environmental services and
beneficial reuse companies or specific assets of such companies as acquisition
targets, to negotiate and successfully close those acquisitions, and to
integrate the acquired businesses and assets into our operations.  By
combining these existing and new technologies into a single organization, we
believe we can be the leading provider of a wide array of soil reclamation,
waste recycling, alternative fuels and other environmental
services.  We also intend to utilize these services internally to
develop and rehabilitate Brownfield properties that we own for development, and,
ultimately, sale, as commercial real estate opportunities.




We
operate in the following four reportable business segments, which serve as
strategic business units through which our operations are generally
organized:




·
            Transportation and Disposal –We provide transportation and disposal services for excavated clean
      and contaminated soils from urban construction projects in the
      mid-Atlantic region and the New York metropolitan
  area.




·
            Treatment and Recycling
      –We remove,
      process, treat, recycle and dispose of residual waste from a variety of
      different industrial and commercial sources, targeting customers along the
      U.S. eastern seaboard.  We also plan to recycle waste products
      with high BTU value into alternative fuels for consumers and other end
      users.




·
            Environmental Services – We provide a
      wide range of environmental consulting and related specialty services,
      including:




o
            environmental
      investigation, consulting and engineering services to commercial and
      residential customers; and




o
            locating
      and acquiring Brownfield sites for subsequent development, restoration and
      potential resale, using capping material from our existing facilities or
      directly from our customer base.




·
            Materials – We produce
      and sell recycled construction materials for a variety of construction and
      other applications, including crushed stone and recycled
      aggregate.  Our construction materials are produced to meet all
      prevailing specifications for their
use.




The
operating results from activities previously classified as the Concrete Fibers
segment are now reflected as discontinued operations as of and for the years
ended December 31, 2009 and 2008.  This segment had originally been
created with our acquisition of Nycon effective April 2008.  In this
segment, we had recycled used carpet fibers into environmentally sustainable, or
“green,” fiber material and repacked and distributed various other fibers as
additives to concrete products.  In December of 2009, we decided to
discontinue the operation of New Nycon and the Concrete Fibers segment, at
which time we began to engage in negotiating the sale of this business, which
was completed on March 31, 2010. See “— Development of Our Business and
Significant Acquisitions — Acquisition Related to Discontinued
Operations.”




We
generate revenues and cash in each of our segments as follows:


57


·
            Transportation and Disposal –Revenues and cash are derived generally from fees charged to our
      customers for the collection, transportation and disposal of contaminated
      and clean soils from urban construction projects in the mid-Atlantic
      region and the New York metropolitan
area.




·
            Treatment and Recycling
      – Our revenues
      and cash are earned primarily through the following
    channels:




o
            fees
      earned as a disposal facility for treatment by thermal desorption of
      contaminated soils; and




o
            performing
      recycling services, such as oil recycling, decontamination, wastewater
      cleanup, and laboratory analysis.




·
            Environmental Services – We generate
      revenues from fees charged for our environmental consulting and related
      specialty services,including well-drilling and the disposal of medical waste.We have recently
      acquired our first Brownfield site and plan to take steps to cap this
      property with soils from our Transportation and Disposal segment.  We
      estimate that we will begin generating revenues from our Brownfield
      operations in the fourth quarter of
2009.




·
            Materials – Revenues
      and cash are generated by charging fees to customers for the removal of
      construction materials, such as rock and aggregate, from jobsites. 
      These fees are based upon the quantity and weight of material removed and
      the distance of the jobsite from our rock crushing facility.  We then
      process the material at our rock crushing facility into various crushed
      stone products, which are then resold to customers for use in other
      construction projects.  We sell our crushed stone products by weight
      and at a unit price that varies depending on the product type.  Our
      Materials revenues are primarily dependent upon the high level of
      construction services in and around New York City and the New York-New
      Jersey-Connecticut tri-state area, as well as the demand for crushed stone
      products used in those construction
projects.




Our
discontinued operations (the former Concrete Fibers segment) generated cash
revenues and cash through the sale of packaged concrete fibers to construction
companies, concrete manufacturers and wholesalers in the domestic and foreign
marketplace. The price at which we sell these fibers was determined based upon
the type of fiber, the quantity of the order and the pricing of our competitors
for similar products. Our Concrete Fibers revenues were largely dependent upon
the demand from the commercial and residential construction industries and
prices set by the large companies that purchase our concrete fiber output. Also,
this segment’s ability to generate revenue largely depended upon our ability to
negotiate favorable sales agreements with these companies and our ability to
manage the costs of obtaining raw materials and selling our concrete fiber
products.




Overall,
we generally enter into customer and materials contracts on a purchase order or
similar basis.  We do not generally enter into long-term supply or service
contracts or arrangements with our customers.  As a result, our revenues
tend to be less regular than if we provided services or materials under
long-term or requirements contracts, and thus our revenues may fluctuate
significantly from period to period and between the same periods in different
fiscal years.  Thus, it may be hard for an investor to project our results
of operations for any given future period.




We
believe that the environmental services industry, especially in the eastern
United States, is generally poised to expand in the near future for several
reasons.  First, support for environmentally sustainable construction
methods and materials has increased over the past few years, and we predict that
this trend will continue in light of growing concerns regarding fuel
availability and consumption, and the environmental impacts of industry and
development.




Second,
the operation of commercial and industrial concerns in the northeastern United
States over the last 50 to 100 years has created a large number of properties
with environmental evaluation and waste disposal needs.  Cost-effective
restoration of these properties will be viewed as a solution to the limited
availability and high value of real estate in the northeastern United
States.  Since 1995, federal and state support of Brownfield programs have
served to promote and fund activities designed to efficiently clean up these
properties and restore them to productive and revenue-generating use. 
Finally, the increasing cost and declining capacity of landfills support the
development of alternative technologies for the beneficial recycling and reuse
of hazardous and other wastes, including soils, fuels, metals and
wastewater.


58




We
believe that we are well-positioned to capitalize upon these industry
opportunities.  First, we have commenced operations in strategically
selected geographic locations near major cities and industrial centers, such as
the New York-New Jersey-Connecticut tri-state area and the mid-Atlantic
region.  Despite a recent market downturn due to challenges posed by the
current economic environment, these regions have historically supported strong
construction growth and have driven the need for the recycling and reuse of a
variety of waste streams, which we believe will continue to be true in the
long-term.  We seek to improve and expand our existing operations to take
advantage of these opportunities while also improving our overall operating
efficiency to enhance profitability.




Second,
we are focusing on integrating a wide array of related environmental services
operations into a single platform to offer our customers a single source for
customizable transportation, disposal and treatment and recycling services, all
at a lower cost.  Our Materials segment also produces beneficially reused
construction materials at a significant discount to the cost of original
materials, which supports sales to construction sites.  Our services
integration strategy is being developed for us to capitalize on the Brownfield
redevelopment industry through the management of a diverse range of contaminated
materials and environmental services which we believe will allows us to seek
Brownfield sites for efficient and cost-sensitive development of these
properties.




Critical
Accounting Policies and Estimates




In
preparing our consolidated financial statements in conformity with accounting
principles generally accepted in the United States, we make estimates and
assumptions that affect the accounting, recognition and disclosure of our
assets, liabilities, stockholders’ equity, revenues and expenses.  We make
these estimates and assumptions because certain information that we use is
dependent upon future events, cannot be calculated with a high degree of
precision from data available or cannot be readily calculated based upon
generally accepted methodologies.  In some cases, these estimates are
particularly difficult and therefore require a significant amount of
judgment.  Actual results could differ from the estimates and assumptions
that we use in the preparation of our consolidated financial statements. 
Below is a summary of our most important accounting policies that may affect our
consolidated financial statements.




Revenue
Recognition:  We apply the revenue recognition principles set
forth under Accounting Standards Codification (“ASC”) Topic 605 — Revenue
Recognition (“ASC 605”) and the SEC’s Staff Accounting Bulletin No. 104,
“Revenue Recognition,” with respect to all of our revenue.  Accordingly,
revenue is recognized when persuasive evidence of an agreement exists, delivery
has occurred or services have been rendered, the price is fixed and determinable
and collection is reasonably assured.  Revenue is recognized net of
estimated allowances, which are determined based upon historical analysis,
recent market trends and in some cases specific evaluation.




We
recognize revenues associated with each of our four reportable segments as
follows:




·
            Transportation and Disposal –revenues are recognized upon completion of the disposal of the
      waste into a landfill or Brownfield, or when it is shipped to a third
      party for processing and disposal.  We bill our customers upon
      acceptance of the waste.  Because the disposal process typically
      occurs within one day of acceptance, we do not generally defer revenue
      based on the minimal amount of time between billing and completion of
      waste disposal.  At December 31, 2009 and December 31, 2008, there
      was not any waste that had been accepted, but not yet disposed of, into a
      landfill or other facility.


59


·
            Treatment and Recycling
      – revenues are recognized upon the acceptance of the waste into our
      facility and the completion of the treatment of hazardous or non-hazardous
      soils and oil byproducts.  Revenues from waste that is not yet
      completely processed (and their associated costs) are deferred until the
      services have been completed.  Some of our customer contracts require
      a certificate of disposal from a recycling outlet and for those specific
      contracts revenue is deferred until the disposal process has been
      completed.  Estimating the amount of revenue and costs of revenue to
      be deferred for waste that has not yet been completely processed requires
      significant judgments and assumptions to be made by management, such as
      the estimated cost per ton for fuel and the costs of handling,
      transportation and disposal.  At December 31, 2009 and December 31,
      2008, we recorded deferred revenues of approximately $0.1 million and $0.1
      million, respectively.




·
            Environmental Services
      – revenues are recognized as services are
  rendered.




·
            Materials:




o
            Revenue
      from incoming materials is recognized upon acceptance of the materials
      into the facility at which time it is deemed
  earned.




o
            Subsequent
      to the receipt of unprocessed materials, we process the material into a
      finished product.  The finished product is resold to third parties
      and revenue is recognized upon delivery of the finished product to the
      customer.




Revenues
with respect to our discontinued operations are recognized upon the shipment of
finished goods to our customers. Generally, title to the finished goods and risk
of loss pass to the customer when the goods are shipped. Therefore, we
recognized revenue for the former Concrete Fibers segment at that
point.




Accrued Disposal Costs. 
We record accrued disposal costs representing the expected costs of processing
and disposing of clean and contaminated soils that have been received into the
treatment facility.  Disposal costs include the costs associated with
handling and treating the waste, and the cost of disposing the processed
materials.  Any soil that is unprocessed is expected to be treated within
the next 12 months and, therefore, this obligation is classified as a current
liability on our consolidated balance sheets.  Except as required by
certain specific customer contracts, we generally are not obligated to dispose
of processed soil within a specific time period.  As a result, disposal
costs for processed soil not subject to those specific customer contracts are
classified as a long-term liability on our consolidated balance
sheets.




Accounts Receivable and Allowance
for Doubtful Accounts.  Our accounts receivable are due from a
variety of customers.  We extend credit based on continuing evaluations of
the customer’s financial condition, and in certain instances may require
additional collateral or insurance bonds from our customers.  We review
accounts receivable on a monthly basis to determine if any receivables will be
potentially uncollectible.  We include any accounts receivable balances
that are determined to be uncollectible, along with a general reserve based on
historical experience, in our overall allowance for doubtful accounts.  We
assess the need for specific reserves based upon factors specific to the
individual receivables and customers, including our past experience in dealing
with the customer, length of time outstanding, condition of the overall economy
and industry as a whole and whether or not the contract is bonded or
insured.  For many of our larger contracts, we may require the customer to
obtain an insurance bond to provide for additional collateral in the event that
we are unable to collect from the customer directly.  Accounts receivable
written off in subsequent periods can differ materially from the allowance for
doubtful accounts provided, but historically our provision has been
adequate.




Goodwill and Intangible Assets with
Indefinite Lives.We assess goodwill and intangible assets with
indefinite lives on at least an annual basis or if a triggering event has
occurred to determine whether any impairment exists.  We assess whether
impairment exists by comparing the carrying value of each reporting unit’s
goodwill to its implied fair value.  The implied fair value of goodwill is
determined by deducting the fair value of each reporting unit’s identifiable
assets and liabilities from the fair value of the reporting unit as a
whole.  We rely on discounted cash flow analyses, which require significant
judgments and estimates about the future operations of each reporting unit, to
develop our estimates of fair value.  Additional impairment assessments may
be performed on an interim basis if we encounter events or changes in
circumstances that would indicate that, more likely than not, the carrying value
of goodwill has been impaired.


60




We also
have valuable state and local permits that allow our companies within the
Treatment and Recycling segment to operate their recycling and soil remediation
operations.  The permits do not have any legal, regulatory (other than
perfunctory renewal requirements of up to five years on certain permits),
contractual, competitive, economic or other factors that would limit the useful
lives of the assets, and therefore are deemed to have indefinite lives and are
not subject to amortization.  Permits with finite lives were immaterial at
December 31, 2009 and December 31, 2008, and any such permits would be amortized
on a straight-line basis over their estimated useful lives.




Intangible Assets with Finite Lives.Our amortizable intangible assets include customer relationships and
covenants not to compete.  These assets are being amortized using the
straight-line method over their estimated useful lives.  The customer lists
are stated at cost or allocated cost based upon purchase price allocations,
which were estimated based upon the fair value of the consideration given up to
obtain the assets.  Customer lists are amortized on a straight-line basis
over 10 years, which was determined by consideration of the expected period of
benefit to be derived from these customers, as well as the length of the
historical relationship.  Our non-compete agreements are amortized on a
straight-line basis over the term of the non-compete agreement.




Long-Lived Assets.  We
periodically evaluate the net realizable value of all of our long-lived assets,
including property, plant and equipment and amortizable intangible assets,
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be fully recoverable. We will evaluate events or changes in
circumstances based mostly on actual historical operating results, but business
plans, forecasts, general and industry trends, and anticipated cash flows are
also considered.  When indicators of potential impairment are present, the
carrying values of the assets are evaluated in relation to the operating
performance and estimated future undiscounted cash flows of the underlying
business.  An impairment in the carrying value of an asset is recognized
whenever anticipated future cash flows from an asset are estimated to be less
than the carrying value.  The amount of the impairment recognized is the
difference between the carrying value of the asset and its fair value. 
Fair values are based on assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates, reflecting varying
degrees of perceived risk. We will also continually evaluate the estimated
useful lives of all long-lived assets and, when warranted, revise such estimates
based on current events.  For the year ended December 31, 2009, we recorded
$0.7 million in losses related to equipment that was removed from
service within our Treatment and Recycling segment operations.




Business Combinations.Acquisitions we enter into are accounted for using the purchase method of
accounting.  The purchase method requires our management to make
significant estimates.  The accounting principles governing the accounting
of business combinations were substantially revised, effective January 1, 2009,
by the adoption of ASC Topic 805 – Business Combinations (“ASC 805”).  The
adoption of ASC 805 will impact our consolidated financial statements
prospectively in the event of any business combination we may enter into after
the effective date in which we are deemed to be the acquirer for accounting
purposes.  We did not enter into any business combinations subject to this
new accounting guidance during the year ended December 31, 2009.




Stock-Based
Compensation.  We adopted SFAS No. 123 (revised 2004), “Share-Based
Payment,” on July 24, 2007, concurrent with our board of directors approving the
2007 Stock Incentive Plan.  The guidance under SFAS 123(R) was subsequently
included in ASC Topic 718 – Compensation - Stock Compensation” (“ASC
718”).  Prior to July 24, 2007, we had not granted any stock-based
compensation to our employees, and thus the change in accounting policy
represented by the adoption of ASC 718 did not have any effect on our results of
operations for periods ending on or before June 30, 2007.




As a
result of the adoption of ASC 718, we are required to recognize compensation
cost relating to stock-based payment transactions with employees in our
consolidated financial statements.  That cost is measured based upon the
fair value of the equity or liability instrument issued as of the grant date and
is recognized over the requisite service period.


61


We did
not grant any stock-based compensation in the form of options during the years
ended December 31, 2009 and December 31, 2008.  When and if we do decide to
grant options to our employees or directors, we will be required to determine
the grant date fair value of the option using an appropriate option valuation
method, such as the Black-Scholes-Merton closed-form option valuation
model.  To calculate the grant-date fair value of options, we will be
required to make certain estimates or assumptions in accordance with the
guidance provided in ASC 718 and ASC Topic 820 – Fair Value Measurements and
Disclosures (“ASC 820”) including, among other things, the expected term of the
option, the expected volatility of our common stock, the expected dividend
yield, the requisite service period of the option and the risk-free interest
rate.  Any assumptions we make may need to be adjusted in accordance with
ASC 718 or ASC 820 and generally accepted accounting principles.




Warrants and Derivative
Instruments.  We have issued warrants to purchase our common stock
to the following parties:




·
            the
      holders of convertible debentures repaid in November 2007 and a placement
      agent in connection with this
transaction;




·
            the
      holders of our Series A preferred stock, which shares were originally
      issued in May 2007 and were automatically converted into common stock on
      June 30, 2008; and




·
            the
      holders of our Series B preferred stock issued in March
    2008.




We
account for the issuance of common stock purchase warrants and other free
standing derivative financial instruments in accordance with the provisions of
ASC Topic 825 – Financial Instruments (“ASC 825”) and ASC Topic 815 –
Derivatives and Hedging (“ASC 815”).  Based on the provisions of ASC 815,
we classify as equity any contracts that require physical settlement or
net-share settlement, or give us a choice of net-cash settlement or settlement
in our own shares (either physical settlement or net-share settlement). We
classify as assets or liabilities any contracts that require net-cash settlement
(including a requirement to net cash settle the contract if an event occurs and
if that event is outside our control) or give the counterparty a choice of
net-cash settlement or settlement in shares (either physical settlement or
net-share settlement).  As a result, we classify the warrants associated
with the convertible debentures and our Series A preferred stock as equity and
the warrant issued in connection with the Series B preferred stock as a
liability.  We assess the classification of our common stock purchase
warrants and other free standing derivatives at each reporting date to determine
whether a change in classification between assets and liabilities is
required.




Derivative Financial
Instruments.We use derivative financial instruments primarily for
the purpose of hedging our exposure to fluctuations in interest rates.  All
such instruments are entered into for other than trading purposes.  All
derivatives are recognized on the balance sheet at fair value and changes in the
fair value of derivatives are recorded in earnings.  Our only outstanding
derivative financial instrument at December 31, 2009 was an interest-rate swap
entered into in connection with the PE Recycling term loan.  See “ – Debt
Obligations – Long-Term Debt.”  This derivative financial instrument
is not currently designated as part of a hedge transaction and, therefore, it is
accounted for as a freestanding derivative financial instrument.




Fair Value Measurements.We adopted the provisions of ASC 820 for assets and liabilities that are
measured at fair value on a recurring basis effective January 1,
2008.  ASC 820 defines fair value, establishes a framework for measuring
fair value in GAAP and expands disclosures about fair value measurements. ASC
820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants.  ASC 820 also prioritizes the use of market-based
assumptions, or observable inputs, over entity-specific assumptions or
unobservable inputs when measuring fair value and establishes a three-level
hierarchy based upon the relative reliability and availability of the inputs to
market participants for the valuation of an asset or liability as of the
measurement date.  The fair value hierarchy designates quoted prices in
active markets for identical assets or liabilities at the highest level and
unobservable inputs at the lowest level.  Pursuant to ASC 820, when the
fair value of an asset or liability contains inputs from different levels of the
hierarchy, the level within which the fair value measurement in its entirety is
categorized is based upon the lowest level input that is significant to the fair
value measurement in its entirety.


62




In
classifying assets and liabilities recorded at fair value on a recurring basis
within the valuation hierarchy, we consider the volume and pricing levels of
trading activity observed in the market as well as the age and availability of
other market-based assumptions.  When utilizing bids observed on
instruments recorded at fair value, we assess whether the bid is executable
given current market conditions relative to other information observed in the
market.  Assets and liabilities recorded at fair value are classified in
Level Two of the valuation hierarchy when current market-based information
is observable in an active market.  Assets and liabilities recorded at fair
value are classified in Level Three of the valuation hierarchy when
current, market-based assumptions are not observable in the market or when such
information is not indicative of a fair value transaction between market
participants.




We
determine fair value based on quoted market prices, where available.  If
quoted prices are not available, fair value is estimated based upon other
observable inputs, and may include valuation techniques such as present value
cash flow models, option-pricing models or other conventional valuation methods.
We use unobservable inputs when observable inputs are not available.  These
inputs are based upon our judgments and assumptions, which are our assessment of
the assumptions market participants would use in pricing the asset or liability,
including assumptions about risk, and are developed based on the best
information available.  Adjustments may be made to reflect the assumptions
that market participants would use in pricing the asset or liability. 
These adjustments may include amounts to reflect counterparty credit quality,
our creditworthiness and liquidity.  The incorporation of counterparty
credit risk did not have a significant impact on the valuation of our assets and
liabilities recorded at fair value on a recurring basis as of December 31,
2009 and 2008.  The use of different assumptions may have a material effect
on the estimated fair value amounts recorded in our financial
statements.




As of
December 31, 2009 and 2008, 26% and 24%, respectively, of our total
liabilities were measured at fair value on a recurring basis, which liabilities
were related to the Susquehanna term loan and interest rate swap. 
Approximately 5% of our liabilities measured at fair value were valued using
primarily observable inputs and were categorized within Level Two of the
valuation hierarchy.  Our liabilities categorized within Level Two of
the valuation hierarchy are comprised of the interest rate swap entered into in
relation to the Susquehanna term loan.  Approximately 94% of our
liabilities measured at fair value were valued using significant unobservable
inputs and were categorized within Level Three of the valuation
hierarchy.  Our liabilities categorized within Level Three of the
valuation hierarchy consist solely of the Susquehanna term loan, which we
elected to carry at fair value pursuant to ASC 825.  See Note 15 in
the notes to our consolidated financial statements in this annual report for
additional information regarding the fair value hierarchy, our assets and
liabilities carried at fair value and activity related to our Level Three
financial instruments.




Preferred Stock.  We
classify and measure our preferred stock according to the provisions of ASC
Topic 480 – Distinguishing Liabilities from Equity (“ASC 480”).  Preferred
stock subject to mandatory redemption is classified as a liability instrument
and is measured at fair value in accordance with ASC 480.  We classify
conditionally redeemable preferred shares, which includes preferred stock that
features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control, as temporary equity.  The Series A preferred stock, which was
outstanding until June 30, 2008, contained a put option that was not solely
within our control and therefore, was classified as temporary equity.  The
Series B preferred stock issued in March 2008 is mandatorily redeemable in March
2013 and is therefore classified as a liability.  On November 30, 2009, we
issued Series C convertible preferred stock, which is convertible into shares of
the Company’s common stock at the option of the holder.  The Series C
convertible preferred stock does not contain any redemption rights that are
either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within our control.  Therefore,
the shares of Series C convertible preferred stock have been classified as a
component of equity as of December 31, 2009.




Income Taxes. 
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any necessary valuation
allowance recorded against net deferred tax assets.  The process involves
summarizing temporary differences resulting from the different treatment of
items; for example, differences arising as a result of applying the purchase
method of accounting to acquisitions.  Our management must then assess the
likelihood that deferred tax assets will be recovered from future taxable income
or tax carry-back availability and, to the extent that we believe recovery is
not likely, a valuation allowance must be established.


63




ASC Topic
740 – Income Taxes (“ASC 740”) prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.  ASC 740 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.  Based on our
evaluation of tax positions taken or expected to be taken in our tax returns, we
concluded that there are no significant uncertain tax positions requiring
recognition in our consolidated financial statements.    We file
U.S. federal income tax returns, as well as tax returns in various state and
local jurisdictions.  These returns are subject to audits by the respective
tax authorities.  We record penalties and accrued interest related to
uncertain tax positions in income tax expense.  Such adjustments have
historically been minimal and immaterial to our financial
results.


64




Results
of Operations – Year Ended December 31, 2009 Compared to Year Ended December 31,
2008




The
following table presents, for the periods indicated, a summary of our
consolidated statement of operations information.




For the Years Ended December 31,(in thousands, except share and per share data)
                
                2009
                
                
                2008Revenues
                
                $
                43,312
                
                
                $
                61,167Cost
      of revenues
                
                
                38,705
                
                
                
                50,374Gross
      profit
                
                
                4,607
                
                
                
                10,793Operating
      expenses:Salaries
      and related expenses
                
                
                4,762
                
                
                
                5,929Occupancy
      and other office expenses
                
                
                862
                
                
                
                1,101Professional
      fees
                
                
                2,020
                
                
                
                1,986Other
      operating expenses
                
                
                1,371
                
                
                
                2,081Insurance
                
                
                1,101
                
                
                
                1,036Depreciation
      and amortization
                
                
                475
                
                
                
                441Impairment
      of idle machinery and write off of fixed assets
                
                
                733
                
                
                
                1,618Gain
      on sale of equipment
                
                
                (24
                )
                
                
                (245
                )Total
      operating expenses
                
                
                11,300
                
                
                
                13,947Loss
      from continuing operations
                
                
                (6,693
                )
                
                
                (3,154
                )Interest
      expense, net
                
                
                (2,445
                )
                
                
                (1,889
                )Loss
      from equity investment
                
                
                (143
                )
                
                
                (311
                )Expenses
      for unrealized acquisitions
                
                
                (30
                )
                
                
                (271
                )Change
      in fair value of warrants with contingent redemption
      provisions
                
                
                729
                
                
                
                1,150Other
      income
                
                
                471
                
                
                
                189Loss
      from continuing operations before benefit from income
taxes
                
                
                (8,111
                )
                
                
                (4,286
                )Benefit
      from income taxes
                
                
                (1,600
                )
                
                
                (2,058
                )Net
      loss from continuing operations
                
                
                (6,511
                )
                
                
                (2,228
                )Discontinued
      operations:Loss
      from discontinued operations
                
                
                (358
                )
                
                
                (312
                )Benefit
      from income taxes
                
                
                —
                
                
                
                —Net
      loss from discontinued operations
                
                
                (358
                )
                
                
                (312
                )Net
      loss
                
                
                (6,869
                )
                
                
                (2,540
                )Less
      preferred stock dividends
                
                
                272
                
                
                
                478Net
      loss available for common stockholders
                
                $
                (7,141
                )
                
                $
                (3,018
                )Net
      loss per share from continuing operations (basic and
    diluted)
                
                $
                (0.39
                )
                
                $
                (0.16
                )Net
      loss per share from discontinued operations (basic and
      diluted)
                
                $
                (0.02
                )
                
                $
                (0.02
                )Net
      loss per share
                
                $
                (0.41
                )
                
                $
                (0.18
                )Weighted
      average shares of common stock outstanding during the period (basic and
      diluted)
                
                
                17,550,350
                
                
                
                17,427,847Earnings
      (loss) from continuing operations before interest, taxes, depreciation,
      and amortization (EBITDA)
                
                $
                (2,630
                )
                
                $
                498





We define
EBITDA (from continuing operations), as used in the table above, to mean our net
earnings (loss) from continuing operations before interest, benefit from income
taxes, depreciation and amortization.  We rely on EBITDA, which is a
non-GAAP financial measure:


·
            to
      review and assess the operating performance of our company and our
      reporting segments, as permitted by ASC Topic 280 – Segment
      Reporting;




·
            to
      compare our current operating results with corresponding periods and with
      the operating results of other companies in our
  industry;




·
            as
      a basis for allocating resources to various segments or
      projects;


65




·
            as
      a measure to evaluate potential economic outcomes of acquisitions,
      operational alternatives and strategic decisions;
  and




·
            to
      evaluate internally the performance of our
  personnel.




In
addition, we also utilize EBITDA as a measure of our liquidity and our ability
to meet our debt service obligations and satisfy our debt covenants, which are
partially based on EBITDA.  See “ – Liquidity and Capital Resources –
Summary of Cash Flows – Net Cash Used in Operating Activities.”




We have
presented EBITDA above because we believe it conveys useful information to
investors regarding our operating results.  We believe it provides an
additional way for investors to view our operations, when considered with both
our GAAP results and the reconciliation to net loss, and that by including this
information we can provide investors with a more complete understanding of our
business.  Specifically, we present EBITDA as supplemental disclosure
because:




·
            we
      believe EBITDA is a useful tool for investors to assess the operating
      performance of our business without the effect of interest and income
      taxes, which are non-operating expenses, and depreciation and
      amortization, which are non-cash
expenses;




·
            we
      believe that it is useful to provide to investors with a standard
      operating metric used by management to evaluate our operating
      performance;




·
            we
      believe that the use of EBITDA is helpful to compare our results to other
      companies by eliminating non-cash depreciation and amortization charges
      and the effects of differences in intangible asset valuation, which are
      often incurred with significant acquisitions of operations;
      and




·
            EBITDA
      is commonly used by companies in the waste management and environmental
      industries as a performance measure, and we believe that providing this
      information allows investors to compare our operating performance to that
      of our competitors in these
industries.




Even
though we believe EBITDA is useful for investors, it does have limitations as an
analytical tool.  Thus, we strongly urge investors not to consider this
metric in isolation or as a substitute for net loss and the other consolidated
statement of operations data prepared in accordance with GAAP.  Some of
these limitations include the fact that:




·
            EBITDA
      does not reflect our cash expenditures or future requirements for capital
      expenditures or contractual
commitments;




·
            EBITDA
      does not reflect changes in, or cash requirements for, our working capital
      needs;




·
            EBITDA
      does not reflect the significant interest expense, or the cash
      requirements necessary to service interest or principal payments, on our
      debt;




·
            although
      depreciation and amortization are non-cash charges, the assets being
      depreciated and amortized will often have to be replaced in the future,
      and EBITDA does not reflect any cash requirements for such
      replacements;




·
            EBITDA
      does not reflect income or other taxes or the cash requirements to make
      any tax payments; and




·
            other
      companies in our industry may calculate EBITDA differently than we do,
      thereby potentially limiting its usefulness as a comparative
      measure.


66




Because
of these limitations, EBITDA should not be considered a measure of discretionary
cash available to us to invest in the growth of our business or as a measure of
performance in compliance with GAAP.  We compensate for these limitations
by relying primarily on our GAAP results and providing EBITDA only
supplementally.




The
following table presents a reconciliation of net loss from continuing
operations, which is our most directly comparable GAAP operating performance
measure, to EBITDA for the years ended December 31, 2009 and December 31,
2008:




For the Years Ended
                    December 31,2009
                
                
                2008EBITDA
                
                $
                (2,630
                )
                
                $
                498Depreciation
      and amortization, including $2,561 and $2,454 of depreciation and
      amortization classified as a component of cost of revenues
                
                
                3,036
                
                
                
                2,895Interest
      expense, net
                
                
                2,445
                
                
                
                1,889Benefit
      from income taxes
                
                
                (1,600
                )
                
                
                (2,058
                )Net
      loss from continuing operations
                
                $
                (6,511
                )
                
                $
                (2,228
                )


(1)        Included
on our statement of operations as a component of other
income.




Revenues




The
following table sets forth information regarding our revenues, excluding
intercompany revenues, by segment (excluding discontinued operations) for the
years ended December 31, 2009 and 2008.




For the Years Ended December 31,2009
                
                
                2008(in thousands)
                
                Amount
                
                
                % of
                    Revenues
                
                
                Amount
                
                
                % of
                    RevenuesTransportation
      and Disposal
                
                $
                19,542
                
                
                
                45
                %
                
                $
                32,454
                
                
                
                53
                %Treatment
      and Recycling
                
                
                20,388
                
                
                
                47
                %
                
                
                24,878
                
                
                
                41
                %Environmental
      Services
                
                
                571
                
                
                
                1
                %
                
                
                2,008
                
                
                
                3
                %Materials
                
                
                2,812
                
                
                
                7
                %
                
                
                1,827
                
                
                
                3
                %Total
                
                $
                43,313
                
                
                
                100
                %
                
                $
                61,167
                
                
                
                100
                %




Revenues
decreased by $17.9 million, or 29%, from $61.2 million for the year ended
December 31, 2008 to $43.3 million for the year ended December 31, 2009. 
The overall revenue decrease in 2009 is primarily attributable to a $12.9
million decrease in revenues from the Transportation and Disposal segment, and a
$4.5 million decrease in revenues from the Treatment and Recycling
segment.  Our revenues from the Environmental Services segment also
decreased by $1.4 million for the year ended December 31, 2009 over the prior
year period.  Our revenues derived from the Materials segment increased
by $1.0 million from the year ended December 31, 2008 to the year ended
December 31, 2009.  The overall decrease in the revenues on a company-wide
basis and within our two largest segments, Transportation and Disposal and
Treatment and Recycling, were caused primarily by the economic downturn
which continued to negatively impact our industry throughout 2009, leading to
fewer overall jobs in the marketplace, particularly large construction based
projects upon which our revenues have historically been
dependent.


67


Revenues
from our Transportation and Disposal segment decreased by $12.9 million, or 40%,
from the year ended December 31, 2008 as compared to the year ended December 31,
2009.  Revenues in both periods were driven largely by the demand for our
Transportation and Disposal services in the New York metropolitan area, which
decreased significantly during the fourth quarter of 2008 and throughout all of
2009 as a result of the general downturn in the overall economy and particularly
in the construction industry in the New York metropolitan area.  We derived
22% and 36% of our Transportation and Disposal revenues from three large
customers for the years ended December 31, 2009 and 2008.  Revenues from
the Transportation and Disposal segment are highly dependent upon the market for
construction and rehabilitation projects in the New York City metropolitan area,
which experienced a significant downturn during the year ended December 31, 2009
as compared to 2008 and prior years. Based upon our current existing backlog for
2010 and continued bidding in the marketplace, we believe that in 2010 the
Transportation and Disposal segment should begin to recover from the downturn
and return towards historical sales levels experienced during 2007 and the first
half of 2008.




Revenues
from the Treatment and Recycling segment for the year ended December 31, 2009,
decreased by $4.5 million, or 18%, as compared to the year ended December 31,
2008.  The decrease in revenues is largely attributable to a decrease in
the volume of incoming clean and contaminated soils for processing in 2009,
resulting from the lack of marketplace activity for projects of this
nature.  The revenues for the year ended December 31, 2009 reflect a market
in which we are competing with other recycling and disposal service companies
for fewer overall jobs, resulting in lower pricing on a per ton basis. 
During the year ended December 31, 2009, we had three customers which
contributed approximately $6.7 million in revenues, or 34% of the segment’s
revenues.  As of December 31, 2009, we have made net advancements of
approximately $5.7 million to PE Recycling for equipment, capital improvements
and working capital needs, which we expect will enhance efficiency of this
segment’s operations and thereby translate into increased revenues.  During
the year ended December 31, 2009, we also continued to grow our business of
brokering alternative waste streams through PE Energy, which contributed $1.7
million of this segment’s revenues for the year ended December 31, 2009 compared
to $0.2 million in 2008.




Revenues
from the Environmental Services segment decreased by approximately $1.4 million,
or 72%, from $2.0 million for the year ended December 31, 2008 to $0.6 million
for the year ended December 31, 2009.  This decrease is the result of an
overall lack of revenues derived from consulting services and disposal revenues
which we had successfully expanded in 2008.  In January of 2008, we
purchased a Brownfield location in central Connecticut which we anticipate will
provide a disposal site for excavated soils from the Connecticut and New England
marketplace over the next three to four years.  We have experienced
significant delays in obtaining the necessary permits and approvals from both
state and local authorities, which are required for us to begin accepting
materials to this site.  As a result of these unexpected delays, we
presently anticipate that this site will begin generating revenues in the fourth
quarter of 2010.




Revenues
from the Materials segment increased by approximately $1.0 million, or 54%, for
the year ended December 31, 2009 as compared to the year ended December 31,
2008.  The Materials segment results overall were positively affected by
our consolidation of two rock crushing facilities into one facility during the
fourth quarter of 2008.  In October of 2008, we terminated our lease and
operating agreement for the North Bergen rock crushing facility, and as a result
we are no longer required to first offer the owner of this facility a fixed
price for our rock and aggregate products.  We believe that we will be able
to continue to sell these products at higher prices to other customers, which
will result in higher revenues on a per ton basis.  The loss of production
stemming from the closure of this rock crushing facility has been offset by
increased production at our Lyndhurst site, which can now process higher
quantities of material using $1.8 million of equipment that we began to lease in
2008.




The table
above excludes intercompany revenues of approximately $2.7 million and $3.3
million for the years ended December 31, 2009 and 2008, respectively, which
revenues were eliminated from our consolidated statements of operations. 
Our intercompany revenues largely reflect our use of Transportation and Disposal
services internally for our Materials processing activities and the shipment of
wastes to our Treatment and Recycling segment facilities.  We generally
reflect these services at their current market value when rendered.  An
important part of the strategic alignment of our segments is the synergies and
cost savings that these segments can provide to each other, which benefits us as
a whole.


68




Cost
of Revenues




The
following table sets forth information regarding our cost of revenues, excluding
intercompany costs, by segment for the years ended December 31, 2009 and
2008.




Cost of Revenues – By SegmentFor the Years Ended December 31,2009
                  
                  
                  2008(in thousands)
                  
                  Amount
                  
                  
                  % of
                      Revenues
                  
                  
                  Amount
                  
                  
                  % of
                      RevenuesTransportation
      and Disposal
                  
                  $
                  15,604
                  
                  
                  
                  36
                  %
                  
                  $
                  22,628
                  
                  
                  
                  37
                  %Treatment
      and Recycling
                  
                  
                  19,328
                  
                  
                  
                  45
                  %
                  
                  
                  22,234
                  
                  
                  
                  36
                  %Environmental
      Services
                  
                  
                  543
                  
                  
                  
                  1
                  %
                  
                  
                  1,685
                  
                  
                  
                  3
                  %Materials
                  
                  
                  3,230
                  
                  
                  
                  7
                  %
                  
                  
                  3,827
                  
                  
                  
                  6
                  %Total
                  
                  $
                  38,705
                  
                  
                  
                  89
                  %
                  
                  $
                  50,374
                  
                  
                  
                  82
                  %





Gross Profit – By SegmentFor the Years Ended December 31,2009
                  
                  
                  2008(in thousands)
                  
                  Amount
                  
                  
                  % of
                      Revenues
                  
                  
                  Amount
                  
                  
                  % of
                      RevenuesTransportation
      and Disposal
                  
                  $
                  3,938
                  
                  
                  
                  20
                  %
                  
                  $
                  9,826
                  
                  
                  
                  30
                  %Treatment
      and Recycling
                  
                  
                  1,060
                  
                  
                  
                  5
                  %
                  
                  
                  2,644
                  
                  
                  
                  11
                  %Environmental
      Services
                  
                  
                  28
                  
                  
                  
                  5
                  %
                  
                  
                  323
                  
                  
                  
                  16
                  %Materials
                  
                  
                  (419
                  )
                  
                  
                  (15
                  )%
                  
                  
                  (2,000
                  )
                  
                  
                  (110
                  )%Total
                  
                  $
                  4,607
                  
                  
                  
                  11
                  %
                  
                  $
                  10,793
                  
                  
                  
                  18
                  %




Cost of revenues decreased
by approximately $11.7 million, or 23%, from $50.4 million for the year ended
December 31, 2008 to $38.7 million for the year ended December 31, 2009. 
Our cost of revenues as a percentage of revenues increased to 89% for year ended
December 31, 2009 from 82% for the year ended December 31, 2008.  The
decline in our gross margin is primarily attributable to decreased margins
within the Treatment and Recycling segment, which in turn is due to a decrease
in the revenue per ton of material processed in 2009 compared to 2008. 
This decrease is the result of increased competition in the marketplace due to
lower overall sources of incoming material to be processed.The
gross profit margin in the Materials segment improved by $1.6 million as a
result of consolidating the North Bergen operations into our Lyndhurst site and
the termination of the North Bergen lease and operating agreement.  The
decreased margins in the Environmental Services segment are the result of lower
overall revenue amounts as compared to the costs of employing our environmental
consulting professionals.  The gross margins for our Transportation and
Disposal segment decreased from 30% to 20% for the year ended December 31, 2009,
as compared to the year ended December 31, 2008.  This decrease is
primarily attributable to an overall lack of large construction projects in the
New York metropolitan area, which have historically provided for higher margins
as compared to smaller projects, as well as downward pricing pressure resulting
from increased competition.




We plan
to decrease our cost of revenues to improve our gross margins by increasing the
number of disposal outlets accessible to us that are located closer to customer
job sites, which would decrease our transportation costs and provide alternative
disposal options to landfills.  Additionally, we plan to decrease
transportation and disposal costs by adding new transportation providers,
negotiating long-term contracts at more favorable prices, and using Brownfield
properties that we own or operate as additional disposal
outlets.


69


For 2010,
we expect to operate at gross margins ranging from 15% to 20% on a consolidated
basis.  We anticipate an increase in gross margins from 2009 due in large
part to several large Transportation and Disposal jobs which we expect to
provide increased gross margins and the treatment of higher priced materials
within the Treatment and Recycling segment coupled with decreased operating
costs.  These estimates are based on our current expectation of costs of
labor and transportation.  Our ability to achieve our estimated gross
margins in future periods may be impacted by, among other things, overall
economic conditions, fuel prices that rise faster than anticipated, increases in
disposal costs arising from a reduction in the disposal facilities’ capacity or
additional restrictions that may be placed on the types or amounts of waste they
may be able to accept, and our ability to successfully implement initiatives to
reduce operating expenses.




Operating
Expenses




Our
operating expenses include:




·
            salaries
      and related expenses (other than direct labor costs and union benefits
      described above);




·
            occupancy
      and other office expenses;




·
            professional
      fees;




·
            insurance;




·
            depreciation
      and amortization (other than amounts included as a component of cost of
      revenues as described above);




·
            impairment
      of idle machinery and write off of fixed
assets;




·
            gain
      recognized on our sale of certain equipment;
and




·
            other
      miscellaneous operating expenses.




The
following table summarizes the primary components of our operating expenses for
the years ended December 31, 2009 and 2008.




For the Years Ended
                    December 31,
                
                
                Period to Period Change(in thousands, except percentages)
                
                2009
                
                
                2008
                
                
                Amount
                
                
                PercentageSalaries
      and related expenses
                
                $
                4,762
                
                
                $
                5,929
                
                
                $
                (1,167
                )
                
                
                (20
                )%Occupancy
      and other office expenses
                
                
                862
                
                
                
                1,101
                
                
                
                (239
                )
                
                
                (22
                )%Professional
      fees
                
                
                2,020
                
                
                
                1,986
                
                
                
                34
                
                
                
                2
                %Other
      operating expenses
                
                
                1,371
                
                
                
                2,081
                
                
                
                (710
                )
                
                
                (34
                )%Insurance
                
                
                1,101
                
                
                
                1,036
                
                
                
                65
                
                
                
                6
                %Depreciation
      and amortization
                
                
                475
                
                
                
                441
                
                
                
                34
                
                
                
                8
                %Impairment
      of idle machinery and write off of fixed assets
                
                
                733
                
                
                
                1,618
                
                
                
                (885
                )
                
                
                (55
                )%Gain
      on sale of equipment
                
                
                (24
                )
                
                
                (245
                )
                
                
                221
                )
                
                
                (90
                )%Total
      operating expenses
                
                $
                11,300
                
                
                $
                13,947
                
                
                $
                (2,647
                )
                
                
                (19
                )%




Salaries
and related expenses represented approximately 42% of our total operating
expenses for the year ended December 31, 2009 and were driven primarily by our
overall headcount and compensation structure.  Our costs associated with
salaries and other related expenses decreased by $1.2 million, or 20%, which is
due to reductions in headcount which took place during the first and second
quarters of 2009 and voluntary reductions in management’s salaries which went
into effect on June 1, 2009.    We also did not award bonuses to
our employees during 2009, reflecting overall company-wide performance during
the year.


70


We
maintain employment agreements with many of our officers and key employees, many
of which provide for fixed salaries, annual increases in base salary, bonuses
based upon performance and other forms of compensation.  In June 2008, we
entered into employment agreements with two of our executive officers, which
provide them with increases in base salary and other benefits from year to
year.  A number of our employment arrangements include compensation tied to
metrics of our operating performance, such as pre-tax income orEBITDA. 
Furthermore, in the second quarter of 2007, our board of directors adopted our
incentive plan, which allows us to issue awards of options and shares of
restricted stock to our employees, non-employee directors and certain
consultants and advisors, for which we will be required to recognize as
compensation expense the fair value of these awards over the associated service
period.  We also pay monthly commission expenses to our sales
representatives operating in our Transportation and Disposal and Materials
segments, based upon a percentage of overall sales volume and or gross profits,
with additional incentives if certain sales thresholds are crossed.  We
anticipate that over time, our revenues and gross profits will return to and
exceed the levels experienced in previous years and beyond.  As a result,
we expect that our salaries and related expenses will increase in terms of
absolute dollars and, likely, as a percentage of total operating
expenses.




Occupancy
and other office expenses represent our costs associated with the rental of our
office space and other facilities, temporary labor, dues and subscriptions,
postage and other office expenses.  Rent includes the cost of leasing our
principal executive offices in Trevose, Pennsylvania and additional properties
and facilities in New York, New Jersey and Connecticut to support our
operations.  Occupancy and other office expenses decreased by $0.2 million,
or 22%, from the year ended December 31, 2008 as compared to the year ended
December 31, 2009, which is primarily attributable to the consolidation of our
Materials segment facilities into one operating location, consolidation of the
Bronx, New York office into the Lyndhurst site, and the implementation of cost
cutting initiatives and lower office expenses at Corporate and PE
Recycling.




For the
years ended December 31, 2009 and 2008, our professional fees consisted
primarily of:




·
            consulting
      fees paid for sales;




·
            audit
      and accounting fees related to the audit of our consolidated financial
      statements;




·
            legal
      costs associated with litigation;




·
            legal
      and other related costs associated with the preparation and filing of our
      quarterly, annual and periodic reports and other SEC
    filings;




·
            legal
      and other fees incurred in connection with our acquisitions and other
      matters; and




·
            fees
      paid to third parties and regulatory agencies to monitor safety and
      compliance with respect to certain of our
  operations.




Our
professional fees increased by $0.1 million, or 2%, for the year ended December
31, 2009 as compared to the year ended December 31, 2008, which is result of
additional legal fees associated with the ongoing PE Disposal litigation, legal
fees relating to various amendments with our senior lender and litigation
resulting from our termination of the former owner of PE Recycling.  For
2010, we anticipate that our auditing, accounting and other professional fees
will be consistent with our 2009 costs, except that we expect to incur
additional accounting and professional fees in order to comply with the internal
control over financial reporting auditor attestation requirements under the
Sarbanes-Oxley Act of 2002, or SOX, beginning with our 2010 fiscal year. 
Also, as we grow, whether through internal growth or by acquisition, the amount
of legal and other professional fees for any future transaction will increase as
a result of our status as an SEC reporting company subject to SOX.




We
maintain various policies for workers’ compensation, health, disability,
umbrella, pollution, product liability, general commercial liability, title and
director’s and officer’s liability insurance.  Our insurance costs
increased by approximately $0.1 million, or 6%, for the year ended December 31,
2009 as compared to the year ended December 31, 2008.  We renegotiated our
insurance coverage company-wide in August 2009, which resulted in an increase to
our insurance premiums as a result of past accidents within the Transportation
and Disposal segment.


71


For the
year ended December 31, 2009, we incurred $0.7 million in charges relating
to the write off of fixed assets held at PE Recycling.  In
December of 2009 we removed equipment from service with a net carrying value of
$0.7 million and placed into service refurbished pieces with a value of $1.0
million.  We determined that the pieces removed from service were impaired
and of little value due to the worn-out condition of these pieces and the amount
of money that would need to be spent to make them fully functional.  These
charges were accompanied by a corresponding reversal of approximately $0.2
million of the deferred tax liability associated with the idle machinery. 
For the year ended December 31, 2008, we incurred approximately $1.6 million in
impairment charges relating to idle machinery held at PE Recycling due to the
softening of the overall economy.  These impairment charges were
accompanied by a corresponding reversal of approximately $0.6 million of the
deferred tax liability associated with the idle machinery.  At December 31,
2009 and 2008, the idle machinery at PE Recycling had a carrying value of $3.8
million and $6.8 million, respectively, with approximately $1.3 million and $2.7
million of remaining deferred tax liabilities recorded in relation to this idle
machinery.  We plan to place additional pieces of this equipment into
service during the upcoming year and will attempt to sell the remaining pieces
that we are unable to use in our operations.




In
November 2008, PE Materials shifted its rock crushing operations from the North
Bergen, New Jersey facility to its other location in Lyndhurst, New
Jersey.  As a result of this move, approximately $345,000 of equipment was
no longer needed for operations and was transferred into idle machinery. 
We intend to hold this equipment for sale and have recorded the equipment on our
consolidated balance sheets at the lower of cost or market value.




Other
operating expenses consist of general and administrative costs, such as travel
and entertainment, bank service fees, advertising, bad debt expense and other
office and miscellaneous expenses.  Other operating expenses decreased by
approximately $0.7 million, or 34%, for the year ended December 31, 2009, as
compared to the year ended December 31, 2008.  This decrease was primarily
attributable to cost cutting initiatives, consolidation of offices, and a
reduction in bad debt expense.  During the year ended December 31, 2008, we
had incurred approximately $0.6 million in additional bad debt expense as a
result of an increase in our provision for doubtful accounts.  During the
year ended December 31, 2009, we recorded an additional $0.3 million of bad debt
expense in connection with the settlement of an outstanding accounts
receivable.  We anticipate that in future periods, other operating expenses
will continue to grow on a basis comparable to our increase in
revenues.




Loss
from Continuing Operations




The
following table sets forth our loss from continuing operations by reportable
segment for the years ended December 31, 2009 and 2008.




For the Years Ended
                    December 31,
                
                
                Period to Period Change(in thousands, except percentages)
                
                2009
                
                
                2008
                
                
                Amount
                
                
                PercentageTransportation
      and Disposal
                
                $
                (355
                )
                
                $
                3,343
                
                
                $
                (3,698
                )
                
                
                (111
                )%Treatment
      and Recycling
                
                
                (2,604
                )
                
                
                (1,085
                )
                
                
                (1,519
                )
                
                
                (140
                )%Environmental
      Services
                
                
                (445
                )
                
                
                (333
                )
                
                
                (112
                )
                
                
                (34
                )%Materials
                
                
                (396
                )
                
                
                (1,603
                )
                
                
                1,207
                
                
                
                75
                %Corporate
      and Other
                
                
                (2,893
                )
                
                
                (3,476
                )
                
                
                583
                
                
                
                17
                %Total
                
                $
                (6,693
                )
                
                $
                (3,154
                )
                
                $
                (3,539
                )
                
                
                (112
                )%




The
increase in loss from continuing operations within the Transportation and
Disposal segment is due in large part to a decrease in the overall
Transportation and Disposal revenues of approximately $12.9 million (excluding
intercompany revenues) coupled with a decrease in the gross profit margin from
30% for the year ended December 31, 2008, to 20% for the year ended December 31,
2009.  This decrease in gross profit margin is due primarily to the
increased competition in the marketplace for fewer overall projects resulting in
downward pricing pressure.  The Transportation and Disposal segment in 2009
continued to be negatively impacted by the decline in the overall economy and
the construction industry in the New York metropolitan area, which we
experienced during the fourth quarter of 2008 and throughout
2009.


72




For the
year ended December 31, 2009, the Treatment and Recycling segment had a loss
from operations of approximately $2.6 million as compared to a loss from
operations of approximately $1.1 million for the year ended December 31,
2008.  The decrease in operating results for the year ended December 31,
2009 is primarily due to a decrease in revenues of $2.9 million and lower
revenue per ton pricing, coupled with increased disposal and transportation
costs and operating expenses.  During the year ended December 31, 2009, we
made significant efforts to decrease our operating costs through the elimination
of approximately $1.7 million in salaries, the management of disposal costs, and
improvements in our operating efficiencies.  We expect that as the volume
of incoming materials increases, our income from operations attributable to the
Treatment and Recycling segment will also improve.  During the years ended
December 31, 2009 and 2008, PE Energy contributed an operating loss of
approximately $0.2 million and $0.3 million, respectively, due in large part to
being a startup operation with certain fixed overhead costs, such as
salaries.




Loss from
operations within the Environmental Services segment was approximately $0.4
million for the year ended December 31, 2009 as compared to a loss of
approximately $0.3 million for the year ended December 31, 2008.  The loss
from operations during 2009 was primarily attributable to a lack of new business
resulting from our environmental consulting services combined with additional
legal and permitting costs for relating to our Brownfield property.  We
expect that our losses from operations in the Environmental Services segment
will improve in 2010, as we have reduced personnel and shifted our focus
primarily to the development of the Brownfield site.  As a result of the
permitting and licensing delays we experienced in 2009, we presently expect to
commence revenue producing operations at our initial Brownfield property in the
fourth quarter of 2010.




The loss
from operations attributed to the Materials segment decreased from $1.6 million
for the year ended December 31, 2008, to a loss from operations of $0.4 million
for the year ended December 31, 2009.  The improvement in this segment
resulted primarily from the consolidation of our rock crushing facilities from
two locations into one and the termination of the North Bergen lease and
operating agreement.   As a result, we are no longer required to first
offer the owner of the North Bergen facility a fixed price for our rock and
aggregate products.  We have been able to sell these products at higher
prices to other customers, which contributed to higher revenues and better
margins on a per ton basis in 2009.




The loss
from continuing operations attributed to the Corporate and Other segment
decreased from $3.5 million for the year ended December 31, 2008 to $2.9 million
year ended December 31, 2009.  This reduction in our loss from operations
is due to decreased operating expenses at our corporate headquarters resulting
primarily from:




·
            a
      decrease in salary costs of approximately $0.1 million from headcount
      reductions coupled with management’s voluntary salary reductions;
      and




·
            a
      decrease in professional fees of approximately $0.4 million as a result of
      the non-recurrence in 2009 of, among other things, legal costs incurred
      during 2008 in connection with us becoming an SEC reporting
      company.




Interest
Income and Expense




Interest
expense, net of interest income earned on our short-term deposits of excess
operating cash, was $2.5 million and approximately $1.9 million for the years
ended December 31, 2009 and 2008, respectively.  The increase in interest
expense is due to




·
            approximately
      $0.3 million of additional interest expense incurred in relation to our
      Series B preferred stock offering and related accretion of the debt
      discount and amortization of deferred financing costs, as the Series B
      preferred stock was outstanding for the full year in 2009 but only for
      approximately ten months in 2008;




·
            $0.3
      million increase in interest expense incurred on our revolving line of
      credit, resulting from increased interest rates under the terms of our
      former revolving line of credit;
and


73




·
            $0.2
      million of additional interest expense resulting from the amortization of
      deferred financing fees arising from amendments to our former revolving
      line of credit agreement.




We
anticipate that the annual interest cost associated with our Series B preferred
stock will be approximately $1.3 million (including amortization of the deferred
financing costs and accretion of the debt discount).




On
February 11, 2010, we refinanced our existing revolving line of credit with a
new lender.  See “-Debt Obligations- Revolving Lines of
Credit.”  We will be required to pay the lender an invoice service fee
equal to 0.95% charged monthly on the daily outstanding principal balance under
the line of credit.   Interest will be charged by the lender on the
daily outstanding principal balance of the line of credit at the prime rate plus
2.5% on an annualized basis charged daily, collected at the end of each
month.  The prime rate is the greater of the prime rate as published in the
Wall Street Journal as
the “Prime Rate” (equal to the base rate on corporate loans posted by at least
75% of the nation’s 30 largest banks) or 5% per year.  The interest expense
incurred in relation to this new revolving line of credit will fluctuate based
upon our working capital requirements, as well as changes in the prevailing
interest rates. As a result of this refinancing, we anticipate that our interest
expense charged on the outstanding principal will increase by approximately $0.2
million, however this increase will be offset by a decrease in interest expense
resulting from the amortization of deferred financing fees which were
significantly higher under the previous senior lender.




On
November 12, 2008, we refinanced our existing long-term debt and revolving line
of credit at PE Recycling into a consolidated $8.0 million, seven-year term
loan.  In connection with this refinancing, we also entered into an
interest rate swap agreement, which effectively converted this adjustable-rate
loan into a fixed-rate loan with an annual interest rate of 6.10%.  See “–
Debt Obligations – Long-Term Debt.”




Expenses
for Unrealized Acquisitions




For the
year ended December 31, 2009, we incurred $30,000 for the write-off of
previously capitalized acquisition costs relating to a prospective Brownfield
project which, due to market conditions, we no longer plan to continue. 
For the year ended December 31, 2008, we incurred expenses for the write-off of
previously capitalized acquisition costs of approximately $271,000.  We
incurred $243,000 in expenses for unrealized acquisitions relating to
prospective Brownfield developments for which we ultimately were unable to
obtain the necessary permits or desired regulatory status and we therefore
disengaged from these projects.  We also incurred an additional $28,000 of
expenses in relation to start-up costs at PE Energy for potential project sites
which were ultimately unsuccessful.




Loss
from Equity Investment




On April
30, 2007, we acquired a 50% interest in a joint venture formed to identify and
enter into recycling opportunities for spent metal catalysts.  We account
for this investment under the equity method of accounting.  As a result,
for the year ended December 31, 2009, we recognized a loss of $143,431, which
represents 50% of the joint venture’s loss for the year.  For the year
ended December 31, 2008, we recognized a loss of $310,678, which represented 50%
of the joint venture’s loss for the year.  These losses relate primarily to
the write-off of costs incurred on developmental projects, write-down of
inventory values and significant downturn in the metals market.




Change
in Fair Value of Warrants with Contingent Redemption Provisions




Change in
fair value of warrants with contingent redemption provisions was $0.7 million
and $1.2 million for the years ended December 31, 2009 and 2008,
respectively.  These amounts represent gains relating to the warrants
issued with our Series B preferred stock, which occurred because these warrants
were revalued as of December 31, 2009 and 2008, as required under ASC 815. 
The decrease in the estimated fair value of these warrants was the result of a
decline in the fair value of our common stock underlying these
warrants.


74




Other
Income




Other
income for the year ended December 31, 2009 was approximately $0.5 million as
compared to $0.2 million for the year ended December 31, 2008.  In June of
2009, PE Recycling settled outstanding fines and compliance issues with various
state and local authorities for approximately $0.2 million and for which a $0.6
million liability was previously recorded as part of the opening balance sheet
at the date of acquisition on March 30, 2007.  The settlement of these
compliance issues and fines at a reduced amount resulted in a gain of
approximately $0.4 million, which was recorded as a component of other income
for the year ended December 31, 2009.




In
connection with the refinancing of PE Recycling’s revolving line of credit on
November 12, 2008, we also entered into an interest rate swap agreement, which
essentially converts our adjustable rate term loan to a fixed-rate loan bearing
interest at an annual rate of 6.10%.  We account for this interest rate
swap as a derivative contract pursuant to ASC 815, and therefore we recorded a
fair value adjustment increase of approximately $0.1 million for the year ended
December 31, 2009.  The fair value adjustment on the interest rate swap was
offset in large part by a mark-to-market adjustment decrease of approximately
$0.1 million for the year ended December 31, 2009 on Pure Earth Recycling’s term
loan, for which we have elected to apply the fair value option under ASC
820.




During
2008, PE Recycling underwent a sales and use tax audit in the State of New
Jersey, which was settled as of June 30, 2008 for approximately $0.3
million.  We had previously recorded an accrued liability of $0.5 million
as part of the opening balance sheet of PE Recycling on March 30, 2007. 
Pursuant to the PE Recycling purchase agreement and related amendments, a
portion of the reduction in this liability from $0.5 million to $0.3 million is
due back to the former owner in the form of shares of our common stock. 
Accordingly, we recorded a liability of approximately $166,000, and the
settlement of this matter resulted the recognition of a gain of approximately
$0.2 million for the year ended December 31, 2008.




In
connection with the refinancing of the PE Recycling revolving line of credit on
November 12, 2008, we also entered into an interest rate swap agreement, which
essentially converts our adjustable rate term loan to a fixed-rate loan bearing
interest at an annual rate of 6.10%.  We account for this interest rate
swap as a derivative contract pursuant to ASC 815, and therefore we recorded a
fair value adjustment decrease of $0.5 million for the year ended December 31,
2008.  The fair value adjustment on the interest rate swap was offset in
large part by a mark-to-market adjustment increase of $0.5 million on the new PE
Recycling term loan, for which we have elected to apply the fair value option
under ASC 820.




Benefit
From Income Taxes




For the
year ended December 31, 2009, we recognized a benefit from income taxes of
approximately $1.6 million, compared to a benefit from income taxes of $2.1
million for the year ended December 31, 2008.  The 2009 provision reflects
approximately $0.1 million of current federal and state tax liabilities, arising
mainly from our recognition of $8.1 million of net losses before taxes in 2009,
compared to $4.3 million of net losses before taxes for the year ended December
31, 2008.  For the year ended December 31, 2009, we also recognized $1.7
million of deferred income tax benefits as compared to $1.3 million of deferred
income benefits for the year ended December 31, 2007.  Deferred income tax
expense or benefit represents the future tax consequences attributable to
differences between the carrying amount of certain assets and liabilities on our
consolidated financial statements and their respective tax bases and loss
carryforwards.  The large year-to-year change was primarily attributed to
increased losses in 2009 as compared to 2008, as well as a decrease in our
effective income tax rate from 45% for year ended December 31, 2008 to 19% for
the year ended December 31, 2009.  The decrease in our effective tax rate
is the result of the establishment of an additional $1.8 million valuation
allowance for the year ended December 31, 2009 against certain portions our net
operating loss carryforwards, as we believe that it is more likely than not that
these net operating loss carryforwards will not be realized. We anticipate that
our effective income tax rate for 2010 will be approximately 40%.  As of
December 31, 2009, we had approximately $9.1 million and $24.1 million of
federal and state net operating losses, which begin to expire in 2018 and 2013,
respectively.  As of December 31, 2008, we had $2.8 million and $16.6
million of Federal and state net operating loss carryforwards, which begin to
expire in 2018 and 2013, respectively.


75




Losses
from Discontinued Operations




During
the years ended December 31, 2009 and 2008 we had losses of $0.3 million in each
year relating to the discontinued operations of New Nycon and the Concrete
Fibers segment.  These losses were largely the result of lower than
expected revenues due to an overall lack of marketplace demand for cement and
concrete products.  This decreased demand was attributable to the decline
in building within the residential housing market and the decline in commercial
projects requiring the use of concrete.  Revenues during the years ended
December 31, 2009 and 2008 were $1.6 million and $1.6 million,
respectively.




Liquidity
and Capital Resources




Overview




Major
changes in our financial position during the year ended December 31, 2009 and
during the first quarter of 2010 included the following items:




·
            During
      the year ended December 31, 2009, we had a net loss from continuing
      operations of approximately $6.9 million.  These losses have resulted
      in a decrease in working capital from $5.1 million as of December 31, 2008
      to $0.2 million as of December 31,
2009.




·
            During
      the year ended December 31, 2009, we entered into several amendments of
      our former revolving line of credit agreement which reduced our maximum
      amount under this facility from $7.5 million as of December 31, 2008, to
      $3.1 million as of December 31, 2009.  These amendments also resulted
      in the removal of certain loan reserves previously held by our lender and
      added and replaced financial covenants.  We also added PE Recycling
      and certain of our other subsidiaries as borrowers to the line of credit
      agreement, which added their accounts receivable and inventory as
      collateral and provided for an initial increase in borrowing availability
      of $2.2 million in March of 2009.  See summary under “—Revolving Line
      of Credit” below.




·
            On
      February 11, 2010, we refinanced our existing revolving line of credit by
      entering into a Commercial Financing Agreement with a new lender. 
      Under the Commercial Financing Agreement with the new lender, we have
      available to us a line of credit in the principal amount of up to the
      lesser of $5.0 million, or 85% of all eligible accounts receivable (as
      defined under the financing agreement) that have not been paid.  This
      refinancing increased our maximum line of credit amount from $3.1 million
      under the previous lender to $5.0 million, which was critical in enhancing
      our liquidity in 2010 to fund the projected growth in our accounts
      receivable.  This refinancing provided for approximately $1.4 million
      of initial borrowing availability as a result of a higher advance rate and
      less stringent accounts receivable eligibility
    requirements.




·
            During
      the year ended December 31, 2008, we had approximately $2.8 million of
      outstanding accounts receivable for a large job in New York City that was
      subject to dispute and ongoing litigation.  In June 2009, we settled
      this dispute for $2.0 million, of which $1.0 million was
      received  on July 1, 2009 and the remaining $1.0 million is to
      be repaid in 18 monthly installments of $55,555 per month.  As of
      December 31, 2009, we had received the first four of these monthly
      installments, totaling $0.2
million.




·
            On
      November 30, 2009 we issued 101,650 shares of our Series C convertible
      preferred stock in exchange for proceeds of approximately $1.0 million
      (see summary under “— Series C Convertible Preferred Stock” below). 
      We used these proceeds for working capital purposes and to reduce
      outstanding borrowings on our revolving credit
  facility.


76




·
            During
      the fourth quarter of 2009 and as a result of the operating losses
      incurred during the year ended December 31, 2009, we negotiated
      interest-only periods with several of our lenders and operating lease
      holders, which we expect to save approximately $0.7 million in cash
      payments during the period from November 2009 through May 2010 (see
      “—Long-Term Debt” for more details on these
  negotiations).




Cash
and Cash Equivalents




Cash and
cash equivalents consist primarily of cash on deposit and money market
accounts.  We had approximately $0.8 million and $0.9 million of cash and
cash equivalents on hand as of December 31, 2009 and 2008, respectively. 
As of December 31, 2009, we also had approximately $0.2 million on deposit to
secure an outstanding letter of credit.  We require cash for working
capital, capital expenditures, repayment of debt, salaries, commissions and
related benefits and other operating expenses, preferred stock dividends and
income taxes.




Summary
of Cash Flows




The
following table summarizes our cash flows for the years ended December 31, 2009
and 2008:




For the Years Ended December 31,(in thousands)
                
                2009
                
                
                2008Net
      cash used in operating activities
                
                $
                (582
                )
                
                $
                (3,113
                )Net
      cash used in investing activities
                
                $
                (330
                )
                
                $
                (489
                )Net
      cash provided by financing activities
                
                $
                808
                
                
                $
                2,617




Net
Cash Used in Operating Activities




The most
significant items affecting the comparison of our operating cash flows for the
years ended December 31, 2009 and 2008 are summarized below:




·
            Increase in loss from
      continuing operations – Our loss from continuing operations,
      excluding depreciation and amortization, was $3.6 million for the year
      ended December 31, 2009 and $0.3 million for the year ended December 31,
      2008.  Our loss increased by $3.4 million from year to year, which
      negatively impacted our cash flows for the year ended December 31,
      2009.




·
            Decrease in accounts
      receivable – Sources of cash from changes in accounts receivable
      were approximately $3.0 million and $0.9 million for the years ended
      December 31, 2009 and 2008, respectively.  The decrease in accounts
      receivable at December 31, 2009 is the result of an overall decrease in
      the revenues within our Transportation and Disposal and Treatment and
      Recycling segments, combined with the collection of a large amount of aged
      accounts receivable which were outstanding as of December 31, 2008. 
       The decrease in accounts receivable at December 31, 2008, was the
      result of a decrease in revenues from our Transportation and Disposal
      segment, offset in part by increases in the overall aging of the accounts
      receivables for this segment.  In particular, we had receivables from
      one large job outstanding in the amount of approximately $2.8 million as
      of December 31, 2008, which were disputed but ultimately settled in June
      of 2009.  See “Item 3.  Legal Proceedings – Litigation –
      Accounts Receivable
Litigation.”


77




·
            Change in restricted cash– We recognized an increase in restricted cash of $0.8 million for
      the year ended December 31, 2008.  This cash was restricted for the
      purpose of establishing a six-month principal and interest payment reserve
      for the PE Recycling term loan and to establish a $0.2 million deposit
      account to support an outstanding letter of credit.  For the year
      ended December 31, 2009, we used $0.6 million of this restricted cash to
      make principal and interest payments for under the term loan, and the $0.2
      million deposit supporting a letter of credit remained
      outstanding.




·
            Decrease in prepaid expenses
      and other current assets – Sources of cash from prepaid expenses
      and other current assets were $0.6 million and $0.1 million for the years
      ended December 31, 2009 and 2008.  The source of cash for the year
      ended December 31, 2009 was primarily attributable to the receipt of an
      income tax refund from the year ended December 31, 2008.  The source
      of cash in the year ended December 31, 2008 was primarily attributed to a
      decrease in prepaid expenses relating to PE Recycling and our
      Transportation and Disposal
segments.




·
            Increase in deposits and other
      assets– A use of cash from an increase in deposits and other
      current assets for the year ended December 31, 2009 was approximately $0.5
      million.  This use of cash was primarily due to an increase of $0.1
      million relating to the addition of an outstanding notes receivable within
      our Transportation and Disposal segment and $0.4 million relating to our
      investment in ACR.




·
            Decrease in accounts payable– Uses of cash for accounts payable were $(0.5) million and $(0.4)
      million for the years ended December 31, 2009 and 2008 respectively. 
      The decrease in accounts payable during the years ending December 31, 2009
      and 2008 was the result of the decrease in overall sales volume and
      corresponding costs associated with these sales, particularly during the
      fourth quarter of 2008 and throughout
2009.




·
            Decrease in accrued expenses
      and other current liabilities– Uses of cash for accrued expenses
      and other current liabilities were $(0.6) million and $(1.6) million for
      the years ended December 31, 2009 and 2008, respectively.  The
      decrease in accrued expenses and other liabilities for the year ended
      December 31, 2009 was due to the settlement of an NJ DEP fine relating to
      our PE Recycling operations whereby we had previously accrued $0.6 million
      relating to this potential liability which was ultimately settled for $0.2
      million.  The remaining differential in 2009 was due to the timing of
      various payroll and other liabilities.  The decrease in accrued
      expenses and other liabilities during the year ended December 31, 2008 was
      primarily the result of the timing of the payment for items such as
      insurance and the settlement of the New Jersey sales and use tax audit at
      PE Recycling, as well as a decrease in accrued bonuses and commissions due
      to decreased sales volumes and profitability and a decrease in accrued
      liabilities at Juda as a result of having only one union
      employee.




·
            Changes in accrued disposal
      costs– For the year ended December 31, 2009, sources of cash from
      accrued disposal costs were $0.4 million due to the timing of our shipment
      and processing of materials with the Treatment and Recycling
      operations.  During the year ended December 31, 2008, we spent $1.0
      million on reducing our accrued disposal costs, which resulted from
      transporting processed material from our Treatment and Recycling
      operations.




·
            Increase in amounts due from
      joint venture – Amounts due from joint venture increased by $0.2
      million as a result of losses incurred in our equity investment in
      ACR.


78


Our
overall liquidity and the availability of capital resources is highly dependent
on revenues derived from several large customers, which comprised approximately
13% and 19% of our consolidated revenues for the years ended December 31, 2009
and 2008, respectively.  The revenues derived from these customers are a
key component of the operations within the Treatment and Recycling and
Transportation and Disposal segment, and therefore are integral to providing
liquidity to not only that operating segment, but also to our overall operations
as a whole.  The slowdown or loss of one or more of these customers could
negatively impact our liquidity and ability to provide adequate capital
resources to meet all of our ongoing capital requirements.  We are
currently in the process of attempting to broaden our capital resources and
sources of revenue through the addition of new customers within the
Transportation and Disposal segment in order to minimize the dependence on our
revenues from these significant customers.




We use
EBITDA, a non-GAAP financial measure, as a liquidity measure to assess our
ability to meet our debt service obligations and satisfy our debt covenants,
some of which are based on our EBITDA.  We believe the use of EBITDA as a
liquidity measure and in required financial ratios is a common practice among
asset- and receivables-based lenders.  In providing EBITDA as a liquidity
measure, we believe EBITDA is useful from an economic perspective as a
measurement of our ability to generate cash, exclusive of cash used to service
existing debt, by eliminating the effects of depreciation, financing and tax
rates on our ability to finance our ongoing operations  Furthermore,
because EBITDA is used as a standard measure of liquidity by other similar
companies within our industry, we believe it provides a reasonable method for
investors to compare us to our competitors.  However, the use of EBITDA as
a measure of our liquidity has limitations and should not be considered in
isolation from or as an alternative to GAAP measures, such as net cash provided
by operating activities.  See “ – Results of Operations – Year Ended
December 31, 2009 Compared to Year Ended December 31, 2008.”




The
following table presents a reconciliation from net cash used in operating
activities, which is the most directly comparable GAAP liquidity measure, to
EBITDA for the years ended December 31, 2009 and December 31, 2008.




For the Years Ended December 31,(in thousands)
                  
                  2009
                  
                  
                  2008EBITDA
                  
                  $
                  (2,630
                  )
                  
                  $
                  498Adjustments
      to reconcile EBITDA to net cash used in operating
    activities:Interest
      expense, net
                  
                  
                  (2,445
                  )
                  
                  
                  (1,889
                  )Depreciation
      expense from discontinued operations
                  
                  
                  (174
                  )
                  
                  
                  (133
                  )Provision
      for (benefit from) income taxes
                  
                  
                  1,600
                  
                  
                  
                  2,058Interest
      expense for accretion of warrant discount
                  
                  
                  308
                  
                  
                  
                  200Amortization
      of deferred financing costs
                  
                  
                  354
                  
                  
                  
                  121Interest
      expense for Series B preferred stock paymentin
      kind
                  
                  
                  604
                  
                  
                  
                  210Impairment
      of idle machinery and write off of fixed assets
                  
                  
                  733
                  
                  
                  
                  1,618Provision
      for doubtful accounts
                  
                  
                  251
                  
                  
                  
                  750(Gain)
      loss on sale of property and equipment
                  
                  
                  (24
                  )
                  
                  
                  (245
                  )Stock-based
      payments
                  
                  
                  98
                  
                  
                  
                  89Write-off
      of expenses for unrealized acquisitions
                  
                  
                  30
                  
                  
                  
                  271Change
      in fair value of derivatives and other assets and liabilities measured at
      fair value
                  
                  
                  5
                  
                  
                  
                  —Change
      in fair value of warrants with contingent redemption
      provisions
                  
                  
                  (729
                  )
                  
                  
                  (1,151
                  )Deferred
      income taxes
                  
                  
                  (1,679
                  )
                  
                  
                  (1,309
                  )Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  3,027
                  
                  
                  
                  919Inventories
                  
                  
                  (85
                  )
                  
                  
                  (120
                  )Prepaid
      expenses and other current assets
                  
                  
                  550
                  
                  
                  
                  44Deposits
      and other assets
                  
                  
                  (524
                  )
                  
                  
                  195Restricted
      cash
                  
                  
                  602
                  
                  
                  
                  (814
                  )Accounts
      payable
                  
                  
                  (471
                  )
                  
                  
                  (375
                  )Accrued
      expenses and other current liabilities
                  
                  
                  (613
                  )
                  
                  
                  (1,619
                  )Accrued
      disposal costs
                  
                  
                  410
                  
                  
                  
                  (1,031
                  )Contingent
      consideration
                  
                  
                  —
                  
                  
                  
                  (33
                  )Due
      from joint venture
                  
                  
                  224
                  
                  
                  
                  (343
                  )Income
      taxes payable
                  
                  
                  —
                  
                  
                  
                  (1,024
                  )Total
      adjustments
                  
                  
                  2,052
                  
                  
                  
                  (3,611
                  )Net
      cash used in operating activities
                  
                  $
                  (578
                  )
                  
                  $
                  (3,113
                  )




79


Net
Cash Used in Investing Activities




Our
investing activities for the year ended December 31, 2009 resulted from
investments in our equipment within the Treatment and Recycling segment. 
We spent approximately $0.4 million in 2009 on a project to refurbish and modify
our existing equipment at PE Recycling in order to improve its operating
efficiency and capacity to process increased amounts of refinery waste, which we
anticipate receiving in 2010 as a result of the Province of Ontario’s LDR. 
See “Item 1.  Business – Our Integrated Environmental Services – Treatment
and Recycling Segment – Refinery Services.”  We also received
approximately $0.1 million from the sale of vehicles and equipment not needed in
our ongoing operations during the year ended December 31, 2009.




Our
investing activity for the year ended December 31, 2008 primarily resulted from
our strategy of growing our operations by acquiring what we believed were
complementary companies in the environmental services sector.  On April 1,
2008, we completed the acquisition of Nycon and began the operations of our
Concrete Fibers segment, which used approximately $45,000 in cash.  We also
spent $0.2 million in payments for pending acquisitions during the year ended
December 31, 2008, which related primarily to the startup of PE Energy and costs
to seek to acquire a second Brownfield site, which were subsequently expensed
due to the acquisitions not being completed.   For the year ended
December 31, 2008, we also received proceeds of $0.7 million from the sale of
trucks and equipment that were previously utilized at Juda within our
Transportation and Disposal segment.




Net
Cash Provided by Financing Activities




The most
significant items affecting the comparison of our cash flows provided by
financing activities for the years ended December 31, 2009 and 2008 are
summarized below:




·
            Private placements of
      securities –




For the
year ended December 31, 2009:




o
            On
      November 30, 2009 we raised approximately $1.0 million in net proceeds
      from the private placement of 101,650 shares of our Series C convertible
      preferred stock with a purchase price of $10.00 per
  share.




o
            We
      paid approximately $60,000 in dividends relating to our then outstanding
      Series A preferred stock.




For the
year ended December 31, 2008:




o
            In
      March 2008, we received approximately $5.8 million in proceeds, net of
      financing fees and offering expenses of approximately $0.5 million, from
      the private placement of 6,300 shares of our Series B preferred stock and
      a related warrant, at a purchase price of $1,000 per
  share.




o
            We
      paid $0.1 million in dividends relating to our then outstanding Series A
      preferred stock.




80




·
            Other indebtedness–




For the
year ended December 31, 2009:




o
            During
      the year ended December 31, 2009 we had net borrowings of approximately
      $1.5 million under our revolving line of credit and $1.3 million in
      repayments of long-term debt and notes payable.  During the year
      ended December 31, 2008 we had net repayments of $6.0 million under our
      revolving lines of credit and $5.0 million in repayments of long-term debt
      and notes payable.




o
            In
      December of 2009, the former owner of Nycon agreed to convert our
      obligation to repay $75,000 of the former owner’s notes payable (which
      obligation was originally incurred as part of the Nycon acquisition) into
      $37,500 worth of our Series C convertible preferred stock, reflecting the
      additional working capital contributions we made to New Nycon and the fact
      that New Nycon did not achieve its projected financial
    goals.




For the
year ended December 31, 2008:




o
            In
      December of 2008, the former owner of Nycon agreed to convert our
      obligation to repay $150,000 of the former owner’s notes payable (which
      obligation had been originally incurred as part of the Nycon acquisition)
      into $120,000 of additional contingent earn-out payments, because New
      Nycon did not achieve its projected financial
  goals.




o
            On
      November 12, 2008, we completed the refinancing of PE Recycling’s
      revolving line of credit and long-term debt into an $8.0 million term
      loan, which provided for an additional $2.6 million of net proceeds after
      the repayment of the existing PE Recycling debt.  These proceeds were
      used to establish a $0.7 million principal and interest payment reserve
      and the remaining $1.9 million was used to pay down our Pure Earth
      revolving line of credit.




·
            Equipment refinancing –
      In June 2008, we received an additional $200,000 in financing provided for
      by the provider of an existing equipment term loan following the lender’s
      review of our December 31, 2007 financial
  statements.




·
            Financing-related fees
      – During the year ended December 31, 2009, we incurred $0.2 million of
      financing fees relating to our revolving line of credit agreement as
      compared to $0.7 million incurred in 2008 relating to the Series B
      preferred stock offering and the PE Recycling
  refinancing.




Capital
Resources




We had a
working capital devicit of $(0.8) million as of December 31, 2009 and working
capital of $3.1 million as of December 31, 2008.  Our working capital
requirements in 2008 and 2009 have been funded primarily by the net proceeds
from our securities offerings, borrowings under our revolving lines of credit,
the refinancing of other long-term debt, and with respect to 2009, the
collection of aged accounts receivable.  The decrease in working capital
between December 31, 2008 and December 31, 2009 is due primarily to our
operating loss of $6.9 million during the year ended December 31,
2009.




Our
capital resources and working capital needs for 2010 will be largely dependent
upon our ability to generate new sales and manage our operating margins and
collections during 2010.  On February 11, 2010, we refinanced our existing
revolving line of credit with a new lender, which will provide additional
availability to fund the growth of our accounts receivable.  The
refinancing of our previous revolving line of credit resulted in an initial
increase in availability of approximately $1.4 million due to a higher advance
rate and less stringent eligibility criteria.  The new line of credit also
provides for maximum borrowing capacity up to $5.0 million as compared to the
$3.1 million of borrowing capacity that existed at December 31,
2009.




81




In the
past, as noted above, we have been successful in obtaining funding by issuing
our common and preferred stock, convertible debentures and related
warrants.  We also have funding available through our revolving line of
credit, our PE Recycling term loan and other debt facilities described in more
detail below.  See “ – Debt Obligations.”  We have also in the
past used our common stock as currency to complete several of our acquisitions,
and we intend to continue to do so where possible and appropriate in order to
preserve our cash for future operations and to meet our working capital
needs.




We are a
holding company with no significant revenue-generating operations of our own,
and thus any cash flows from operations are and will be generated by our
subsidiaries and investments.  Our ability to service our debt and fund
ongoing operations is dependent on the results of operations derived from our
subsidiaries and their ability to provide us with cash.  Our corporate
subsidiaries could also be prevented from effecting any distribution or dividend
under applicable corporate law, and subsidiaries formed as limited liability
companies would need to comply with all of the restrictions and limitations of
applicable law and those contained in their respective operating agreements and
other governing instruments.  Although we do not believe that these
restrictions and limitations presently have a material adverse effect on our
operations or access to liquidity, there can be no assurance that they will not
have such an effect upon us in the future.




We are
also required by the State of New Jersey to maintain escrow accounts in which we
deposit funds in the event of closure and post-closure events involving waste
management facilities within our Treatment and Recycling segment.  The
balance of this escrow account was $278,305 and $273,623 as of December 31, 2009
and December 31, 2008, respectively.  We do not expect the requirement to
maintain this escrow account to significantly impact our capital
resources.




Based
upon the cash we have on hand, anticipated cash to be received from our
operations and the expected availability of funds under our revolving lines of
credit, we believe that our sources of liquidity will be sufficient to enable us
to meet our cash needs at least until December 31, 2010, provided that several
large committed jobs within the Transportation and Disposal segment begin as
scheduled in April and May of 2010.  If we experience significant delays
associated with these jobs or are unable to begin this work as scheduled due to
unforeseen circumstances, we may need to seek additional sources of
financing.  We are currently seeking additional financing
from existing investors or new sources of public or private debt and
equity.  In addition, we plan to obtain approximately $1.0 million of
additional working capital through the following transactions:




·
            We
      completed the sale of substantially all of the assets and the assumption
      of substantially all of the liabilities of New Nycon on March 31,
      2010.  This sale provided $0.2 million of cash at closing with an
      additional $50,000 due 90 days subsequent to March 31, 2010, following any
      post-closing adjustments to uncollected accounts
    receivable.




·
            We
      are seeking to finance the remaining balance of the note receivable
      arising from the settlement of the accounts receivable litigation in June
      2009.  The remaining balance on this note as of March 31, 2010, was
      approximately $0.6 million, from which we expect to obtain $0.3 million in
      cash through financing with an existing
lender.




·
            We
      are in the process of increasing our revolving line of credit limit from
      $5.0 million to $7.5 million and adding the accounts receivable collateral
      from PE Energy into our revolving line of credit facility, which we
      anticipate will provide an additional $0.4 million of borrowing
      availability.




Our
principal projected cash needs for 2010 include the following
components:




·
            approximately
      $1.0 million in cash dividend payments relating to the outstanding Series
      B preferred stock, including $0.3 million of accrued and unpaid amounts
      relating to the quarters ended September 30, 2009 and December 31,
      2009;




82




·
            approximately
      $2.9 million in principal and interest payments relating to our
      outstanding debt, revolving line of credit, term loans and notes
      payable;




·
            approximately
      $0.5 million of uncommitted but planned capital expenditures within our
      Treatment and Recycling segment for additional equipment and or site
      improvements;




·
            approximately
      $0.6 million for permitting, legal costs and bonding required in relation
      to the expected start-up of operations for our Brownfield operations in
      September 2010;




·
            approximately
      $0.5 million for working capital needs and other new business initiatives
      at PE Energy; and




·
            general
      operating and administrative expenses of $9.5 million, including legal
      costs.




Existing
or future environmental regulations could require us to make significant
additional capital expenditures and adversely affect our results of operations
and cash flow, although, at this time, we are not aware of any present or
potential material adverse effects on our results of operations and cash flow
arising from environmental laws or proposed legislation.




We
continually monitor our actual and forecasted cash position, as well as our
liquidity and capital resources, in order to plan for our current cash operating
needs and to fund business activities or new opportunities that may arise as a
result of changing business conditions.  We intend to use our existing cash
and cash flows from operations to grow our business, fund potential acquisitions
or projects, and pay existing obligations and any recurring capital
expenditures.  Nonetheless, our liquidity and capital position could be
adversely affected by any of the other risks and uncertainties described in
“Part I, Item 1A.  Risk Factors.”




Also,
there can be no assurance that our existing liquidity and capital resources will
be sufficient for our existing and proposed future operations and business
plans.  In such case, we would need to seek additional debt or equity
financings or to arrange for alternative sources of temporary or permanent
financing to meet our liquidity and capital requirements.  Our ability to
obtain new financing could be adversely impacted by, among other things,
negative changes in our profitability and restricted access to liquidity in the
capital markets resulting from overall economic conditions, especially given the
current difficulties facing the banking, lending and capital markets
sectors.  While we may be able to raise additional debt or equity capital
as the need arises, there can be no assurance that we will be able to do so at a
time when it is needed or at all, or that the net proceeds from any such
transactions will be sufficient to support our operations or on terms that are
favorable or acceptable to us.  Any inability to obtain future capital
could materially and adversely affect our business and growth plans, our results
of operations and our liquidity and financial condition.




Debt
Obligations




The
following is a summary of our outstanding debt obligations as of December 31,
2009 and 2008.




December 31,(in thousands)
                
                2009
                
                
                2008Revolving
      line of credit
                
                $
                1,885
                
                
                $
                408Notes
      payable
                
                
                1,011
                
                
                
                1,008Long-term
      debt
                
                
                8,666
                
                
                
                9,908Mandatorily
      redeemable (Series B) preferred stock
                
                
                5,359
                
                
                
                4,447Total
      debt
                
                $
                16,921
                
                
                $
                15,771


83





Revolving
Line of Credit




The table
below summarizes the credit capacity, maturity and other information regarding
our outstanding revolving line of credit as of December 31, 2009.





Revolving Line of Credit
                
                Maximum
                    Outstanding
                
                
                Balance
                    Outstanding
                
                
                Interest
                    Rate
                
                Scheduled
                    Maturity/
                    Termination Date(in
      thousands)Pure
      Earth, Inc.
                
                $
                3,150
                (1)
                
                $
                1,885
                
                
                
                10.75
                %
      (2)
                April
      23, 2010





(1)
            Subject
      to reduction for (i) a borrowing base limitation; (ii) outstanding letters
      of credit; and (iii) other loan reserves.  As of December 31, 2009,
      the borrowing base limitation was approximately $2.1 million, and we had
      aggregate required loan reserves and outstanding letters of credit of $1.0
      million.




(2)
            As
      of December 31, 2009, this line of credit bore interest at the lender’s
      prime rate, subject to a minimum of 5.0%, plus
  5.75%.




This
revolving line of credit was used to fund our working capital needs.  The
repayment of outstanding borrowings under our revolving line of credit was
secured by our and our subsidiaries’ eligible accounts receivable and
inventories.




On
February 11, 2010, we refinanced this revolving line of credit by entering into
a Commercial Financing Agreement with a different lender.   Subject to
the terms, conditions, limitations and covenants contained in the financing
agreement, the lender has agreed to make available to Pure Earth Materials,
Inc., PEI Disposal Group, Inc., Pure Earth Transportation & Disposal, Inc.,
and Pure Earth Recycling (NJ), Inc., each of which is our wholly owned
subsidiary, a line of credit in a principal amount of up to the lesser of $5.0
million or 85% of all eligible accounts receivable (as defined under the
financing agreement) that have not been paid.  All of the accounts
receivable of the borrowers will be tendered to the lender for purchase, and the
lender will purchase from the borrowers such accounts receivable as it
determines for a purchase price equal to the face value of each such accepted
invoice, less trade and cash discounts allowable or taken by the customer. 
Proceeds from the collection of the accounts receivable sold to the lender will
be used to reduce the amount of the obligations outstanding under the line of
credit.  In the event of a customer dispute with respect to any purchased
receivables, the lender may immediately reduce the amount available for
borrowing by the borrowers under the line of credit by an amount up to the full
amount of the receivable subject to the dispute, to the extent and as provided
in the financing agreement.  The lender also has the right to reduce the
85% advance percentage with respect to a particular account in its reasonable
discretion.  Eligible accounts receivable will also be reduced by, among
other things, (i) the amount of any account that at the time exceeds 20% of all
accounts receivable of the borrowers, but only to the extent of such excess, and
(ii) the amount of any account that is the subject to a claim or disagreement by
a customer against a borrower.  We and our wholly owned subsidiaries have
also entered into a Security Agreement, dated February 11, 2010, with the
lender, pursuant to which any and all amounts due under the line of credit shall
be secured by an assignment of their accounts receivable.  The obligations
of the borrowers under the financing agreement have also been unconditionally
guaranteed by us and each of our wholly owned subsidiaries, on a joint and
several basis.




We will
be required to pay the lender an invoice service fee equal to 0.95% charged
monthly on the daily outstanding principal balance under the line of
credit.  We must pay an origination/commitment or underwriting fee of 0.5%
of the line of credit to the lender at first funding during the initial term and
a renewal or underwriting fee of 0.5% of the line of credit shall be paid at the
beginning of each succeeding term.  Interest shall be charged by the lender
on the daily outstanding principal balance of the line of credit at the prime
rate plus 2.5% on an annualized basis charged daily, collected at the end of
each month.  The prime rate is the greater of the prime rate as published
in the Wall Street
Journal as the “Prime Rate” (equal to the base rate on corporate loans
posted by at least 75% of the nation’s 30 largest banks) or 5% per year. 
We also were required to pay the lender’s legal fees and expenses and other
customary closing costs in connection with the financing agreement.  The
financing agreement expires on July 31, 2010, and will be automatically renewed
for successive six-month periods unless the borrowers deliver written notice of
cancellation to the lender not earlier than 90 days and not later than 30 days
prior to the expiration date of the initial term or any succeeding renewal
term.  If the line of credit is terminated prior to July 31, 2010, we will
be required to pay a prepayment penalty equal to 0.95% of the difference between
$15.0 million and the aggregate amount of invoices actually tendered to the
lender during the initial term.




84




In the
event of a default under the line of credit, the lender may, unless the default
is cured within 15 days after notice to the borrowers, declare all indebtedness
thereunder to be immediately due and payable, and may exercise any or all of its
other rights under the financing agreement.  The financing agreement
defines a “default” to include, among other things:




·
            default
      in the payment of any indebtedness or any obligation when
    due;




·
            the
      borrowers’ breach of any material term, provision, warranty, or
      representation under the financing agreement, or under any other
      agreement, contract or obligation between the borrowers’ and the
      lender;




·
            the
      lender reasonably believes that the borrowers are failing to tender all of
      their accounts receivable to the lender for
  purchase;




·
            the
      borrowers have failed to tender accounts receivable equal to 20% of the
      annual base purchase amount (being the base purchase amount multiplied by
      12) during any calendar quarter;




·
            the
      borrowers have failed to tender accounts receivable to the lender for
      purchase for a period of 30 or more consecutive
  days;




·
            the
      appointment of any receiver or trustee for all or a substantial portion of
      the borrowers’ assets, the filing of a general assignment for the benefit
      of creditors by the borrowers or a voluntary or involuntary filing under
      any bankruptcy or similar law which is not dismissed with prejudice within
      90 days;




·
            the
      borrowers’ failure to pay all taxes to every government agency in a timely
      manner, except to the extent that such taxes are the subject of a bona
      fide dispute being pursued in accordance with applicable governmental
      rules and regulations, and as to which such borrowers have established
      adequate reserves;




·
            notwithstanding
      the 15 day notice period, the borrowers’ failure to timely deliver to the
      lender any misdirected payment remittance received by us on a purchased
      account within three business days;




·
            notwithstanding
      the 15 day notice period, failure of the borrowers to cure a default under
      certain ancillary agreements within three business days after receipt of
      written notice from the lender; and




·
            the
      representations and warranties of the borrowers under the finance
      agreement or any ancillary agreement being false or materially
      misleading.




As of
December 31, 2009, we were not in default under the terms of our former
revolving line of credit. As of the date hereof, the borrowers under our new
line of credit were not in default under the terms of the financing
agreement.




Notes
Payable




In
connection with our acquisition of PE Recycling in March 2007, we also agreed to
assume approximately $3.6 million of subordinated indebtedness in the form of a
note payable to Gregory Call, one of the former owners, and former officer and
employee, of PE Recycling.  As of November 15, 2007, this subordinated debt
was reduced to $1.0 million as a result of acquisition purchase price
adjustments and the conversion of approximately $1.2 million of the outstanding
principal into 373,615 shares of our common stock.  As of December 31,
2009, this subordinated debt had an outstanding principal balance of
approximately $1,011,348 and bore interest at a rate of 6.77% per year. 
Under the stock purchase agreement, we were to repay $333,333 of the principal
on December 31, 2009, with the remainder of principal and all accrued but unpaid
interest due and payable on December 31, 2010, subject to approval by our
lender.




85




On June
17, 2009, we issued a notice of setoff to the holder of the note payable,
notifying him of our intent to setoff post-closing claims in excess of $4.0
million against amounts due under this note payable and shares of Pure Earth
common stock that may otherwise be due to Mr. Call as permitted under the stock
purchase agreement.  Effective on June 27, 2009, we offset the amounts due
to the former owner under this note payable against the post-closing
claims.  Mr. Call has formally denied the validity of these post-closing
claims and on September 14, 2009, we filed a complaint against him to seek legal
redress for these claims.  See “Part I, Item 3.  Legal Proceedings –
PE Recycling Litigation.”  The ultimate outcome of these post-closing
claims and this litigation remains uncertain, and therefore the note payable
will remain on our consolidated financial statements until either a settlement
with the former owner is reached or we are legally released from this
obligation.




Long-Term
Debt




Long-term
debt at December 31, 2009 and 2008 was approximately $8.7 million and $10.0
million, respectively, and consisted of the following items:




December 31,2009
                
                
                2008PE
      Recycling term loan
                
                
                7,145
                
                
                
                7,927Equipment
      term loan
                
                $
                1,205
                
                
                $
                1,603Various
      equipment notes payable
                
                
                316
                
                
                
                378Nycon
      assumed liabilities
                
                
                —
                
                
                
                75Total
                
                $
                8,666
                
                
                $
                9,983




Future
maturities of our long-term debt at December 31, 2009 were as
follows:




Year ending December 31,
                    
                    Amount Due
                        (in thousands)2010
                    
                    $
                    1,4632011
                    
                    
                    1,9022012
                    
                    
                    1,2252013
                    
                    
                    1,2172014
                    
                    
                    1,276Thereafter
                    
                    
                    1,583Total
                    
                    $
                    8,666




PE
Recycling Term Loan




On
November 12, 2008, PE Recycling, as borrower, and the Company, as guarantor,
closed on a $8.0 million term loan with Susquehanna, the proceeds of which were
used to refinance existing debt at PE Recycling with the previous lender and to
reimburse the Company for capital expenditures and working capital advances made
to or on behalf of PE Recycling.  The loan is collateralized by the
mortgaged properties and equipment held by PE Recycling, excluding accounts
receivable, inventory and three pieces of equipment.  The previous debt
held by PE Recycling consisted of a $2.4 million revolving line of credit and
$2.9 million in various bank and equipment notes payable, which carried annual
interest rates ranging from 6.50% to 8.50% with varying maturities.  The
new consolidated term loan matures on November 15, 2015, is payable in 84
monthly installments and bears interest at an adjustable yearly rate equal to
250 basis points above the one-month LIBOR, which was approximately 0.23% and
2.94% as of December 31, 2009 and 2008, respectively.  This interest rate
is adjusted on the 15th of every month beginning December 15, 2008.  We
also entered into an $8.0 million interest rate swap agreement with Susquehanna
by which we are required to pay a fixed rate of interest of 6.10% per year to
Susquehanna over a seven-year term corresponding to the loan term, in exchange
for the payment by Susquehanna to us of adjustable rate payments based on
one-month LIBOR, plus 250 basis points.  Entering into this swap agreement
effectively converts our adjustable rate loan into a fixed rate loan bearing
interest at 6.10% per year.  We were also required to establish a reserve
account from the loan proceeds in the amount of $720,000 to be held by
Susquehanna for the purposes of paying the first six months of principal and
interest payments.




86




The
consolidated term loan contains a financial covenant which requires us, as the
guarantor, to maintain a maximum leverage ratio of 4.0 to 1.0, adjusted for any
non-cash adjustments to intangible assets and measured annually at the end of
each fiscal year commencing on December 31, 2009.  In addition, we are
required to provide annual financial statements and other financial information
as requested by the lender, as well as quarterly environmental reports for
compliance purposes.  In the event that we fail to comply with these
requirements, the lender, at its option and sole discretion, has the right to
increase the interest rate by 0.50%.  The Susquehanna term loan also
contains certain negative and affirmative covenants, and prohibits PE Recycling
from, among other things:




·
            undergoing
      a fundamental corporate change without advance notice, which includes any
      mergers, consolidations, major share transactions, recapitalizations,
      dissolutions or changes in its legal
structure;




·
            disposing
      of assets without prior consent;




·
            incurring
      debt, creating liens, or engaging in sale leaseback transactions without
      prior consent;




·
            assuming,
      guaranteeing or otherwise becoming liable for the obligations of any
      person;




·
            discontinuing
      any substantial part of the existing business or entering into a new,
      unrelated business;




·
            terminating
      any ERISA plan or failing to properly maintain any such
    plan;




·
            use
      of the proceeds of the term loan for investment in margin
      securities.




On
November 16, 2009, we entered into an amendment of the PE Recycling term loan
agreement and the related interest rate swap agreement, whereby the lender
granted us a three month interest-only period beginning on November 15, 2009 and
ending on February 15, 2009.  During this time, we continued to make
interest payments in accordance with the term loan and interest rate swap
agreement.  After February 15, 2009, our monthly principal and interest
payment increased by approximately $4,000 to $121,761 per month, with an
effective interest rate of 6.10% for the remainder of the loan
term.




As of
December 31, 2009 and 2008, we and PE Recycling were in compliance with the
covenants and restrictions under this term loan agreement.




Equipment
Term Loans




In
November 2007, we refinanced several of our outstanding equipment loans, which
at the date of refinancing had an aggregate carrying value on our consolidated
balance sheet of $1.2 million.  We refinanced these loans into a combined
equipment term loan in the amount of $2.3 million, which is secured by equipment
to which the loans relate.  The equipment term loan is payable in monthly
installments for four years beginning on January 1, 2008 and bears interest at a
rate of 8.5% per year.  This loan agreement permitted us to borrow up to an
additional $200,000 upon the lender’s satisfactory review of our 2007
consolidated financial statements, which the lender approved and advanced on
June 11, 2008.  As of December 31, 2009 and 2008, the outstanding balance
under this equipment term loan was $1.2 million and $1.6 million,
respectively.




87




On
December 7, 2009, we entered into a loan restructure agreement with the lender,
whereby beginning on November 1, 2009 and ending April 1, 2010, we agreed to
make revised monthly payment amounts of $10,029, representing the interest
portion of the previous payment amount.  Beginning May 1, 2010 and
through the end of the original maturities in December 2011 and June 2012, we
will make revised principal and interest payments of totaling approximately
$65,000 per month.




Equipment
Notes Payable




In
conjunction with the acquisition of PE Recycling on March 30, 2007, we assumed
$3.2 million of PE Recycling’s existing debt.  This debt consisted of
various bank notes payable secured, to varying degrees, by some or substantially
all of PE Recycling’s assets, and personally guaranteed by one of the former
owners of PE Recycling.  These notes bore interest at differing rates
of interest, up to a maximum of 8.125% per year.  The majority of this
debt was refinanced in November of 2008 as part of the new Susquehanna term loan
except for approximately $0.3 million of debt relating to three items of
equipment that were not included.  These remaining loans mature in
September 2011 and September 2012, and bear interest at rates ranging from 4.99%
to 6.95% per year.




Mandatorily
Redeemable Preferred Stock




General




On March
4, 2008, we issued 6,300 shares of our Series B preferred stock and a related
warrant for an aggregate purchase price of $6.3 million.  The Series B
preferred stock ranks prior to all classes or series of our capital stock with
respect to dividend rights and liquidation preferences.  The Series B
preferred stock accrues cumulated cash dividends of 14% per year, compounded
quarterly.  We may, at our option, elect to pay a portion of the
quarterly dividend of up to 4% in kind, which dividend in kind accretes to the
liquidation value of the shares, except that the holder of the Series B
preferred stock can request us to issue additional shares of Series B preferred
stock to such holder in an amount equal to such accreted
dividends.  We are required to redeem any and all outstanding shares
of Series B preferred stock on March 3, 2013.  As a result, the Series
B preferred stock is classified as a liability instrument.




We
allocated the $6.3 million in proceeds received between the fair value of the
Series B preferred stock and the warrant issued in connection with this
offering, resulting in a discount on the debt of $2.2 million.  The
discount is being amortized using the effective interest rate method over the
five-year term of the Series B preferred stock.  Although the stated
interest rate of the Series B preferred stock is 14%, as a result of the
discount recorded for the warrants, the effective interest rate is
27.2%.  We also incurred approximately $0.5 million in costs
associated with this offering, which were recorded as deferred financing costs
to be amortized over the term of the Series B preferred stock or immediately
upon any redemption thereof.




The
amendment to our former revolving line of credit agreement in August 2009
prohibited us from declaring or paying any cash dividends, including to the
holder of our Series B preferred stock, which would have constituted an event of
noncompliance under the Series B preferred stock investment agreement and
related agreements for nonpayment of amounts otherwise due and
payable.  On August 18, 2009, the holder of the Series B preferred
stock agreed that in lieu of making the dividend payment otherwise due on
September 30, 2009, we would pay such holder these cash dividend payments, plus
14% interest thereon, either:





·
            in
      one lump sum representing the full dividend payment plus accrued interest
      on November 30, 2009; or


88




·
            if
      we refinance this revolving line of credit with an alternative lender
      prior to such dates, then any unpaid portion of the dividend payment, plus
      accrued interest, shall be paid on the date such refinancing is
      consummated.




In
addition, on November 30, 2009, the holder of the Series B preferred stock
consented to our issuance of Series C convertible preferred stock and, with
respect thereto, agreed to waive all rights of notice, first refusal, preemptive
or similar rights, and to waive the application of any covenant that would,
absent such waiver, be breached by our offer and sale of the Series C
convertible preferred stock.  Further, the holder of the Series B
preferred stock agreed that in lieu of making the dividend payment otherwise due
on each of September 30, 2009 and December 31, 2009, we would pay such holder
these cash dividend payments, plus 14% interest thereon, either:




·
            on
      February 15, 2010; or




·
            if
      we refinance this revolving line of credit with an alternative lender or
      we extend its maturity date prior to February 15, 2010, on the date of
      such refinancing or extension.




On
February 11, 2010, we refinanced our revolving line of credit, but we were not
able to make the cash dividend payment, plus accrued interest, otherwise due to
the Series B preferred stockholder on February 15, 2010.  On March 26,
2010, we obtained the waiver of the holder of the Series B preferred stock to
the non-payment of the September 30, 2009, December 31, 2009 and March 31, 2010
quarterly cash dividends as well as the required payment on February 15, 2010 as
outlined in the November 30, 2009 agreement.  In lieu thereof, we
agreed to pay the holder the amount of such unpaid dividends plus 14% accrued
interest by June 15, 2010.




Mandatory
Redemption




The
Series B preferred stock is to be redeemed in full on March 3,
2013.  The following additional events will require us to redeem the
Series B preferred stock:




·
            a
      person or persons becoming the beneficial owner of outstanding capital
      stock having 50% or more of our total voting
  power;




·
            any
      sale, assignment, lease, conveyance, exchange, transfer, sale-leaseback or
      other disposition of more than 50% of our assets, business or
      properties;




·
            the
      failure of Mr. Alsentzer to serve as Chief Executive Officer with at least
      the duties and responsibilities associated with such
  title;




·
            the
      failure of Mr. Kopenhaver to serve as Chief Financial Officer with at
      least the duties and responsibilities customarily associated with such
      title;




·
            each
      of Mr. Alsentzer and Mr. Kopenhaver ceasing to serve as a director on the
      board of directors of Pure Earth and each of its
    subsidiaries;




·
            Mr.
      Alsentzer ceasing to beneficially own 1,919,000 shares of our common
      stock, subject to adjustment;




·
            Mr.
      Kopenhaver ceasing to beneficially own at least 134,000 shares of our
      common stock, subject to
adjustment;




·
            any
      event of noncompliance with the terms of the Series B preferred stock
      certificate of designation, as defined therein;
  or




·
            the
      protective provisions of the Series B preferred stock ceasing to be
      effective.




Once a
mandatory redemption event occurs, we must pay holders demanding redemption of
their Series B preferred stock up to 103% of the liquidation value of the Series
B preferred stock, depending on the redemption date.  No such events
have occurred since the issuance of the Series B preferred stock whereby the
holder of the Series B preferred stock has demanded redemption.


89




Optional
Redemption




Assuming
we have funds legally available to do so, we have the right at any time and from
time to time under the terms of the Series B preferred stock to redeem the
Series B preferred stock at a price of up to 103% of the liquidation value of
the Series B preferred stock, depending on the redemption date.  We
also have the right to redeem the Series B preferred stock at 100% of the
liquidation value in connection with our consummation of an acquisition of
property or fixed assets, or the assets or stock of another company, after,
among other things, the holders of the Series B preferred stock failed to
consent to the acquisition.




Debt
Incurrence Covenant




Under the
Series B preferred stock investment agreement, we agreed that we will not incur
any indebtedness if, after the incurrence, our leverage ratio would exceed 3.75
to 1 through March 4, 2010, and 3.25 to 1 thereafter.  The leverage
ratio is calculated as defined in the investment agreement to equal the ratio
of:




·
            our
      consolidated funded debt, less our cash and cash equivalents,
      to




·
            the
      sum of our consolidated EBITDA plus any pro forma acquisition EBITDA for
      each acquisition approved by the holders of the Series B preferred stock
      or otherwise permitted by the investment agreement for the trailing 12
      fiscal months or four fiscal quarters prior to the date of
      determination.




Indebtedness
of up to $10.0 million (less repayments on term loans thereunder and permanent
reductions of revolving credit commitments) under our then existing revolving
lines of credit, as they may be refinanced or replaced from time to time, may be
incurred without complying with this debt incurrence covenant if used solely to
fund working capital or up to $100,000 of capital expenditures in any trailing
12-month period.  This debt incurrence covenant will remain in effect
until shares of Series B preferred stock with an aggregate liquidation value of
less than 10% of the aggregate liquidation value of the Series B preferred stock
on March 4, 2008 remain outstanding.




As of
December 31, 2009 and 2008, due to a decline in our trailing 12-month EBITDA,
our leverage ratio exceeded the permitted levels described
above.  Therefore, we are prohibited from incurring additional
indebtedness without obtaining the consent and approval of the holder of the
Series B preferred stock until our leverage ratio ceases to exceed the ratios
described above.




Negative
Covenants




In
addition to the debt incurrence covenant and the protective provisions in the
Series B preferred stock certificate of designations, the investment agreement
governing the Series B preferred stock contains various restrictive covenants
that, among other things and subject to specified exceptions, restrict our and
our subsidiaries’ ability to:




·
            liquidate,
      wind up or dissolve;




·
            effect
      a consolidation, merger or other
combination;




·
            make,
      create, incur, assume or suffer to exist liens upon our property or
      assets;




·
            make
      or agree to make certain dispositions of our
  assets;




·
            purchase,
      own, invest or otherwise acquire capital stock, indebtedness or any other
      obligation in or security or interest in any other
  entity;


90




·
            declare
      or make any dividend payment or any distribution of cash, property or
      assets with respect to our capital stock or rights
  therein;




·
            engage
      in transactions with our
affiliates;




·
            engage
      in lines of business outside of the United States and in lines of business
      other than the general lines of business in which we presently operate,
      and, specifically, we may not:




o
            engage
      in or own assets related to the nuclear, solar or wind energy
      industries;




o
            create,
      generate, use, accept, dispose of or treat hazardous substances in excess
      of 2,200 pounds in any calendar month for any single company other than PE
      Recycling, and excluding the transportation of hazardous substances;
      and




o
            operate
      a hazardous waste landfill, a commercial hazardous waste incinerator or
      other activity that requires obtaining a material environmental permit not
      previously disclosed to the holder of the Series B preferred
      stock;




·
            engage
      in sale-leaseback transactions;




·
            amend,
      modify or waive any provision of our organizational documents, the terms
      of any class or series of capital stock or any agreement related thereto,
      other than in any manner that would not adversely affect the Series B
      preferred stock;




·
            issue
      securities senior or equal in rank to the Series B preferred
      stock;




·
            permit
      non-wholly owned subsidiaries to issue shares of their capital stock to
      third parties, except for ordinary common equity
  interests;




·
            enter
      into any restriction or encumbrance
on




o
            our
      ability to comply with our obligations under the Series B preferred stock
      investment agreements; or




o
            the
      ability of any of our subsidiaries to make a dividend payment or
      distribution with respect to its capital stock, to repay indebtedness owed
      to us, to make loans or advances to us, or to transfer any of its assets
      to us;




·
            change
      our fiscal year; or




·
            make
      any material changes in accounting policies or practices, except as
      required under generally accepted accounting
  principles.




Accounting
Treatment




We
classify and measure our preferred stock according to the provisions of ASC
480.  The Series B preferred stock issued in March 2008 is mandatorily
redeemable in March 2013 and is therefore classified as a liability for
accounting purposes.  We assess the classification of our common stock
purchase warrants and other free-standing derivatives at each reporting date to
determine whether a change in classification between assets and liabilities is
required.  As a result of this assessment, we determined that the
warrant issued in connection with the Series B preferred stock is classified as
a liability.


91


We
account for the issuance of common stock purchase warrants and other free
standing derivative financial instruments in accordance with the provisions of
ASC 815.  We classify as equity any contracts that require physical
settlement or net-share settlement, or give us a choice of net-cash settlement
or settlement in our own shares (either physical settlement or net-share
settlement). We classify as assets or liabilities any contracts that require
net-cash settlement (including a requirement to net cash settle the contract if
an event occurs and if that event is outside our control) or give the
counterparty a choice of net-cash settlement or settlement in shares (either
physical settlement or net-share settlement).  Because the warrant
associated with the Series B preferred stock has a redemption right that is
settled in cash, this warrant has been classified as a liability for accounting
purposes.  In accordance with ASC 815, at December 31, 2009 and 2008,
we adjusted the carrying value of the warrant to reflect a change in its fair
value as a result of a decline in the fair value of our common stock underlying
the warrant.  This adjustment resulted in the recording of $0.7
million and $1.1 million of other income, respectively, for the years ended
December 31, 2009 and 2008, and reduced the carrying value of the warrant to
$0.4 million as of December 31, 2009 and $1.1 million as of December 31,
2008.  We will continue to adjust the carrying value of the warrant in
the future based upon changes in the fair value of our underlying common stock
and other assumptions, with a corresponding gain or loss reflected in our
statement of operations.




Series
C Convertible Preferred Stock




General




On
November 18, 2009, our Board of Directors approved the designation of 260,000
shares of our preferred stock as Series C Convertible Preferred
Stock.  On November 30, 2009, we closed on a private placement of our
Series C convertible preferred stock whereby the Company sold and issued an
aggregate of 101,600 shares of such stock at a purchase price of $10.00 per
share, and received aggregate gross proceeds therefore of
$1,016,000.  In December 2009, we also issued an additional 3,750
shares of Series C convertible preferred stock valued at a purchase price of
$10.00 per share in exchange for the extinguishment of our obligation to repay
$75,000 in debt of the former owner of Nycon.  As of December 31,
2009, 105,350 shares of Series C convertible preferred stock were issued and
outstanding.




Ranking




The
rights of the holders of the Series C convertible preferred stock with respect
to dividends and liquidation rank:




·
            senior
      to and prior to:




o
            all
      classes or series of our common stock,
and




o
            any
      class or series of our preferred stock which by its terms is subordinated
      or junior to the Series C convertible preferred stock
  ;




·
            junior
      to the Series B preferred stock and any other class or series of our
      preferred stock which by its terms is senior or prior to the Series C
      convertible preferred stock; and




·
            pari
      passu and at parity with any class or series of our preferred stock which
      by its terms is neither senior nor junior to the Series C convertible
      preferred stock.




Dividends




The
holders of the Series C convertible preferred stock are entitled to receive
cumulative dividends, payable in cash, in shares of Series C convertible
preferred stock, or in our common stock upon conversion, when, as and if
declared by our board of directors out of funds legally available therefor, at
the rate of 10% per year from the original issue date through (but not
including) the first anniversary of the original issue date, and 15% per year
thereafter until the Series C convertible preferred stock is
retired.  If we elect to satisfy dividends by delivering additional
shares of Series C convertible preferred stock, such stock will be valued for
this purpose at $10.00 per share.  To the extent not paid in cash or
Series C convertible preferred stock, accrued and unpaid dividends will be
compounded quarterly on each March 1, June 1, September 1 and December 1,
commencing March 1, 2010 and computed on a 12-month, 360-day year and on a basis
of $10.00 per share, plus any accrued and unpaid dividend amounts which are
compounded as provided above.


92




No
dividends, other than dividends payable solely in shares of Series C convertible
preferred Stock, common stock or other junior securities, may be paid, or
declared and set apart for payment unless and until all accrued and unpaid
dividends on senior securities shall have been paid or declared and set apart
for payment and unless such payment is permitted by the terms of the senior
securities.  No dividends shall be paid or declared and set apart for
payment on any class or series of our preferred stock ranking, as to dividends,
on a parity with the Series C convertible preferred stock for any period unless
cumulative dividends have been, or contemporaneously are, paid or declared and
set apart for payment on the Series C convertible preferred stock for all
dividend payment periods terminating on or prior to the date of payment of such
dividends.  No dividends shall be paid or declared and set apart for
payment on the Series C convertible preferred stock for any period unless
cumulative dividends have been, or contemporaneously are, paid or declared and
set apart for payment on the Company’s preferred stock ranking, as to dividends,
on a parity with the Series C convertible preferred stock for all dividend
periods terminating on or prior to the date of payment of such
dividends.




Liquidation,
Dissolution or Winding Up




In the
event of any liquidation, dissolution or winding up of the Company, after any
payment or distribution of our assets is made to or set apart for the holders of
the Series B preferred stock in accordance with the terms thereof, but before
any payment or distribution of our assets shall be made to or set apart for the
holders of junior securities, a holder of a share of Series C convertible
preferred stock shall be entitled to receive the liquidation value of such
share, which is an amount in cash equal to (i) $10.00 (as adjusted for stock
splits, stock combinations and similar changes), plus (ii) the sum of all
accrued and unpaid dividends on such share.  After payment is made in
full to the holders of the Series C convertible preferred stock, the other
series or class or classes of our capital stock shall be entitled to receive any
and all assets remaining to be paid or distributed, and the holders of the
Series C convertible preferred stock shall not be entitled to share
therein.




Conversion
Rights




The
Series C convertible preferred stock is convertible at the option of the holder
at any time into shares of our common stock at a conversion price of $0.40 per
share, subject to adjustment for common stock dividends, stock splits,
combinations of our common stock or any reorganization, recapitalization,
reclassification, consolidation or merger.  In addition, we may
require the conversion of shares of Series C convertible preferred stock, at the
then effective conversion price:




·
            in
      the event that, at any time, (x) the 30-day average closing price per
      share of its common stock is greater than $1.00 per share for any 30 day
      period, and (y) the
      30-day average daily trading volume of the common stock for such period is
      greater than 250,000 shares; or




·
            upon
      the consummation of one or more qualified public offerings of our common
      stock pursuant to an effective registration
  statement.




Our board
of directors has the sole authority to determine whether the average prices and
trading volumes satisfy the foregoing thresholds for conversion at our
election.  However, we have agreed with the holder of our Series B
preferred stock that the foregoing mandatory conversion provisions shall not
apply to such holder to the extent that the application of such provisions would
cause it to own more than 4.9% of our common stock.




Optional
Redemption




Subject
to the rights of, and limitations imposed in respect of, senior securities, we
may redeem the Series C convertible preferred stock, at our election, in each of
the following two circumstances.  First, if there has been no
qualified public offering since the initial issuance date of the Series C
convertible preferred stock, we may redeem all or any portion thereof at a
redemption price per share equal to (i) the number of shares of its common stock
into which a share of Series C convertible preferred stock is then convertible,
multiplied by (ii) the greater of (a) two times the then current conversion
price, or (b) the then current 30-day average market closing price per share of
our common stock for the 30-day period immediately preceding the date of the
redemption notice.  Second, if we become a party to a transaction that
constitutes a “sale of the corporation” as defined in the terms of the Series C
convertible preferred stock, we may redeem all or any portion thereof at or
prior to the consummation of the sale of the corporation, at a redemption price
equal to the greater of (i) the liquidation value of such shares, or (ii) such
amount as would have been payable to on account of such shares had all of the
Series C convertible preferred stock been converted into common stock
immediately prior to such sale of the corporation.


93




Accounting
Treatment




The
Series C convertible preferred stock does not contain any redemption rights that
are either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within our
control.  Therefore, these shares have been classified as a component
of equity as of December 31, 2009 pursuant to the guidance set forth in ASC
480.  We also evaluated the conversion option featured in the Series C
convertible preferred stock pursuant to the guidance set forth in ASC 815 and
ASC 825.  The conversion option provides the holders of the Series C
convertible preferred stock with the right to convert such preferred stock into
a fixed number of shares of common stock, which was established at the date of
issuance.  At the time of issuance of the Series C convertible
preferred stock, the conversion features were determined to be in the money;
therefore, a beneficial conversion feature did exist and was recorded as a
dividend equal to the fair value of the beneficial conversion option at the date
of issuance.




Other
Contractual Obligations




Below is
a description of our material other contractual obligations and commitments as
of December 31, 2009.




Operating
Leases.  We operate certain of our facilities, vehicles and
equipment under operating leases that expire from January 2010 through November
2013.  We incurred aggregate rent expense for the year ended December
31, 2009 and the year ended December 31, 2008 of $1.5 million and $1.3 million,
respectively.  Future minimum aggregate annual rent obligations as of
December 31, 2009 were as follows:




Years Ending December 31,
                
                Minimum
                    Aggregate Lease
                    Payments Due
                    (in thousands)2010
                
                $
                1,3192011
                
                
                5572012
                
                
                4892013
                
                
                361Thereafter
                
                
                —Total
                
                $
                2,728




Contingent Consideration from
Acquisitions.At December 31, 2009, we had obligations as a
result of our acquisitions to pay contingent consideration to the sellers of
companies we acquired in 2007 and 2008.




·
            PE
      Recycling




o
            We
      are obligated us to issue an additional 400,000 shares of our common stock
      to a former owner of PE Recycling if the former owner was successful in
      obtaining additional permits, implementing certain equipment by May 29,
      2009 to increase facility capacity, and resolving specified insurance
      claims.  As of December 31, 2009, we believe the former owner
      has not met the performance requirements necessary to earn these
      additional shares of common stock and consequently we have not issued any
      of these contingent shares.  The ultimate resolution of these
      contingencies is subject to the outcome of the ongoing litigation between
      us and the former owner.


94




o
            We
      are also required to issue up to 435,044 shares of our common stock to the
      former PE Recycling owners based upon the resolution of certain
      liabilities that existed as of March 30, 2007.  The measurement
      dates for these contingencies range from June 30, 2008 to September 30,
      2008.  As of December 31, 2009 we have not issued any shares due
      to the former owners of PE Recycling.  The ultimate resolution
      of this contingent liability is subject to the outcome of ongoing
      litigation between us and the former
owner.




·
            Soil
      Disposal Group




o
            The
      owners of Soil Disposal Group are entitled to receive a maximum of 300,000
      additional shares of our common stock contingent upon the net sales of PEI
      Disposal Group attaining certain thresholds during the 36-month period
      ending November 20, 2010.  For the years ended December 31, 2009
      and 2008, we did not issue any additional shares to the owners of Soil
      Disposal Group due to the offset of any amounts due under this agreement
      against commissions paid to the owners of Soil Disposal Group during 2009
      and 2008.




Employment and Consulting
Agreements.  We have entered into employment agreements with
several of our officers and key employees, as well as consulting agreements with
third parties.  These agreements provide for approximately $1.6
million in aggregate annual compensation.  However, this amount may be
increased by the amount of additional cash and stock bonuses that may be payable
upon achieving specified criteria.  These agreements have differing
terms, the longest of which expire in June 2013.  Future minimum
aggregate annual payments under these agreements as of December 31, 2009 were as
follows:




Year ending December 31,
                
                Minimum
                    Aggregate
                    Payments Due(in
      thousands)2010
                
                $
                1,5632011
                
                
                6112012
                
                
                5582013
                
                
                286Total
                
                $
                3,018




Litigation and Legal
Proceedings.  See “Part I, Item 3.  Legal
Proceedings” for a summary of potential commitments and contingencies that may
arise from material litigation and legal proceedings that involve us or our
operations.




Idle
Machinery




As of
December 31, 2009, we had approximately $3.8 million of idle equipment and
machinery relating to our PE Recycling operations.  Included in the PE
Recycling acquisition was equipment having an initial fair value of
approximately $8.5 million at the date of purchase on March 30,
2007.  During the year ended December 31, 2008, we recorded
approximately $1.6 million of impairment relating to this idle machinery due to
the softening of the overall economy.  During the year ended December
31, 2009, we made the following changes to the idle machinery:




·
            In
      April 2009, we placed into service approximately $2.0 million of equipment
      that was previously classified as
idle.


95




·
            In
      December of 2009, we placed into service $1.0 million of equipment that
      was previously classified as idle in exchange for removing equipment with
      a net carrying value of $0.7 million.  We recorded a write
      off of $0.7 million in relation to the equipment that was removed
      from service due to its poor condition at the time of
      removal.  In relation to this exchange of equipment we spent
      approximately $0.3 million in additional parts and labor which was
      capitalized into fixed assets as part of the retrofitting and
      refurbishment of this equipment.




As of
December 31, 2009, the carrying value of the idle equipment at PE Recycling was
approximately $3.8 million and we had recorded deferred tax liabilities of
approximately $1.5 million in relation to this equipment.  As of
December 31, 2008, the carrying value of the idle equipment at PE Recycling was
approximately $6.8 million and we had recorded deferred tax liabilities of
approximately $2.7 million in relation to this equipment.




In
November 2008, PE Materials shifted its rock crushing operations from the North
Bergen, New Jersey facility to its other location in Lyndhurst, New
Jersey.  As a result of this move, approximately $0.3 million of
equipment was no longer needed for operations and was transferred into idle
machinery.  We intend to hold this equipment for sale.




There can
be no assurance that the idle equipment will ultimately be sold for book value,
given the permit requirements and their specialized use.  If we sell
the equipment for less than book value, we would recognize a loss in the period
in which the sale occurs.




Off-Balance
Sheet Arrangements




Our most
significant off-balance sheet financing arrangements as of December 31, 2009 are
non-cancelable operating lease agreements, primarily for office and equipment
rentals, and future performance obligations incurred in connection with our
acquisitions where we have assessed that the payment of the obligation is not
presently probable.  As of December 31, 2009, future minimum
obligations under our operating lease agreements are $2.7 million.  As
of December 31, 2009, the potential maximum cash and non-cash future performance
obligations associated with our acquisitions were approximately $0.6 million in
the aggregate, based upon an estimated fair value of $0.50 per share for our
common stock.




We do not
otherwise participate in any off-balance sheet arrangements involving
unconsolidated subsidiaries that provide financing or potentially expose us to
unrecorded financial obligations.




Related
Party Transactions




As part
of the PE Recycling acquisition, we issued a note payable to a former owner in
the principal amount of $1.0 million, which is currently the subject of a
complaint we filed against the former owner to seek redress for post-closing
claims we are asserting against the former owner.  See “ – Debt
Obligations – Notes Payable” and “Part I, Item 3.  Legal Proceedings –
Pure Earth Recycling Litigation.”




As of
December 31, 2009 and 2008, we had approximately $0.1 million and $0.3 million
in due from joint venture, which consists of amounts due to PE Recycling from
ACR. These amounts  reflect the value of goods and services performed
and provided by PE Recycling to the joint venture, for which it has not yet been
compensated.




Seasonality
and Inflation




Our
operating revenues tend to be generally higher in the summer months, primarily
due to the higher volume of construction and demolition waste.  The
volumes of industrial and residential waste in certain regions where we operate
also tend to increase during the summer months.  Our second and third
quarter revenues and results of operations typically reflect these seasonal
trends.  Typically, during the first quarter of each calendar year we
experience less demand for environmental consulting and engineering due to the
cold weather in the Northeast region.  In addition, facility closings
for the year-end holidays reduce the volume of industrial waste generated,
resulting in lower volumes of waste that we process during the first quarter of
each year.  Certain weather conditions
may result in the temporary suspension of our operations, which can
significantly affect our operating results.


96




While
inflationary increases in costs have affected our operating margins in recent
periods, we believe that inflation generally has not had, and in the near future
is not expected to have, any material adverse effect on our results of
operations.




Recently
Issued Accounting Pronouncements




Standards
Codification.  In June 2009, the Financial Accounting Standards
Board (“FASB”) confirmed that the ASC would become the single official source of
authoritative U.S. generally accepted accounting principles, or GAAP, other than
guidance issued by the SEC, superseding all other accounting literature except
that issued by the SEC. The ASC does not change U.S. GAAP. However, as a result,
only one level of authoritative U.S. GAAP exists. All other literature is
considered non-authoritative. The FASB ASC is effective for interim and annual
periods ending on or after September 15, 2009. Therefore, we have changed the
way specific accounting standards are referenced in our consolidated financial
statements.




Share Based
Payments.  On June 16, 2008, the FASB issued FASB Staff
Position Emerging Issues Task Force No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
which was subsequently included in ASC Topic 260 — Earnings Per Share Topic
(“ASC 260”). This guidance concluded that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities to be included in the computation
of earnings per share using the two-class method.  The guidance was
effective for fiscal years beginning after December 15, 2008 on a
retrospective basis, including interim periods within those
years.  The adoption of ASC 260 did not have any impact on our
consolidated financial statements as there were no unvested share-based payment
awards outstanding.




Impairment.In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, which was subsequently included in ASC
Topic 320 — Investments - Debt and Equity Securities (“ASC 320”). ASC 320 amends
the guidance on other-than-temporary impairment for debt securities and modifies
the presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. ASC 320 is effective for interim
and annual periods ending after June 15, 2009. We do not currently have any
outstanding investments in debt or equity securities, therefore the adoption of
ASC 320 did not have an impact on the consolidated financial
statements.




Fair Value.  In
April 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly(“FSP
FAS 157-4”), which was subsequently incorporated in ASC
820.  This guidance provided additional direction in determining
whether a market for a financial asset is inactive and, if so, whether
transactions in that market are distressed, in order to determine whether an
adjustment to quoted prices is necessary to estimate fair value. This additional
guidance was effective for interim and annual reporting periods ending after
June 15, 2009, with early adoption permitted. The adoption of the guidance
did not have a material impact on our consolidated earnings, financial position
or cash flows.




In
January 2010, the FASB updated ASC 820 to add disclosures for transfers in and
out of Level One and Level Two of the valuation hierarchy and to present
separately information about purchases, sales, issuances and settlements in the
reconciliation for assets and liabilities classified within level three of the
valuation hierarchy. The updates to ASC 820 also clarify existing disclosure
requirements about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. The updates to ASC 820 are effective for
fiscal years and interim periods beginning after December 15, 2009, except
for the disclosures about activity in the reconciliation of Level Three
activity, which are effective for fiscal years and interim periods beginning
after December 15, 2010. The updates to ASC 820 enhance disclosure
requirements and will not impact our financial position, results of operations
or cash flows.


97





In April
2009, the FASB issued FASB Staff Position No. 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which was subsequently incorporated in ASC
825.  This guidance requires disclosures about the fair value of an
entity’s financial instruments, whenever financial information is issued for
interim reporting periods. The additional guidance was effective for interim
periods ending after June 15, 2009. Accordingly, we have included these
disclosures in our notes to the consolidated financial statements.




In August
2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and
Disclosures — Measuring Liabilities at Fair
Value. This guidance provides clarification that in circumstances in
which a quoted price in an active market for an identical liability is not
available, fair value should be measured using one or more specific techniques
outlined in the update. The guidance was effective for the first reporting
period after issuance. The adoption of the guidance did not have a material
impact on the consolidated earnings, financial position or cash flows of the
Company.




Subsequent
Events.  In May 2009, the FASB issued FASB Statement
No. 165, Subsequent
Events, which was subsequently incorporated in ASC Topic 855 — Subsequent
Events (“ASC 855”). The new guidance established general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The circumstances
under which these events or transactions should be recognized or disclosed in
financial statements were defined. Disclosure of the date through which
subsequent events have been evaluated was also required, as well as whether that
date was the date the financial statements were issued or the date the financial
statements were available to be issued.




The new
guidance was effective for interim or annual reporting periods ending after
June 15, 2009. In February 2010, the FASB issued Accounting Standards
Update (“ASU”) 2010-09 to further amend ASC 855.  ASU 2010-09 removed
the requirement for an entity that is an SEC filer to disclose the date through
which subsequent events have been evaluated. Although we have evaluated events
and transactions that occurred after the balance sheet date through the issuance
date of these financial statements to determine if financial statement
recognition or additional disclosure is required, we have discontinued the
separate evaluation date disclosure in our notes to the consolidated financial
statements.




Transfers of Financial
Assets.  In June 2009, the FASB issued FASB Statement
No. 166, Accounting for
Transfers of Financial Assets,is a revision to FASB Statement
No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, which was subsequently incorporated in ASC Topic 860 –
Transfers and Servicing (“ASC 860”).  This standard will require
additional disclosure about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It also changes the requirements
for derecognizing financial assets, and requires additional disclosures. We do
not currently engage in the transfer of financial assets and therefore, we do
not expect the adoption of this standard to have a material impact on our
consolidated financial statements.




Consolidation.  In
June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), to amend certain requirements of FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, which was subsequently incorporated in ASC Topic 810 –
Consolidation (“ASC 810”).  This statement improves financial
reporting by enterprises involved with variable interest entities and to provide
more relevant and reliable information to users of financial
statements.  This statement is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods
thereafter.  Earlier application is prohibited.  We do not
presently utilize variable interest entities, and thus we do not expect that the
adoption of this statement will have a material impact on our consolidated
financial statements.


98




Revenue
Recognition.  In October 2009, the FASB issued ASU
No. 2009-13, Multiple
Deliverable Arrangements (“ASU No. 2009-13”), an update to ASC
605.  ASU No. 2009-13 amends ASC 605 regarding how to determine
whether an arrangement involving multiple deliverables contains more than one
unit of accounting and how the arrangement consideration should be measured and
allocated to the separate units of accounting.  ASU No. 2009-13
is effective prospectively for arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010.  Early
adoption is permitted. We are currently evaluating the impact of adopting ASU
No. 2009-13 on our consolidated financial statements.




Item
7A. Quantitative and Qualitative Disclosures About Market Risk.




Not
applicable to smaller reporting companies.




Item
8.  Financial Statements and Supplementary Data.




Our
audited consolidated financial statements as of and for the fiscal years ended
December 31, 2009 and 2008, together with the related notes thereto, have been
included in this annual report on pages F-1 through F-48.  By this
reference, we have incorporated by reference these financial statements into
this Item 8.  As a smaller reporting company, we have omitted
supplementary data from our consolidated financial statements.




Item
9.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.




Information
with respect to this Item 9 has been previously reported in our definitive proxy
statement dated and filed with the SEC on April 30, 2009.




Item
9A(T).  Controls and Procedures.




Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our controls will prevent all error and all
fraud.  A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.  Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs.  Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected.  These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the controls.




Disclosure
Controls and Procedures




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended, as of December 31,
2009.  Based upon the December 31, 2009 disclosure controls
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective to provide a
reasonable level of assurance that information required to be disclosed in the
reports we file, furnish or submit under the Exchange Act is recorded,
processed, summarized and reported within the specified time periods in the
rules and forms of the Securities and Exchange Commission.  These
officers have concluded that our disclosure controls and procedures were also
effective to provide a reasonable level of assurance that information required
to be disclosed in the reports that we file, furnish or submit under the
Exchange Act is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure, all in accordance with Exchange Act Rule
13a-15(e).  Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving these objectives.


99




Management’s
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.  A company’s internal control over financial reporting
includes those policies and procedures that pertain to the maintenance of
records that, in reasonable detail:




·
            accurately
      and fairly reflect its transactions and dispositions of its
      assets;




·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      the preparation of financial statements in accordance with generally
      accepted accounting principles and that its receipts and expenditures are
      being made only in accordance with authorizations of its management and
      directors; and




·
            provide
      reasonable assurance regarding prevention or timely detection of the
      unauthorized acquisition, use, or disposition of its assets that could
      have a material effect on its financial
  statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.




Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009.  In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (COSO).  Based on its assessment, management has concluded
that, as of December 31, 2009, our internal control over financial reporting was
effective based on those criteria.




Changes
in Internal Control Over Financial Reporting




In
connection with management’s assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2009, there were no changes
in our internal control over financial reporting during the fourth quarter of
the year ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




Attestation
Report on Internal Control over Financial Reporting




This
annual report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this Annual Report on Form
10-K.




Item
9B.  Other Information.




Not
applicable.


100




PART
III




Item
10.  Directors, Executive Officers and Corporate
Governance.




Except as
otherwise provided herein, information required by this Item 10 is incorporated
by reference to our definitive proxy statement, which will be filed with the SEC
not later than 120 days after the close of the fiscal year covered by this
report.




Code
of Ethics




We
adopted a code of ethics which applies to our directors, officers and employees
as well as those of our subsidiaries.  A copy of our Code of Ethics
may be obtained free of charge by submitting a request in writing to Pure Earth,
Inc., One Neshaminy Interplex, Suite 201, Trevose, Pennsylvania,
19053.  In the event of any amendment to, or waiver from, a provision
of our code of ethics applicable to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, we may satisfy any required public disclosure of
such amendment or waiver by posting such information on our website at
http://www.pureearthinc.com.  The foregoing reference is meant to be
an inactive reference only, and information contained on our website is not
incorporated by reference in this annual report on Form 10-K.




Item
11.  Executive Compensation.




Information
required by this Item 11 is incorporated by reference to our definitive proxy
statement, which will be filed with the SEC not later than 120 days after the
close of the fiscal year covered by this report.




Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.




Except as
otherwise provided herein, information required by this Item 12 is incorporated
by reference to our definitive proxy statement, which will be filed with the SEC
not later than 120 days after the close of the fiscal year covered by this
report.




Item
Equity Compensation Plan Information




The
following table sets forth information with respect to our equity compensation
plans as of December 31, 2009.




Plan Category
              
              Number of securities to be
                  issued upon exercise of
                  outstanding options,
                  warrants or rights (a)
              
              
              Weighted-average
                  exercise price of
                  outstanding options,
                  warrants and rights (b)
              
              
              Number of securities
                  remaining available for
                  future issuance under
                  equity compensation
                  plans (excluding
                  securities reflected in
                  column (a)) (c)Equity
      compensation plans approved by security holders (1)
              
              
              —
              
              
              
              —
              
              
              
              807,200Equity
      compensation plans not approved by security holders
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              
              —
              
              
              
              —
              
              
              
              807,200





(1)
            Represents
      awards of restricted stock outstanding as of December 31, 2009 under our
      incentive plan, which was approved by our stockholders on September 5,
      2007.


101




Item
13.  Certain Relationships and Related Transactions, and Director
Independence.




Information
required by this Item 13 is incorporated by reference to our definitive proxy
statement, which will be filed with the SEC not later than 120 days after the
close of the fiscal year covered by this report.




Item
14.  Principal Accounting Fees and Services.




Information
required by this Item 14 is incorporated by reference to our definitive proxy
statement, which will be filed with the SEC not later than 120 days after the
close of the fiscal year covered by this report.


102




PART
IV




Item
15.  Exhibits and Financial Statement Schedules.




(a)(1)      Financial
Statements.  The consolidated financial statements of Pure
Earth, Inc. listed below have been filed as part of this annual report and are
incorporated by reference into Part II, Item 8 – Financial Statements and
Supplementary Data.  Such financial statements may be found beginning
on the pages of this annual report on Form 10-K listed below.




Report
      of Independent Registered Public Accounting Firm
                
                F-2Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                
                F-3Consolidated
      Statements of Operations For the Years Ended December 31, 2009 and
      2008
                
                F-5Consolidated
      Statements of Stockholders’ Equity For the Years Ended December 31, 2009
      and 2008
                
                F-7Consolidated
      Statements of Cash Flows For the Years Ended December 31, 2009 and
      2008
                
                F-8Notes
      to Consolidated Financial Statements
                
                F-10





(a)(3)     Exhibits.  The
warranties, representations and covenants contained in any of the agreements
included herein or which appear as exhibits hereto should not be relied upon by
buyers, sellers or holders of the Company’s securities and are not intended as
warranties, representations or covenants to any individual or entity except as
specifically set forth in such agreement.





Exhibit
                  No.
              
              Description2.1*
              
              Stock
      Purchase Agreement, dated as of January 19, 2006, by and between South
      Jersey Development, Inc., and its shareholders, and Info Investors, Inc.
      (1)2.2*
              
              Asset
      Purchase Agreement, dated as of January 19, 2006, by and between Whitney
      Contracting, Inc. and South Jersey Development, Inc.
(1)2.3*
              
              Stock
      Purchase Agreement, dated as of January 19, 2006, by and between American
      Transport and Disposal Services Ltd. and South Jersey Development, Inc.
      (1)2.4*
              
              Stock
      Purchase Agreement, dated as of January 19, 2006, by and between Juda
      Construction, Ltd. and South Jersey Development, Inc.
  (1)2.5*
              
              Asset
      Purchase Agreement, dated as of January 5, 2006, by and between Alchemy
      Development, LLC and South Jersey Development, Inc. (1)2.6*
              
              Stock
      Acquisition Agreement, dated as of November 30, 2006, by and among Shari
      L. Mahan, as sole shareholder of Terrasyn Environmental Corp., and Pure
      Earth, Inc. (1)2.7*
              
              Membership
      Interests Purchase Agreement, dated as of November 30, 2006, by and among
      Shari L. Mahan, as sole member of Environmental Venture Partners, LLC, Bio
      Methods LLC and Geo Methods, LLC, and Pure Earth, Inc.
  (1)2.8*
              
              Stock
      Purchase Agreement, dated as of February 13, 2007, by and among Pure
      Earth, Inc., Gregory W. Call, Casie Ecology Oil Salvage, inc., MidAtlantic
      Recycling Technologies, Inc. (n/k/a Pure Earth Recycling (NJ), Inc.) and
      Rezultz, Incorporated (1)


103





Exhibit
                  No.
              
              Description2.8.1
              
              First
      Amendment to Stock Purchase Agreement, dated as of February 28, 2007, by
      and among Pure Earth, Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.) and Gregory W. Call (1)2.8.2*
              
              Second
      Amendment to Stock Purchase Agreement, dated as of March 26, 2007, by and
      among Pure Earth, Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.), Rex Mouser and Gregory W. Call
  (1)2.8.3
              
              Third
      Amendment to Stock Purchase Agreement, dated as of May 7, 2007, by and
      among Pure Earth Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.), Rex Mouser and Gregory W. Call
  (1)2.8.4
              
              Fourth
      Amendment to Stock Purchase Agreement, dated as of August 6, 2007, by and
      among Pure Earth Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.), Rex Mouser, Brian Horne and Gregory W. Call
      (1)2.8.5*
              
              Letter,
      dated December 21, 2007, from Pure Earth, Inc. to Gregory W. Call
      regarding Final Purchase Price with respect to the Stock Purchase
      Agreement, dated as of February 13, 2007, among Pure Earth, Inc., Casie
      Ecology Oil Salvage, Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a
      Pure Earth Recycling (NJ), Inc.), Rezultz, Incorporated, Rex Mouser, Brian
      Horne and Gregory W. Call, as amended (1)2.8.5(a)
              
              Letter,
      dated January 7, 2008, from Pure Earth, Inc. to Gregory W. Call, dated
      December 21, 2007 (1)2.8.6
              
              Joinder
      Agreement, dated March 21, 2007, of Rex Mouser to the Stock Purchase
      Agreement by and among Pure Earth, Inc., Casie Ecology Oil Salvage, Inc.,
      MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth Recycling (NJ),
      Inc.), Rezultz, Incorporated, Rex Mouser, Brian Horne and Gregory W. Call
      (1)2.8.7
              
              Joinder
      Agreement, dated May 30, 2007, of Brian Horne to the Stock Purchase
      Agreement by and among Pure Earth, Inc., Casie Ecology Oil Salvage, Inc.,
      MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth Recycling (NJ),
      Inc.), Rezultz, Incorporated, Rex Mouser and Gregory W. Call
      (1)2.9*
              
              Asset
      Purchase Agreement, dated November 20, 2007, by and among PEI Disposal
      Group, Inc., Richard Rivkin, Soil Disposal Group, Inc., Aaron
      Environmental Group, Inc., Stephen F. Shapiro, Jeffrey Berger and James
      Case (1)2.10*
              
              Asset
      Purchase Agreement, dated April 1, 2008, by and among Nycon, Inc., Robert
      Cruso, Frank Gencarelli, New Nycon, Inc. and Paul Bracegirdle
      (1)2.10.1
              
              Amendment
      to Asset Purchase Agreement, dated March 9, 2009, by and among New Nycon,
      Inc., Robert Cruso and Frank Gencarelli2.10.2
              
              Amendment
      to Asset Purchase Agreement, dated December 10, 2009, by and among New
      Nycon, Inc., Robert Cruso and Frank Gencarelli3.1
              
              Second
      Amended and Restated Certificate of Incorporation of Pure Earth, Inc., as
      amended (2) (3) (4)3.2
              
              Second
      Amended and Restated Bylaws of Pure Earth, Inc. (2) (3)4.1
              
              Specimen
      Common Stock Certificate (1)4.2
              
              Specimen
      Series B Preferred Stock Certificate (1)4.3
              
              Form
      of Common Stock Purchase Warrant issued to DD Growth Premium pursuant to
      the Securities Purchase Agreement, dated as of June 30, 2006
      (1)4.4
              
              Form
      of Registration Rights Agreement, dated June 30, 2006, by and between Pure
      Earth, Inc. and DD Growth Premium (1)4.5
              
              Form
      of Common Stock Purchase Warrant issued to Charles Hallinan and Black
      Creek Capital Corp. pursuant to the Subscription Agreement, dated as of
      May 22, 2007 (1)4.6
              
              Debenture
      Redemption Agreement, dated as of August 17, 2007, by and among Pure
      Earth, Inc. and Dynamic Decisions Strategic Opportunities
    (1)4.6.1
              
              First
      Amendment to Debenture Redemption Agreement, dated as of October 2, 2007,
      by and among Pure Earth, Inc. and Dynamic Decisions Strategic
      Opportunities (1)


104





Exhibit
                  No.
              
              Description4.7
              
              Stock
      Purchase Agreement, dated August 17, 2007, by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc. (1)4.7.1
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of September 18,
      2007, by Kim C. Tucker Living Trust (1)4.7.2**
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of August 30, 2007,
      by Brent Kopenhaver and Emilie Kopenhaver (1)4.7.3**
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of August 30, 2007,
      by Mark Alsentzer (1)4.7.4**
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of September 20,
      2007, by Charles Hallinan (1)4.8
              
              Investment
      Agreement, dated as of March 4, 2008, among Pure Earth, Inc. and Fidus
      Mezzanine Capital, L.P. (1)4.8.1
              
              Letter,
      dated August 18, 2009, from Pure Earth, Inc. to Fidus Mezzanine Capital,
      L.P. (5)4.8.2
              
              Letter,
      dated November 30, 2009, from Pure Earth, Inc. to Fidus Mezzanine Capital,
      L.P. (4)4.9
              
              Warrant,
      dated March 4, 2008, to purchase Common Stock of Pure Earth, Inc. issued
      to Fidus Mezzanine Capital, L.P. (1)4.10
              
              Registration
      Rights Agreement, dated as of March 4, 2008, between Pure Earth, Inc. and
      certain holders (1)4.11**
              
              Securityholders
      Agreement, dated as of March 4, 2008, by and among Pure Earth, Inc., Brent
      Kopenhaver, Mark Alsentzer, Fidus Mezzanine Capital, L.P. and holders of
      the Warrants and Warrant Shares, as defined therein (1)4.12
              
              Guaranty
      Agreement, dated as of March 4, 2008, by certain subsidiaries of Pure
      Earth, Inc. in favor of Fidus Mezzanine Capital, L.P. and any other
      Investors party thereto (1)4.13
              
              Investment
      Agreement, effective June 29, 2008, by and among Pure Earth, Inc., Black
      Creek Capital Corp. and Charles M. Hallinan (3)4.14
              
              Form
      of Subscription Agreement with respect to Series C Convertible Preferred
      Stock (4)4.15
              
              Specimen
      Series C Convertible Preferred Stock Certificate (4)4.16
              
              Form
      of Registration Rights Agreement with respect to the Series C Convertible
      Preferred Stock Offering (4)4.17
              
              Letter
      from Pure Earth, Inc. to Fidus Mezzanine Capital, L.P., dated November 24,
      2009, regarding mandatory conversion right of Series C Convertible
      Preferred Stock (4)10.1**
              
              Employment
      Agreement, dated as of June 1, 2008, by and between Pure Earth, Inc. and
      Mark Alsentzer (1)10.2**
              
              Employment
      Agreement, dated as of June 1, 2008, by and between Pure Earth, Inc. and
      Brent Kopenhaver (1)10.3**
              
              Pure
      Earth, Inc. 2007 Stock Incentive Plan (1)10.4**
              
              Form
      of Restricted Stock Agreement for awards under the Pure Earth, Inc. 2007
      Stock Incentive Plan (1)10.5
              
              Credit
      and Security Agreement, dated as of October 24, 2006, between Pure Earth,
      Inc., South Jersey Development, Inc., American Transportation &
      Disposal Systems, Ltd., Juda Construction, Ltd. and Wells Fargo Bank,
      National Association (1)10.5.1
              
              First
      Amendment to Credit and Security Agreement, dated December 29, 2006, by
      and between Pure Earth, Inc., South Jersey Development, Inc., American
      Transportation & Disposal Systems, Ltd., Juda Construction, Ltd. and
      Wells Fargo Bank, National Association (1)10.5.2
              
              Second
      Amendment to Credit and Security Agreement and Waiver of Defaults, dated
      May 16, 2007, by and between Pure Earth, Inc., Pure Earth Transportation
      and Disposal, Inc., Pure Earth Materials, Inc., Juda Construction, Ltd.
      and Wells Fargo Bank, National Association (1)10.5.3
              
              Third
      Amendment to Credit and Security Agreement, dated November 13, 2007, by
      and between Pure Earth, Inc., Pure Earth Transportation and Disposal,
      Inc., Pure Earth Materials, Inc., Juda Construction, Ltd. and Wells Fargo
      Bank, National Association
(1)


105





Exhibit
                  No.
              
              Description10.5.4
              
              Fourth
      Amendment to Credit and Security Agreement, effective April 28, 2008, by
      and between Pure Earth, Inc., Pure Earth Transportation & Disposal,
      Inc., Pure Earth Materials, Inc., Juda Construction, Ltd. and Wells Fargo
      Bank, National Association (3)10.5.5
              
              Fifth
      Amendment to Credit and Security Agreement, portions effective as of
      October 21, 2008 and March 13, 2009, by and among Pure Earth, Inc., each
      of its subsidiaries, and Wells Fargo Bank, National Association
      (6)10.5.6
              
              Sixth
      Amendment to Credit and Security Agreement, dated August 19, 2009 and
      effective as of June 30, 2009, by and among Pure Earth, Inc., each of its
      subsidiaries, and Wells Fargo Bank, National Association
    (5)10.5.7
              
              Seventh
      Amendment to Credit and Security Agreement, dated October 23, 2009, by and
      among Pure Earth, Inc., each of its subsidiaries, and Wells Fargo Bank,
      National Association (5)10.6
              
              Sales
      Representative Agreement, dated November 20, 2007, by and between PEI
      Disposal Group, Inc., Soil Disposal Group, Inc., Richard Rivkin, Stephen
      Shapiro, James Case, Jeffrey Berger and Aaron Environmental Group, Inc.
      (1)10.7
              
              Form
      of Confidentiality, Non-Competition and Non-Solicitation Agreement, dated
      November 20, 2007, by and among Soil Disposal Group, Inc., PEI Disposal
      Group, Inc., Pure Earth, Inc., any and all subsidiaries of PEI Disposal
      Group, Inc. and Pure Earth, Inc., and certain employees of Soil Disposal
      Group, Inc. signatory thereto (1)10.8
              
              Commercial
      Lease, dated October 26, 2007, between Red Rock Land Development, LLC and
      Pure Earth Materials (NJ) Inc.(1)10.8.1
              
              Memorandum
      of Understanding, dated September 25, 2008, between Red Rock Land
      Development, LLC and Pure Earth Materials (NJ) Inc., amending Commercial
      Lease dated October 26, 2007 (7)10.9
              
              Subordinated
      Promissory Note, dated November 15, 2007, by Casie Ecology Oil Salvage,
      Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth Recycling
      (NJ), Inc.) and Rezultz, Incorporated in the principal amount of
      $1,000,000 in favor of Gregory W. Call (1)10.10
              
              Promissory
      Note, dated November 20, 2007, by PEI Disposal Group, Inc., as maker, in
      the principal amount of $640,000, in favor of Soil Disposal Group,
      Inc.(1)10.11
              
              Promissory
      Note, dated November 28, 2007, by Pure Earth, Inc., Juda Construction,
      Ltd. and Pure Earth Materials, Inc., as makers, in the principal amount of
      $2,265,000, in favor of CoActiv Capital Partners LLC
(1)10.11.1
              
              Loan
      Restructure Agreement, dated December 7, 2009, by and between CoActiv
      Capital Partners LLC and Pure Earth, Inc., Pure Earth Materials, Inc., and
      Juda Construction, LTD. as co-borrowers.10.12
              
              Exclusive
      License, dated April 30, 2008, by and between New Nycon, Inc. and Paul E.
      Bracegirdle (1)10.13
              
              Term
      Loan Agreement, dated November 12, 2008, by and among Casie Ecology Oil
      Salvage, Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.) and Rezultz, Incorporated and Susquehanna Bank
      (6)10.13.1
              
              First
      Amendment to Term Loan Agreement, dated November 16, 2009, by and among
      Pure Earth Treatment (NJ), Inc. (f/k/a Casie Ecology Oil Salvage, Inc.),
      Pure Earth Recycling (NJ), Inc. (f/k/a MidAtlantic Recycling Technologies,
      Inc.), Rezultz, Incorporated and Susquehanna Bank10.14
              
              Guaranty,
      dated November 12, 2008, of Pure Earth, Inc. in favor of Susquehanna Bank
      (6)10.14.1
              
              First
      Amendment to Guaranty Agreement, dated November 16, 2009, of Pure Earth,
      Inc., in favor of Susquehanna Bank10.14.2
              
              ISDA®
      Master Agreement, dated November 12, 2008, by and among Susquehanna Bank,
      Casie Ecology Oil Salvage, Inc., MidAtlantic Recycling Technologies, Inc.
      (n/k/a Pure Earth Recycling (NJ), Inc.) and Rezultz, Incorporated
      (6)10.14.3
              
              Amendment
      to ISDA® Master Agreement, dated November 13, 2009, by and among
      Susquehanna Bank, Pure Earth Treatment (NJ), Inc. (f/k/a Casie Ecology Oil
      Salvage, Inc.), Pure Earth Recycling (NJ), Inc. (f/k/a MidAtlantic
      Recycling Technologies, Inc.) and Rezultz,
Incorporated.10.14.4
              
              Schedule
      to the Master Agreement, dated November 12, 2008, by and among Susquehanna
      Bank, Casie Ecology Oil Salvage, Inc., MidAtlantic Recycling Technologies,
      Inc. (n/k/a Pure Earth Recycling (NJ), Inc.) and Rezultz, Incorporated
      (6)10.14.5
              
              Confirmation,
      dated November 12, 2008, by and among Susquehanna Bank, Casie Ecology Oil
      Salvage, Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.) and Rezultz, Incorporated (6)10.14.6
              
              Amendment
      to Confirmation, dated November 13, 2009, by and among Susquehanna Bank,
      Pure Earth Treatment (NJ), Inc. (f/k/a Casie Ecology Oil Salvage, Inc.),
      Pure Earth Recycling (NJ), Inc. (f/k/a MidAtlantic Recycling Technologies,
      Inc.) and Rezultz, Incorporated10.14.7
              
              Term
      Loan Note, dated November 12, 2008, issued by Casie Ecology Oil Salvage,
      Inc. (n/k/a Pure Earth Treatment (NJ), Inc), MidAtlantic Recycling
      Technologies, Inc. (n/k/a Pure Earth Recycling (NJ), Inc.), and Rezultz,
      Incorporated, as borrowers, in favor of Susequehanna Bank, as
      payee10.14.8
              
              Amendment
      to Term Loan Note, dated November 16, 2009, issued by Pure Earth Treatment
      (NJ), Inc. (f/k/a Casie Ecology Oil Salvage, Inc.), Pure Earth Recycling
      (NJ), Inc. (f/k/a MidAtlantic Recycling Technologies, Inc.) and Rezultz,
      Incorporated, as borrowers, in favor of Susequehanna Bank, as
      payee


106





Exhibit
                  No.
              
              Description10.15**
              
              Letter
      dated June 1, 2009, between Pure Earth, Inc. and Mark
      Alsentzer10.15.1**
              
              Letter
      dated June 1, 2009, between Pure Earth, Inc. and Brent
  Kopenhaver10.15.2**
              
              Letter
      dated June 1, 2009, between Pure Earth, Inc. and Joseph T.
    Kotrosits21.1
              
              Subsidiaries
      of the Registrant31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under
      the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”)31.2
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) promulgated under
      the Exchange Act32.1
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002


_____________


*
            The
      schedules to this agreement have been omitted in accordance with the rules
      of the SEC.  A list of omitted schedules has been included in
      this exhibit and will be provided supplementally to the SEC upon
      request.




**
            Management
      contract or compensatory plan or
arrangement.




(1)
            Previously
      filed as an exhibit to our registration statement on Form 10 (File No.
      0-53287), as filed with the SEC on June 20,
  2008.





(2)
            Included
      is the revised version of this exhibit, redlined to show the new
      amendments.  The redlined version is being provided pursuant to
      SEC staff Compliance & Disclosure Interpretation
    246.01.





(3)
            Previously
      filed as an exhibit to Pre-Effective Amendment No. 1 to our registration
      statement on Form 10/A (File No. 0-53287), as filed with the SEC on August
      8, 2008.





(4)
            Previously
      filed as an exhibit to our Current Report on Form 8-K dated November 30,
      2009 (File No. 0-53287), as filed with the SEC on December 3,
      2009.





(5)
            Previously
      filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter
      ended September 30, 2009 (File No. 0-53287), as filed with the SEC on
      November 16, 2009.





(6)
            Previously
      filed as an exhibit to our Annual Report on Form 10-K for the year ended
      December 31, 2008 (File No. 0-53287), as filed with the SEC on March 31,
      2009.





(7)
            Previously
      filed as an exhibit to Post-Effective Amendment No. 2 to our registration
      statement on Form 10/A (File No. 0-53287), as filed with the SEC on
      November 4, 2008.


107


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





PURE
      EARTH, INC.Date:      April
      15, 2010
                
                By:
                /s/ Mark AlsentzerMark
      AlsentzerPresident
      and Chief Executive
Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Name and Signature
              
              Capacity
              
              Date/s/ Mark
      Alsentzer
              
              President,
      Chief Executive Officer and Class I Director
              
              April
      15, 2010Mark
      Alsentzer
              
              (Principal
      Executive Officer)/s/ Brent Kopenhaver
              
              Chairman
      (Class III Director), Executive Vice President,
              
              April
      15, 2010Brent
      Kopenhaver
              
              Chief
      Financial Officer and Treasurer(Principal
      Financial and Accounting Officer)/s/ Charles M. Hallinan
              
              Class
      II Director
              
              April
      15, 2010Charles
      M. Hallinan


108


PURE
EARTH, INC. AND SUBSIDIARIES





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





Report
      of Independent Registered Public Accounting Firm
                  
                  F-2Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                  
                  F-3Consolidated
      Statements of Operations For the Years Ended December 31, 2009 and
      2008
                  
                  F-5Consolidated
      Statements of Stockholders’ Equity For the Years Ended December 31, 2009
      and 2008
                  
                  F-7Consolidated
      Statements of Cash Flows For the Years Ended December 31, 2009 and
      2008
                  
                  F-8Notes
      to Consolidated Financial Statements
                  
                  F-10


F-1


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders


of Pure
Earth, Inc.





We have
audited the accompanying consolidated balance sheets of Pure Earth, Inc. and
Subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity and cash
flows for each of the years then ended. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pure Earth Inc.
and Subsidiaries, as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years then ended in conformity
with United States generally accepted accounting principles





/s/
Marcum LLP





New York,
New York


April 15,
2010


F-2


PURE
EARTH, INC. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS





ASSETS


December31,2009
                                    
                                    
                                    2008CURRENT
      ASSETSCash
      and cash equivalents
                                    
                                    $
                                    796,553
                                    
                                    
                                    $
                                    900,744Accounts
      receivable, less allowance for doubtful accounts of $453,500 and
      $982,260
                                    
                                    
                                    6,614,575
                                    
                                    
                                    
                                    10,903,954Restricted
      cash
                                    
                                    
                                    211,122
                                    
                                    
                                    
                                    813,164Due
      from joint venture
                                    
                                    
                                    118,270
                                    
                                    
                                    
                                    342,552Inventories
                                    
                                    
                                    392,562
                                    
                                    
                                    
                                    312,651Prepaid
      expenses
                                    
                                    
                                    760,383
                                    
                                    
                                    
                                    781,893Other
      current assets
                                    
                                    
                                    1,487,667
                                    
                                    
                                    
                                    1,065,740Deferred
      income tax asset
                                    
                                    
                                    209,568
                                    
                                    
                                    
                                    306,073Assets
      held for sale
                                    
                                    
                                    956,923
                                    
                                    
                                    
                                    1,986,917Total
      Current Assets
                                    
                                    
                                    11,547,623
                                    
                                    
                                    
                                    17,413,688PROPERTY
      AND EQUIPMENTLand
                                    
                                    
                                    1,085,940
                                    
                                    
                                    
                                    1,085,940Buildings
      and improvements
                                    
                                    
                                    7,114,752
                                    
                                    
                                    
                                    7,125,309Leasehold
      improvements
                                    
                                    
                                    220,560
                                    
                                    
                                    
                                    211,875Machinery
      and equipment
                                    
                                    
                                    10,282,891
                                    
                                    
                                    
                                    8,025,683Trucks
      and automobiles
                                    
                                    
                                    1,884,989
                                    
                                    
                                    
                                    1,922,246Office
      furniture, fixtures and computer software
                                    
                                    
                                    323,160
                                    
                                    
                                    
                                    323,16020,912,292
                                    
                                    
                                    
                                    18,694,213Less:
      accumulated depreciation and amortization
                                    
                                    
                                    (6,725,625
                                    )
                                    
                                    
                                    (4,423,106
                                    )Property
      and Equipment, Net
                                    
                                    
                                    14,186,667
                                    
                                    
                                    
                                    14,271,107OTHER
      ASSETSDeposits
      and other assets
                                    
                                    
                                    1,417,117
                                    
                                    
                                    
                                    923,335Deferred
      financing costs, net of accumulated amortization of $553,407 and
      $199,663
                                    
                                    
                                    544,245
                                    
                                    
                                    
                                    747,989Goodwill
                                    
                                    
                                    759,694
                                    
                                    
                                    
                                    759,694Permits
                                    
                                    
                                    2,200,000
                                    
                                    
                                    
                                    2,200,000Other
      intangible assets, net of accumulated amortization
                                    
                                    
                                    1,647,191
                                    
                                    
                                    
                                    2,017,972Idle
      machinery
                                    
                                    
                                    4,158,100
                                    
                                    
                                    
                                    7,176,850Total
      Other Assets
                                    
                                    
                                    10,726,347
                                    
                                    
                                    
                                    13,825,840TOTAL
      ASSETS
                                    
                                    $
                                    36,460,637
                                    
                                    
                                    $
                                    45,510,635





The
accompanying notes are an integral part of these consolidated financial
statements.




F-3




PURE
EARTH, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





LIABILITIES
AND STOCKHOLDERS’ EQUITY


December 31,2009
                
                
                2008CURRENT
      LIABILITIESLine
      of credit
                
                $
                1,884,529
                
                
                $
                407,822Notes
      payable
                
                
                —
                
                
                
                25,068Note
      payable – related party
                
                
                1,011,348
                
                
                
                333,000Current
      portion of long-term debt
                
                
                1,462,224
                
                
                
                1,556,494Accounts
      payable
                
                
                5,005,146
                
                
                
                5,318,797Accrued
      expenses
                
                
                1,031,609
                
                
                
                902,265Accrued
      payroll and payroll taxes
                
                
                151,408
                
                
                
                294,356Other
      current liabilities
                
                
                545,802
                
                
                
                1,323,452Accrued
      disposal costs
                
                
                468,942
                
                
                
                262,815Liabilities
      held for sale
                
                
                796,516
                
                
                
                1,887,513Total
      Current Liabilities
                
                
                12,357,524
                
                
                
                12,311,582LONG-TERM
      LIABILITIESLong-term
      debt, net of current portion
                
                
                7,203,855
                
                
                
                8,351,740Mandatorily
      redeemable Series B preferred stock, $.001 par value; authorized
      20,000 shares; issued and outstanding 6,300 shares
                
                
                5,359,206
                
                
                
                4,447,437Note
      payable — related party
                
                
                —
                
                
                
                650,296Accrued
      disposal costs
                
                
                282,172
                
                
                
                78,023Contingent
      consideration
                
                
                1,176,235
                
                
                
                1,176,235Warrants
      with contingent redemption provisions
                
                
                383,168
                
                
                
                1,112,164Deferred
      income taxes
                
                
                2,272,042
                
                
                
                4,047,236Deferred
      income tax liabilities – permits
                
                
                880,000
                
                
                
                880,000Total
      Long-Term Liabilities
                
                
                17,556,679
                
                
                
                20,743,131TOTAL
      LIABILITIES
                
                
                29,914,202
                
                
                
                33,054,713COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYPreferred
      stock, $.001 par value, authorized 500,000 shares:
                  Series
      C Convertible Preferred Stock, $.001 par value, authorized
                  260,000
      and 0 shares; issued and outstanding 105,350 and 0 shares,
                  Liquidation
      preference of $1,062,279 and $0
                
                
                105
                
                
                
                —Common
      stock, $.001 par value; authorized 25,000,000 shares; issued
                  and
      outstanding 17,575,399 and 17,626,799 shares
                
                
                17,576
                
                
                
                17,627Additional
      paid-in capital
                
                
                15,034,596
                
                
                
                13,803,474Accumulated
      deficit
                
                
                (8,505,842
                )
                
                
                (1,365,179
                )TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                6,546,435
                
                
                
                12,455,922TOTAL
      LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’
      EQUITY
                
                $
                36,460,637
                
                
                $
                45,510,635


The
accompanying notes are an integral part of these consolidated financial
statements.




F-4




PURE
EARTH, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF OPERATIONS




For the Years Ended December 31,2009
              
              
              2008REVENUES
              
              $
              43,312,163
              
              
              $
              61,166,932COST
      OF REVENUES (including $2,586,544 and $2,453,876 of depreciation and
      amortization expense)
              
              
              38,705,460
              
              
              
              50,373,760GROSS
      PROFIT
              
              
              4,606,703
              
              
              
              10,793,172OPERATING
      EXPENSESSalaries
      and related expenses
              
              
              4,761,738
              
              
              
              5,929,102Occupancy
      and other office expenses
              
              
              861,794
              
              
              
              1,101,242Professional
      fees
              
              
              2,020,366
              
              
              
              1,985,740Other
      operating expenses
              
              
              1,370,511
              
              
              
              2,081,607Insurance
              
              
              1,100,715
              
              
              
              1,035,528Depreciation
      and amortization
              
              
              475,119
              
              
              
              440,687Write
      off of fixed assets
              
              
              733,333
              
              
              
              —Impairment
      of idle machinery
              
              
              —
              
              
              
              1,618,125Gain
      on sale of equipment
              
              
              (23,648
              )
              
              
              (245,424
              )TOTAL
      OPERATING EXPENSES
              
              
              11,299,928
              
              
              
              13,946,607LOSS
      FROM CONTINUING OPERATIONS
              
              
              (6,693,225
              )
              
              
              (3,153,435
              )OTHER
      INCOME (EXPENSES)Interest
      income
              
              
              —
              
              
              
              82,821Interest
      expense
              
              
              (2,444,604
              )
              
              
              (1,972,096
              )Loss
      from equity investment
              
              
              (143,431
              )
              
              
              (310,678
              )Expenses
      for unrealized acquisitions
              
              
              (30,000
              )
              
              
              (271,081
              )Change
      in fair value of warrants with contingent redemption
      provisions
              
              
              728,996
              
              
              
              1,151,266Other
      income
              
              
              471,635
              
              
              
              188,352TOTAL
      OTHER INCOME (EXPENSES)
              
              
              (1,417,404
              )
              
              
              (1,131,416
              )LOSS
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
              
              
              (8,110,629
              )
              
              
              (4,284,851
              )PROVISION
      FOR (BENEFIT FROM) INCOME TAXESCurrent
              
              
              78,674
              
              
              
              (748,820
              )Deferred
              
              
              (1,678,689
              )
              
              
              (1,308,765
              )TOTAL
      PROVISION FOR (BENEFIT FROM) INCOME TAXES
              
              
              (1,600,015
              )
              
              
              (2,057,585
              )NET
      LOSS FROM CONTINUING OPERATIONS
              
              
              (6,510,614
              )
              
              
              (2,227,266
              )DISCONTINUED
      OPERATIONSLoss
      from discontinued operations
              
              
              (357,895
              )
              
              
              (312,494
              )Benefit
      from income taxes
              
              
              —
              
              
              
              —NET
      LOSS FROM DISCONTINUED OPERATIONS
              
              
              (357,895
              )
              
              
              (312,494
              )NET
      LOSS
              
              
              (6,868,509
              )
              
              
              (2,539,760
              )Less:
      preferred stock dividends
              
              
              272,154
              
              
              
              477,846NET
      LOSS AVAILABLE FOR  COMMON STOCKHOLDERS
              
              $
              (7,140,663
              )
              
              $
              (3,017,606
              )




The accompanying notes are an
integral part of these consolidated financial
statements.


F-5





NET
      LOSS PER SHARE FROM CONTINUING OPERATIONSBasic
                
                $
                (0.39
                )
                
                $
                (0.16
                )Diluted
                
                $
                (0.39
                )
                
                $
                (0.16
                )NET
      LOSS PER SHARE FROM DISCONTINUED OPERATIONSBasic
                
                $
                (0.02
                )
                
                $
                (0.02
                )Diluted
                
                $
                (0.02
                )
                
                $
                (0.02
                )NET
      LOSS PER SHAREBasic
                
                $
                (0.41
                )
                
                $
                (0.18
                )Diluted
                
                $
                (0.41
                )
                
                $
                (0.18
                )WEIGHTED
      AVERAGE SHARES OF COMMON STOCK OUTSTANDINGBasic
                
                
                17,550,350
                
                
                
                17,427,847Diluted
                
                
                17,550,350
                
                
                
                17,427,847




The accompanying notes are an
integral part of these consolidated financial
statements.


F-6


PURE
EARTH, INC. AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY




For
the Years Ended December 31, 2009 and 2008





Preferred
      Stock
                            
                            
                            Common
      Stock
                            
                            
                            Addition Paid-in
                            
                            
                            Retained
                              Earnings
                              (Accumulated
                            
                            
                            Total
                              StockholdersShares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Deficit)
                            
                            
                            EquityBALANCE
      – December 31, 2007
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            17,218,465
                            
                            
                            
                            17,218
                            
                            
                            
                            12,323,847
                            
                            
                            
                            1,652,427
                            
                            
                            
                            13,993,492Restricted
      stock issued to customer
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            5,000
                            
                            
                            
                            5
                            
                            
                            
                            14,995
                            
                            
                            
                            —
                            
                            
                            
                            15,000Issuance
      of common stock for acquisition of   companies and specific
      assets
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            25,000
                            
                            
                            
                            25
                            
                            
                            
                            74,475
                            
                            
                            
                            —
                            
                            
                            
                            74,500Issuance
      of common stock to employees and consultants
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            45,000
                            
                            
                            
                            45
                            
                            
                            
                            132,705
                            
                            
                            
                            —
                            
                            
                            
                            132,750Issuance
      of common stock to Series A preferred stockholders
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            111,134
                            
                            
                            
                            111
                            
                            
                            
                            327,485
                            
                            
                            
                            —
                            
                            
                            
                            327,596Conversion
      of Series A preferred stock into common stock
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            222,200
                            
                            
                            
                            223
                            
                            
                            
                            929,967
                            
                            
                            
                            —
                            
                            
                            
                            930,190Dividends
      declared on Series A preferred stock
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (477,846
                            )
                            
                            
                            (477,846
                            )Net
      loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (2,539,760
                            )
                            
                            
                            (2,539,760
                            )BALANCE
      – December 31, 2008
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            17,626,799
                            
                            
                            $
                            17,627
                            
                            
                            $
                            13,803,474
                            
                            
                            $
                            (1,365,179
                            )
                            
                            $
                            12,455,922Issuance
      of common stock for legal settlement
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            30,000
                            
                            
                            
                            30
                            
                            
                            
                            29,970
                            
                            
                            
                            —
                            
                            
                            
                            30,000Issuance
      of common stock to consultants
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            118,750
                            
                            
                            
                            119
                            
                            
                            
                            84,257
                            
                            
                            
                            —
                            
                            
                            
                            84,376Retirement
      of common stock
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (200,150
                            )
                            
                            
                            (200
                            )
                            
                            
                            (199,875
                            )
                            
                            
                            —
                            
                            
                            
                            (200,075
                            )Series
      C convertible preferred stock issuance
                            
                            
                            105,350
                            
                            
                            
                            105
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            1,053,395
                            
                            
                            
                            —
                            
                            
                            
                            1,053,500Dividends
      declared on Series C preferred stock
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            263,375
                            
                            
                            
                            (272,154
                            )
                            
                            
                            (8,779
                            )Net
      loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (6,868,509
                            )
                            
                            
                            (6,868,509
                            )BALANCE
      – December 31, 2009
                            
                            
                            105,350
                            
                            
                            $
                            105
                            
                            
                            
                            17,575,399
                            
                            
                            $
                            17,576
                            
                            
                            $
                            15,034,596
                            
                            
                            $
                            (8,505,842
                            )
                            
                            $
                            6,546,435





The accompanying notes are an
integral part of these consolidated financial
statements.


F-7


PURE
EARTH, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS







For the Years EndedDecember 31,2009
                    
                    
                    2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                    
                    $
                    (6,868,509
                    )
                    
                    $
                    (2,539,760
                    )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activitiesDepreciation
      and amortization
                    
                    
                    2,690,882
                    
                    
                    
                    2,535,693Other
      intangible assets amortization
                    
                    
                    515,574
                    
                    
                    
                    492,096Deferred
      financing cost amortization
                    
                    
                    353,744
                    
                    
                    
                    120,649Interest
      expense for accretion of warrant and debt discount
                    
                    
                    307,890
                    
                    
                    
                    200,291Interest
      expense for Series B preferred stock payment-in-kind
                    
                    
                    603,839
                    
                    
                    
                    210,369Impairment
      of idle equipment and write off of fixed assets
                    
                    
                    733,333
                    
                    
                    
                    1,618,125Provision
      for doubtful accounts
                    
                    
                    251,039
                    
                    
                    
                    750,020Gain
      on sale of property and equipment
                    
                    
                    (23,647
                    )
                    
                    
                    (245,424
                    )Gain
      on conversion of debt to preferred stock
                    
                    
                    (37,500
                    )
                    
                    
                    —Stock-based
      payments
                    
                    
                    97,786
                    
                    
                    
                    88,750Write-off
      of expenses for unrealized acquisitions
                    
                    
                    30,000
                    
                    
                    
                    271,081Change
      in fair value of derivatives and other assets and liabilities measured at
      fair value
                    
                    
                    4,317
                    
                    
                    
                    —Change
      in fair value of warrants with contingent redemption
      provisions
                    
                    
                    (728,996
                    )
                    
                    
                    (1,151,059
                    )Deferred
      income taxes
                    
                    
                    (1,678,688
                    )
                    
                    
                    (1,308,765
                    )Changes
      in operating assets and liabilitiesAccounts
      receivable
                    
                    
                    3,026,618
                    
                    
                    
                    919,312Inventories
                    
                    
                    (84,655
                    )
                    
                    
                    (119,606
                    )Prepaid
      expenses and other current assets
                    
                    
                    600,692
                    
                    
                    
                    44,485Deposits
      and other assets
                    
                    
                    (523,782
                    )
                    
                    
                    194,745Restricted
      cash
                    
                    
                    602,042
                    
                    
                    
                    (813,164
                    )Accounts
      payable
                    
                    
                    (471,152
                    )
                    
                    
                    (375,313
                    )Accrued
      expenses and other current liabilities
                    
                    
                    (617,493
                    )
                    
                    
                    (1,573,434
                    )Accrued
      disposal costs
                    
                    
                    410,276
                    
                    
                    
                    (1,031,390
                    )Contingent
      consideration
                    
                    
                    —
                    
                    
                    
                    (33,215
                    )Due
      from joint venture
                    
                    
                    224,282
                    
                    
                    
                    (342,552
                    )Income
      taxes payable
                    
                    
                    —
                    
                    
                    
                    (1,024,603
                    )TOTAL
      ADJUSTMENTS
                    
                    
                    6,286,491
                    
                    
                    
                    (572,009
                    )NET
      CASH USED IN OPERATING ACTIVITIES
                    
                    
                    (582,018
                    )
                    
                    
                    (3,112,669
                    )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisitions
      of business and assets
                    
                    
                    —
                    
                    
                    
                    (44,803
                    )Payments
      for pending acquisitions
                    
                    
                    —
                    
                    
                    
                    (198,779
                    )Acquisitions
      of property and equipment
                    
                    
                    (382,918
                    )
                    
                    
                    (952,155
                    )Proceeds
      from sale of property and equipment
                    
                    
                    52,994
                    
                    
                    
                    707,105NET
      CASH USED IN INVESTING ACTIVITIES
                    
                    
                    (329,924
                    )
                    
                    
                    (488,632
                    )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayments
      of (advances for) related party loans
                    
                    
                    28,052
                    
                    
                    
                    (25,167
                    )Net
      (repayments) borrowings on line of credit
                    
                    
                    1,476,707
                    
                    
                    
                    (5,992,775
                    )Repayments
      of notes payable
                    
                    
                    (25,068
                    )
                    
                    
                    (682,938
                    )Repayment
      of long-term debt
                    
                    
                    (1,279,086
                    )
                    
                    
                    (4,341,238
                    )Proceeds
      from equipment financing
                    
                    
                    —
                    
                    
                    
                    8,200,000


F-8




PURE
EARTH, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS, Continued


For the Years EndedDecember 31,2009
                      
                      
                      2008Financing
      fees incurred
                      
                      
                      (150,000
                      )
                      
                      
                      (740,851
                      )Retirement
      of common stock
                      
                      
                      (200,075
                      )
                      
                      
                      —Private
      placement of preferred stock
                      
                      
                      1,016,000
                      
                      
                      
                      6,300,000Dividends
      paid on Series A preferred stock
                      
                      
                      (58,779
                      )
                      
                      
                      (100,000
                      )NET CASH PROVIDED BY FINANCING
      ACTIVITIES
                      
                      
                      807,751
                      
                      
                      
                      2,617,031NET DECREASE IN CASH AND CASH
      EQUIVALENTS
                      
                      
                      (104,191
                      )
                      
                      
                      (984,270
                      )CASH
      AND CASH EQUIVALENTS  - BEGINNING OF YEAR
                      
                      
                      900,744
                      
                      
                      
                      1,885,014CASH
      AND CASH EQUIVALENTS - END OF YEAR
                      
                      $
                      796,553
                      
                      
                      $
                      900,744SUPPLEMENTARY
      INFORMATIONCash
      paid during the periods for:Interest
                      
                      $
                      1,170,744
                      
                      
                      $
                      1,326,766Income
      taxes
                      
                      $
                      43,711
                      
                      
                      $
                      1,131,985Non-cash
      investing and financing activities:Debt
      and other liabilities incurred in acquisition  of businesses and
      asset purchases
                      
                      $
                      —
                      
                      
                      $
                      1,906,229Acquisition
      of businesses and assets in exchange for shares of common
      stock
                      
                      $
                      —
                      
                      
                      $
                      74,500Direct
      financing of property and equipment
                      
                      $
                      35,907
                      
                      
                      $
                      145,049Conversion
      of debt to equity
                      
                      $
                      75,000
                      
                      
                      $
                      —Cashless
      sale of Series C Preferred Stock
                      
                      $
                      37,500
                      
                      
                      $
                      —





The accompanying notes are an
integral part of these consolidated financial
statements.


F-9


NOTE 1 –
Company
Overview





The
accompanying consolidated financial statements include the accounts of Pure
Earth, Inc. (“Pure Earth”) and its wholly owned subsidiaries, Pure Earth
Transportation & Disposal, Inc. (“PE Transportation and Disposal”); Juda
Construction, Ltd. (“Juda”); PEI Disposal Group, Inc. (“PEI Disposal Group”);
Pure Earth Treatment (NJ), Inc. (formerly Casie Ecology Oil Salvage, Inc. (no
longer in existence)), Rezultz, Incorporated (“Rezultz”), and Pure Earth
Recycling (NJ), Inc. (formerly MidAtlantic Recycling Technologies, Inc.)
(collectively referred to as “PE Recycling”);  Pure Earth Energy
Resources, Inc. (“PEER”); Pure Earth Environmental, Inc. (“PE Environmental”);
Bio Methods LLC (“BioMethods”); Geo Methods, LLC (“GeoMethods”) (no longer in
existence); Echo Lake Brownfield, LLC (“Echo Lake”); HFH Acquisition Corp.
(“HFH”) (no longer in existence); Pure Earth Materials, Inc. (“PE Materials”);
Pure Earth Materials (NJ) Inc. (“PE Materials NJ”); and New Nycon, Inc. (“New
Nycon”).  Pure Earth and its subsidiaries, taken together as a whole,
are collectively referred to as the “Company”.  All significant
intercompany accounts and transactions have been eliminated.




The
Company’s reportable segments are strategic business units that offer
environmental services within the Company’s continuum of environmental
strategies. For the years ended December 31, 2009 and 2008, the Company has four
reportable segments: Transportation and Disposal, Treatment and Recycling,
Environmental Services and Materials.  As of December 2009, the
Company’s former Concrete Fibers segment and the operations of New Nycon, Inc.
were reclassified and presented as discontinued operations as of and for the
years ended December 31, 2009 and 2008 (see Note 4).




Transportation and
Disposal




PE
Transportation and Disposal and PEI Disposal Group are transportation and
disposal companies that specialize in coordinating the removal of contaminated
and clean soils.  Juda is an owner and sublessor of
trucks.  PE Transportation and Disposal and Juda are located in
Lyndhurst, NJ, and serve primarily the New York metropolitan area and northern
regions of New Jersey.  PEI Disposal Group is located in Long Island,
New York and also serves the New York metropolitan area and Long
Island.




Treatment and
Recycling




PE
Recycling specializes in the treatment and disposal of solid and liquid wastes
through thermal desorption treatment, recycling of materials and the beneficial
reuse of contaminated materials. In addition PE Recycling also performs
environmental services such as oil salvaging, decontamination, wastewater
cleanup, laboratory analysis, transportation and solid waste
processing.




Rezultz
owns the equipment and real estate used by PE Recycling.  These
companies are located in Vineland, New Jersey and serve customers in the
Northeastern United States.  PE Recycling also owns a non-controlling
50% interest in Advanced Catalyst Recycling, LLC (“ACR”), which is a joint
venture organized for the purpose of identifying and providing recycling
opportunities in the market for spent metal catalysts and to market recycling
solutions to the generators of spent metal catalysts.  ACR is
accounted for as an equity investment.




Environmental
Services




PE
Environmental is engaged in environmental investigation and remediation of soil
and ground water for commercial and residential customers that are primarily
located in Connecticut and New York.  PE Environmental is also in the
business of locating Brownfield sites for restoration by other Pure Earth
subsidiaries.  GeoMethods is engaged in environmental well drilling
for commercial customers that are primarily located in Connecticut and New York,
and its operations are now owned by PE Environmental.  BioMethods is
engaged in the disposal of regulated medical waste from doctors’ offices,
hospitals, and nursing homes in Connecticut.  Echo Lake was formed for
the purpose of owning and developing a Brownfield site near Waterbury,
Connecticut, as well as providing an additional outlet for soil and processed
material disposal.


F-10


Materials




PE
Materials and PE Materials NJ are rock crushing and material recycling
operations located in Lyndhurst, New Jersey.  Both companies serve
primarily the New York metropolitan area and northern regions of New Jersey,
including the processing of materials derived from the Transportation and
Disposal business.




Discontinued Operations -
Concrete Fibers




New Nycon
was a concrete reinforcing fiber company engaged in the business of processing,
packaging and selling reinforcing fibers used as a component of concrete
materials.  New Nycon is headquartered in Westerly, Rhode Island, and
operated a packaging plant in Vineland, New Jersey, to provide concrete fibers
to both domestic and foreign customers.  New Nycon also produced an
eco-friendly reinforcing fiber manufactured from post-consumer carpet waste and
developed under a patented process licensed by New Nycon.  As of
December 31, 2009 and 2008 and for the years then ended, the financial position
and operating results for the Concrete Fibers segment have been classified as
discontinued operations (see Note 4). On March 31, 2010, New Nycon completed the
sale of substantially all of its assets and liabilities via an asset purchase
agreement (see Note 21).




NOTE 2 -
Liquidity and
Financial Condition





The
Company incurred a net loss of approximately $7.1 million and used approximately
$0.6 million of cash in its operating activities for the year ended December 31,
2009. At December 31, 2009, the accumulated deficit was approximately $8.5
million.  The Company had cash of approximately $0.8 million and a
working capital deficit of approximately $(0.8) million at December 31,
2009.  The Company has traditionally financed its working capital
needs with cash flows from operations and borrowings under a revolving line of
credit.  The advances under the line of credit are determined based on
rate of 75% of eligible accounts receivable, subject to any additional loan
reserves or holdbacks of availability. Capital project needs have been
traditionally financed with bank term loans, private placements of preferred or
common stock and cash flows from operations.




At
December 31, 2009, the Company had a $3,150,000 revolving line of credit with a
bank that was due to expire on April 23, 2010, which was subsequently refinanced
with a new lender on February 11, 2010.  The previously existing line
of credit was used to fund working capital needs and bore interest at the bank’s
prime rate, subject to a minimum of 5%, plus 5.75% (10.75% at December 31, 2009)
and outstanding borrowings were collateralized by accounts receivable and
inventories as defined in the agreement.  Outstanding borrowings on
the line were $1,884,529 at December 31, 2009 which was collateralized by
$2,847,224 of eligible trade accounts receivable as of December 31,
2009.  As of December 31, 2009, the Company had approximately $0.5
million of availability to borrow additional funds under the revolving line of
credit.




During
the year ended December 31, 2009, the Company entered into several amendments of
its revolving line of credit agreement which reduced the maximum amount under
this facility from $7.5 million as of December 31, 2008, to $3.1 million as of
December 31, 2009.  These amendments also resulted in the removal of
certain loan reserves previously held by the lender and added and replaced
financial covenants.  The Company also added PE Recycling and certain
of our other subsidiaries as borrowers to the line of credit agreement, which
added their accounts receivable and inventory as collateral and provided for an
initial increase in borrowing availability of $2.2 million in March of
2009.  See Note 9 to the consolidated financial
statements.




On
February 11, 2010, the Company refinanced its existing revolving line of credit
by entering into a Commercial Financing Agreement with a new
lender.  Under the Commercial Financing Agreement with the new lender,
the Company has an available line of credit in the principal amount of up to the
lesser of $5.0 million, or 85% of all eligible accounts receivable (as defined
under the financing agreement) that have not been paid.  This
refinancing increased the maximum line of credit amount from $3.1 million under
the previous lender to $5.0 million, which will provide for additional liquidity
in 2010 to fund the projected growth in accounts receivable.  This
refinancing provided for approximately $1.4 million of initial borrowing
availability as a result of a higher advance rate and less stringent accounts
receivable eligibility requirements.




F-11


On
November 30, 2009, the Company closed on a private placement of its Series C
Preferred Stock whereby it sold and issued an aggregate of 101,600 shares of
Series C Preferred Stock at a purchase price of $10.00 per share, and received
aggregate gross proceeds therefore of $1,016,000.  These proceeds were
used to pay down the revolving line of credit, as required by the lender, which
provided for additional borrowing availability to be used for working capital
purposes.




On March
31, 2010, the Company completed the sale of substantially all of the assets and
liabilities of New Nycon in exchange for $217,282 in cash received at closing,
with an additional $50,000 in cash to be paid 90 days subsequent to the closing
date.  The additional $50,000 payment is subject to reduction for
accounts receivable not collected during that time period.  The
proceeds received from this sale were used to fund the ongoing working capital
requirements of the Company.




Management
believes cash balances on hand, borrowings under the line of credit agreement
and cash flows from operations will be sufficient to fund the Company’s net cash
requirements at least until December 31, 2010, based on several large committed
jobs within the Transportation and Disposal segment which are scheduled to begin
in April and May of 2010.  If the Company experiences significant
delays associated with these jobs or is unable to begin this work as scheduled
due to unforeseen circumstances, it may need to seek additional sources of
financing.  In an effort to mitigate any potential working capital
deficiencies, the Company is engaged in the following additional
activities:




·
            The
      Company is currently the holder of a note receivable in the principal
      amount of $0.7 million as of December 31, 2009.  This note is
      the result of the settlement of the Accounts Receivable litigation (Note
      19) in July 2009 and is being repaid in eighteen monthly installments of
      $55,555.  The Company is seeking to obtain financing for this
      note receivable to the existing revolving line of credit lender in
      exchange for 50% of the outstanding principal balance, which would provide
      for approximately $0.3 million as of April 10,
  2010.




·
            The
      Company is working with the revolving line of credit lender to increase
      the maximum line amount from $5.0 million to $7.5 million.  The
      Company is also in the process of adding an additional subsidiary’s
      accounts receivable as collateral to this revolving line of credit, which
      would provided for approximately $0.4 million of additional borrowing
      availability.




NOTE 3 - Summary of
Significant Accounting Policies





Basis of
Presentation




The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries.  All


intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
period amounts have been


reclassified
to conform to the current presentation.




Use of
Estimates




The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.  Actual
results could differ from those estimates. Critical accounting policies
requiring the use of estimates are allowance for doubtful accounts, depreciation
and amortization, impairment testing for intangible assets, goodwill and idle
machinery, accrued disposal costs, deferred revenue, inventories, assets and
liabilities accounted for at fair value, and the valuation of stock-based
compensation, the Company’s mandatorily redeemable Series B preferred stock (the
“Series B Preferred Stock”), the Company’s Series C convertible preferred stock
(the “Series C Preferred Stock”) and warrants to purchase common
stock.


F-12


Cash and Cash
Equivalents




The
Company considers all highly liquid instruments with maturities of less than
three months when purchased to be cash equivalents.  Due to their
short-term nature, cash equivalents, when they are carried, are carried at cost,
which approximates fair value.




Restricted
Cash




As of
December 31, 2009, the Company had restricted funds of $0.2 million on deposit
in connection with an outstanding letter of credit.  As of December
31, 2008 the Company had restricted funds of $0.6 million for the establishment
of an interest reserve account relating to the PE Recycling
refinancing  (see Note 10) and $0.2 million on deposit in connection
with an outstanding letter of credit.  These amounts are classified as
restricted cash within current assets.  The Company is also required
by law to have escrow accounts in which it deposits funds in the event of
closure and post closure events.  These accounts are classified as
long-term restricted cash and included in deposits and other assets in the
accompanying consolidated balance sheets since the Company does not anticipate
that the conditions requiring the escrow accounts will be satisfied within the
current period.  As of December 31, 2009 and 2008, the Company had
$0.3 million included in deposits and other assets with respect to these escrow
accounts.




Accounts Receivable and
Allowance for Doubtful Accounts




Accounts
receivable are customer obligations due under normal trade terms. The Company
sells its products to a variety of customers.  The Company performs
continuing credit evaluations of its customers’ financial condition and in
certain instances may require additional collateral or insurance bonds from its
customers.  Senior management reviews accounts receivable on a monthly
basis to determine if any receivables will be potentially uncollectible. The
Company includes any accounts receivable balances that are determined to be
uncollectible, along with a general reserve based on historical experience, in
its overall allowance for doubtful accounts. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
Based on the information available, the Company believes its allowance for
doubtful accounts as of December 31, 2009 and 2008 is adequate; however, actual
write-offs may exceed the recorded allowance.




Inventories




Inventories
are valued at the lower of cost or market by the weighted average cost method
and is comprised of crushed rock and recycled oil, which are considered finished
products.  The value of the inventories as of December 31, 2009 and
2008, were as follows:




December 31,2009
                  
                  
                  2008Recycled
      oil
                  
                  $
                  255,358
                  
                  
                  $
                  248,151Crushed
      rock
                  
                  
                  137,204
                  
                  
                  
                  64,500Total
                  
                  $
                  392,562
                  
                  
                  $
                  312,651





Property and
Equipment




Property
and equipment is stated at cost, less accumulated depreciation and
amortization.


F-13


Depreciation
and amortization of property and equipment is provided by use of the
straight-line method over the estimated useful lives of the assets as
follows:




Asset Classification
              
              Range of Estimated
                Useful LifeBuildings
      and improvements
              
              25
      yearsMachinery
      and equipment
              
              3-10
      yearsTrucks
      and automobiles
              
              4-7
      yearsOffice
      furniture and fixtures
              
              2-4
      yearsComputer
      software
              
              3
      yearsLeasehold
      improvements
              
              Lesser
      of useful life of asset or life of
lease





Depreciation
and amortization expense for the years ended December 31, 2009 and 2008 was
$2,664,884 and $2,516,392, respectively.




Upon
retirement or other disposition, the cost and related accumulated depreciation
and amortization of the assets are removed from the accounts and any resulting
gain or loss is reflected in operating expenses or other
income.  Expenditures for major renewals and improvements which extend
the life of the asset are capitalized.  Ordinary repairs and
maintenance are charged directly to cost of revenues or operating expenses,
depending upon their nature.




Revenue
Recognition




The
Company applies the revenue recognition principles set forth under the
Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”)
104 and Accounting Standards Codification (“ASC”) 605, “Revenue Recognition”
with respect to all of its revenue.  Accordingly, revenue is
recognized when persuasive evidence of an agreement exists, delivery has
occurred or services have been rendered, the price is fixed and determinable,
and collection is reasonably assured.  Revenue is recognized net of
estimated allowances.




Revenues for the Transportation and
Disposal segment are recognized upon completion of the disposal of the waste
into a landfill or Brownfield, or when it is shipped to a third party for
processing and disposal.   Revenue for the Materials segment
consists of two components.  The first is for incoming loads whereby
revenue is recognized upon acceptance of such materials into the facility at
which time it is deemed earned.  The second component deals with
material received into the facility that is unprocessed, which is deemed to have
no value.  Subsequent to receipt of the incoming loads, the material
is processed and crushed into finished stone product, representing a finished
good.  The crushed material is resold to third parties and the second
component of revenue is recognized upon delivery of the finished
product.  Revenue for the Environmental Services segment is recognized as services are
rendered. Revenues for the Treatment and Recycling segment are recognized upon
the completion of the treatment of hazardous and non-hazardous soils and oil
byproducts.  Revenues from waste that is not yet completely processed
(and their associated costs) are deferred until such services have been
completed.  Some of the Company’s customer contracts require a
certificate of disposal from a recycling outlet and for those specific contracts
revenue is deferred until the disposal process has been completed.  As
of December 31, 2009 and 2008, the Company had deferred revenues of $108,702 and
$40,571, respectively.




Accrued Disposal
Costs




Accrued
disposal costs represent the expected costs of processing and disposing of clean
and contaminated soil whereby revenue is recognized upon acceptance of such
material into the facility.  Any soil that is unprocessed is expected
to be treated within the next twelve months and therefore, this obligation is
classified as a current liability within the accompanying consolidated balance
sheet.  Except as required by certain specific customer contracts, the
Company is not obligated to dispose of processed soil within a specific time
period, therefore disposal costs for processed soil are classified as a
long-term liability in the accompanying consolidated balance
sheets.


F-14


Goodwill and Intangible
Assets - Indefinite Lives




The
Company accounts for goodwill and intangible assets in accordance with ASC 350,
“Intangibles, Goodwill and Other” (“ASC 350”).  ASC 350 requires that
goodwill and other intangibles with indefinite lives should be tested for
impairment annually or on an interim basis if events or circumstances indicate
that the fair value of an asset has decreased below its carrying
value.





Goodwill
represents the excess of the purchase price over the fair value of net assets
acquired in business combinations. ASC 350 requires that goodwill be tested for
impairment at the reporting unit level (operating segment or one level below an
operating segment) on an annual basis and between annual tests when
circumstances indicate that the recoverability of the carrying amount of
goodwill may be in doubt. Application of the goodwill impairment test requires
judgment, including the identification of reporting units, assigning assets and
liabilities to reporting units, assigning goodwill to reporting units, and
determining the fair value.  Significant judgments required to
estimate the fair value of reporting units include estimating future cash flows,
determining appropriate discount rates and other assumptions. Changes in these
estimates and assumptions could materially affect the determination of fair
value and/or goodwill impairment.





The
Company recorded goodwill in relation to the acquisition of PE Environmental,
GeoMethods and BioMethods during the year ended December 31,
2006.  The annual goodwill impairment tests in 2009 and 2008 using the
criteria set forth under ASC 350 indicated that there was no impairment to
goodwill related to the Company’s acquisition of PE Environmental, GeoMethods
and BioMethods.





The Company also obtained valuable
state and local permits which allow PE Recycling to operate its recycling and
soil remediation operations, which were recorded based upon the purchase price
allocation of $2,200,000.  The permits do not have any legal,
regulatory (other than perfunctory renewal requirements of up to five years on
certain permits), contractual, competitive, economic or other factors that would
limit the useful life of the asset and therefore, are deemed to have
indefinite lives and are not subject to amortization.  Permits with a
finite life were immaterial at December 31, 2009 and 2008, and any such permits
would be amortized on a straight-line basis over the estimated useful
lives.





Intangible Assets - Finite
Lives





The
Company’s amortizable intangible assets include customer lists, covenants not to
compete and sales representative agreements.  These assets are being
amortized using the straight-line method over their estimated useful
lives.  The Company’s customer lists are stated at cost or allocated
cost based upon purchase price allocations, which was estimated based upon the
fair value of the consideration given up to obtain the
assets.  Customer lists are amortized on a straight-line basis over 10
years, which was determined by consideration of the expected period of benefit
to be derived from these customers, as well as the length of the historical
relationship.  Non-compete agreements and sales representative
agreement are amortized on a straight-line basis over the term of the
agreements.





Long-Lived
Assets





The
Company follows ASC 360, “Property, Plant and Equipment” (“ASC
360”).  ASC 360 standardized the accounting practices for the
recognition and measurement of impairment losses on certain long-lived assets
based on non-discounted cash flows.  Write offs and impairment losses
relating to idle equipment and fixed assets were $733,333 and $1,618,125 for the
years ended December 31, 2009 and 2008, respectively.





Earnings (Loss) Per
Share





Basic
earnings (loss) per share (“EPS”) is calculated by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period and excludes any potentially dilutive
securities.   Diluted EPS gives effect to all potentially
dilutive securities outstanding during each period that were outstanding during
the period but does not include such securities if their effect would be
anti-dilutive, in accordance with ASC 260, “Earnings Per Share” (“ASC
260”).


F-15


At
December 31, 2009 and 2008, the Company’s dilutive securities included the
following components:





December
      31,2009
                  
                  
                  2008Weighted
      average common shares outstanding used in computing basic
    EPS
                  
                  
                  17,550,530
                  
                  
                  
                  17,427,847Effect
      of dilutive securities:Convertible
      notes and stock purchase warrants
                  
                  
                  —
                  
                  
                  
                  —Adjusted
      weighted average common shares used in computing diluted
    EPS
                  
                  
                  17,550,350
                  
                  
                  
                  17,427,847





The
Company’s computation of diluted EPS excludes 1,091,818 of common stock purchase
warrants outstanding as of December 31, 2009 and December 31, 2008, since their
effect was anti-dilutive.  Additionally, 105,350 shares of the
Company’s Series C Preferred Stock at December 31, 2009 were also excluded from
the determination of diluted EPS as their effect was anti-dilutive.





Stock Based
Compensation





The
Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123
(revised 2004), “Share Based Payment” (“SFAS 123(R)”) on July 24, 2007,
concurrent with the approval of the 2007 Stock Incentive Plan.  The
guidance under SFAS 123(R) was subsequently included in ASC 718, “Compensation-
Stock Compensation” (“ASC 718”).  ASC 718 requires companies to
recognize compensation cost relating to share-based payment transactions in
their consolidated financial statements.  That cost is measured based
upon the fair value of the equity or liability instrument issued and is
recognized over the service period.  At the date of adoption, the
Company did not have any existing share-based awards outstanding.  The
Company recorded $84,376 and $88,750 of stock-based compensation expense for the
years ended December 31, 2009 and 2008, with respect to the issuance by the
Company of common stock and restricted stock awards.





Income
Taxes





The
Company accounts for income taxes under ASC 740, “Income Taxes” (“ASC
740”).  Accordingly, income taxes are accounted for under the asset
and liability method.  Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards.  Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.A
valuation allowance is established when, based on an evaluation of objective
verifiable evidence, it is more likely than not that some portion or all of
deferred tax assets will not be realized.


F-16


Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an
interpretation of FASB Statement No. 109” (“FIN 48”). The guidance under FIN 48
was subsequently included in ASC 740.  FIN 48 addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48, the Company
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement. FIN 48 also provides guidance on the
derecognition of income tax liabilities, classification of interest and
penalties on income taxes, and accounting for uncertain tax positions in interim
period financial statements. The periods subject to examination for the
Company’s federal return include the 2006 tax year to the present. The Company
also files state income tax returns in various states, including New York, New
Jersey, Pennsylvania and Connecticut, which may have different statutes of
limitations. Generally, state income tax returns for years 2006 through 2010 are
subject to examination. The Company records penalties and accrued interest
related to uncertain tax positions in income tax expense. Such adjustments have
historically been minimal and immaterial to the Company’s financial
results.  As described in Note 17, the Company has completed its
assessment of uncertain tax positions and has determined that it does not have
any material uncertain income tax positions requiring recognition or disclosure
in accordance with ASC 740 as of December 31, 2009 and 2008 and for the years
then ended.





Preferred
Stock





The
Company applies the guidance in ASC 480, “Distinguishing Liabilities from
Equity” (“ASC 480”) whendetermining theclassification and
measurement of preferred stock.  Preferred shares subject to mandatory
redemption (if any) are classified as liability instruments and are measured at
fair value in accordance with ASC 480  Accordingly the Company
classifies conditionally redeemable preferred shares (if any), which includes
preferred shares that feature redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control, as temporary
equity.  At all other times, the Company classifies its preferred
shares in stockholders’ equity.  The Company’s Series A Preferred
Stock was previously presented as temporary equity and was converted into common
stock pursuant to the mandatory conversion provisions on June 30,
2008.  The Company issued Series B Preferred Stock on March 4, 2008,
which is mandatorily redeemable and therefore is classified as a liability as of
December 31, 2009 and 2008.  On November 30, 2009, the Company issued
Series C Preferred Stock, which is convertible into shares of the Company’s
common stock at the option of the holder.  The Series C Preferred
Stock does not contain any redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events
not solely within the Company’s control and therefore is classified as a
component of equity as of December 31, 2009 (Note 14).





Convertible
Instruments





The
Company evaluated and accounted for conversion options embedded in convertible
instruments in accordance with ASC 815, “Derivatives and Hedging” (“ASC 815”)
and ASC 825, “Financial Instruments” (“ASC 825”).





ASC 825
generally provides three criteria that, if met, require companies to bifurcate
conversion options from their host instruments and account for them as free
standing derivative financial instruments. These three criteria include
circumstances in which (a) the economic characteristics and risks of the
embedded derivative instrument are not clearly and closely related to the
economic characteristics and risks of the host contract, (b) the hybrid
instrument that embodies both the embedded derivative instrument and the host
contract is not remeasured at fair value under otherwise applicable generally
accepted accounting principles with changes in fair value reported in earnings
as they occur and (c) a separate instrument with the same terms as the embedded
derivative instrument would be considered a derivative instrument subject to the
requirements of ASC 825. ASC 825 also provides an exception to this rule when
the host instrument is deemed to be conventional.





The
Company accounts for convertible instruments (when it has determined that the
embedded conversion options should not be bifurcated from their host
instruments) in accordance with the provisions of ASC
825.  Accordingly, the Company records when necessary debt discounts
to convertible notes for the intrinsic value of conversion options embedded in
debt instruments based upon the differences between the fair value of the
underlying common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts under these
arrangements are amortized over the term of the related debt to their stated
date of redemption. The Company also records when necessary deemed dividends for
the intrinsic value of conversion options embedded in preferred shares based
upon the differences between the fair value of the underlying common stock at
the commitment date of the transaction and the effective conversion price
embedded in the preferred shares.


F-17


The
Company evaluated the conversion options featured in the Series A Preferred
Stock and the convertible debt issued in 2006.  These conversion
options provide the holders of the Series A Preferred Stock and the holders of
the convertible debt with the right to convert the Series A Preferred Stock and
the debt into a fixed number of shares of common stock, which was established at
the date of issuance.  At the time of issuance of the Series A
Preferred Stock and the convertible debt, the conversion features were
determined to be out of the money; therefore, a beneficial conversion feature
did not exist.





The
Company also evaluated the conversion options featured in the Series C Preferred
Stock issued in November and December 2009.  The conversion option
provides the holders of the Series C Preferred Stock with the right to convert
the Series C Preferred Stock into a fixed number of shares of common stock,
which was established at the date of issuance.  At the time of
issuance of the Series C Preferred Stock, the conversion features were
determined to be in the money; therefore, a beneficial conversion feature did
exist and was recorded as a dividend equal to the fair value of the beneficial
conversion option at the date of issuance.





Common Stock Purchase
Warrants and Other Derivative Financial Instruments





The
Company accounts for the issuance of common stock purchase warrants and other
free standing derivative financial instruments in accordance with the provisions
of ASC 825. Based on the provisions of ASC 825, the Company classifies as equity
any contracts that (i) require physical settlement or net-share settlement or
(ii) gives it a choice of net-cash settlement or settlement in its own shares
(physical settlement or net-share settlement). The Company classifies as assets
or liabilities any contracts that (i) require net-cash settlement (including a
requirement to net cash settle the contract if an event occurs and if that event
is outside its control) or (ii) gives the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).  The Company assesses classification of its common stock
purchase warrants and other free standing derivatives at each reporting date to
determine whether a change in classification between assets and liabilities is
required.





The
Company’s free standing derivatives consist of warrants to purchase common stock
that were issued in connection with the convertible debt issuance in
2006,  and the issuance of the Series A Preferred Stock and Series B
Preferred Stock to private investors.  The Company evaluated the
common stock purchase warrants to assess their proper classification in the
consolidated balance sheet as of December 31, 2009 and 2008, using the
applicable classification criteria enumerated in ASC 825.  The Company
determined that the common stock purchase warrants relating to the 2006
convertible debt issuance and the Series A Preferred Stock do not feature any
characteristics permitting net cash settlement at the option of the holders.
Accordingly, these instruments have been classified as a component of
stockholders’ equity in the accompanying consolidated balance sheets as of
December 31, 2009 and 2008.  The Warrants issued in connection with
the Series B Preferred Stock provide the holders with a put option that is
exercisable upon the occurrence of certain specified events and at the
discretion of the holder, and therefore are classified as a liability as of
December 31, 2009 and 2008.





Derivative Financial
Instruments





The
Company uses derivative financial instruments primarily for purposes of hedging
exposures to fluctuations in interest rates. All instruments are entered into
for other than trading purposes. All derivatives are recognized on the balance
sheet at fair value and changes in the fair value of derivatives are recorded in
earnings.  The Company’s derivative financial instruments are not
currently designated as part of a hedge transaction and therefore are accounted
for as freestanding derivative financial instruments.


F-18


Fair
Value





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”).  The guidance provided for in SFAS  157 was
subsequently incorporated into ASC 820, “Fair Value Measurements and
Disclosures” (“ASC 820”).  ASC 820 defines fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair
value measurements.  ASC 820 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. ASC 820 also prioritizes the use of
market-based assumptions, or observable inputs, over entity-specific assumptions
or unobservable inputs when measuring fair value and establishes a three-level
hierarchy based upon the relative reliability and availability of the inputs to
market participants for the valuation of an asset or liability as of the
measurement date. The fair value hierarchy designates quoted prices in active
markets for identical assets or liabilities at the highest level and
unobservable inputs at the lowest level. (See Note 14 for additional
information regarding the fair value hierarchy.)





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115” (“SFAS 159”), which is effective for fiscal years beginning
after November 15, 2007.   The guidance provided for in SFAS 159
was subsequently included in ASC 820.  ASC 820 permits an entity to
choose to measure many financial instruments and certain other items at fair
value at specified election dates. Subsequent unrealized gains and losses on
items for which the fair value option has been elected will be reported in
earnings.  On November 12, 2008, PE Recycling entered into a $8.0
million term loan with Susquehanna Bank (see Note 11), at which time it elected
to measure and report this liability at its fair value pursuant to ASC
820.  See Note 14 for further information on this election and the
Company’s valuation methodology for this liability.





Fair Value of Financial
Instruments





The
Company determines the estimated fair value of its financial instruments using
available market information and commonly accepted valuation
methodologies.  However, considerable judgment is required in
interpreting market data to develop the estimates of fair value.  The
use of different assumptions or estimation methodologies could have a material
effect on the estimated fair values.  The fair value estimates are
based on information available as of December 31, 2009 and 2008.





The
carrying values of cash and cash equivalents, restricted cash, trade accounts
receivable, trade accounts payable and financial instruments included in other
assets and other liabilities are reflected in the consolidated balance sheet at
historical cost, which is materially representative of their fair value due to
the relatively short-term maturities of these assets and
liabilities.  The carrying values of the Company’s notes payable and
long-term debt approximates the estimated fair value, as determined by
comparison to rates currently available for debt with similar terms and
maturities.  The carrying value of the Company’s Series B Preferred
Stock and related warrants was determined at the date of issuance using the
Black-Scholes option pricing model with market-based assumptions.  At
December 31, 2009 and 2008, the fair value of the warrants was determined using
the Black-Scholes option pricing model with assumptions as of that
date.  The carrying value of the Series B Preferred Stock is reflected
in the consolidated balance sheet at its allocated fair value, including the
accretion of the debt discount, which approximates fair value.





Advertising





The
Company expenses all advertising costs as incurred.  Advertising
expenses totaled approximately $203,000 and $153,000 for the years ended
December 31, 2009 and 2008, respectively.


F-19


Recently Issued Accounting
Pronouncements





Standards
Codification.  In June 2009, the Financial Accounting Standards
Board (“FASB”) confirmed that the FASB ASC would become the single official
source of authoritative U.S. generally accepted accounting principles (“GAAP”)
(other than guidance issued by the SEC), superseding all other accounting
literature except that issued by the SEC. The Codification does not change U.S.
GAAP. However, as a result, only one level of authoritative U.S. GAAP exists.
All other literature is considered non-authoritative. The FASB ASC is effective
for interim and annual periods ending on or after September 15, 2009. Therefore,
the Company has changed the way specific accounting standards are referenced in
the consolidated financial statements.





Share Based
Payments.  On June 16, 2008, the FASB issued FASB Staff
Position Emerging Issues Task Force No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities, which
was subsequently included in ASC 260. This guidance concluded that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities to be
included in the computation of earnings per share (“EPS”) using the two-class
method. The guidance was effective for fiscal years beginning after
December 15, 2008 on a retrospective basis, including interim periods
within those years.  The adoption of this guidance did not have any
impact on the Company’s consolidated financial statements as there were no
unvested share-based payment awards outstanding.





Impairment.  In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments”, which was subsequently
included in ASC 320, “Investments - Debt and Equity Securities.” These positions
amend the guidance on other-than-temporary impairment for debt securities and
modifies the presentation and disclosure of other-than-temporary impairments on
debt and equity securities in the financial statements. These positions are s
effective for interim and annual periods ending after June 15, 2009. The
Company does not currently have any outstanding investments in debt or equity
securities, therefore the adoption of these positions did not have an impact on
the consolidated financial statements.





Fair Value.In
April 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, which was
subsequently incorporated in ASC 820.  This guidance provided
additional direction in determining whether a market for a financial asset is
inactive and, if so, whether transactions in that market are distressed, in
order to determine whether an adjustment to quoted prices is necessary to
estimate fair value. This additional guidance was effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption
permitted. The adoption of the guidance did not have a material impact on the
Company’s consolidated earnings, financial position or cash flows.




In April
2009, the FASB issued FASB Staff Position No. 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which was subsequently incorporated in ASC 825.
This guidance requires disclosures about the fair value of an entity’s financial
instruments, whenever financial information is issued for interim reporting
periods. The additional guidance was effective for interim periods ending after
June 15, 2009. Accordingly, the Company has included these disclosures in
its Notes to Consolidated Financial Statements.





In August
2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and
Disclosures — Measuring Liabilities at Fair
Value. This guidance provides clarification that in circumstances in
which a quoted price in an active market for an identical liability is not
available, fair value should be measured using one or more specific techniques
outlined in the update. The guidance was effective for the first reporting
period after issuance. The adoption of the guidance did not have a material
impact on the consolidated earnings, financial position or cash flows of the
Company.





In
January 2010, the FASB updated ASC 820 to add disclosures for transfers in and
out of level one and level two of the valuation hierarchy and to present
separately information about purchases, sales, issuances and settlements in the
reconciliation for assets and liabilities classified within level three of the
valuation hierarchy. The updates to ASC 820 also clarify existing disclosure
requirements about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. The updates to ASC 820 are effective for
fiscal years and interim periods beginning after December 15, 2009, except
for the disclosures about activity in the reconciliation of level three
activity, which are effective for fiscal years and interim periods beginning
after December 15, 2010. The updates to ASC 820 enhance disclosure
requirements and will not impact the Company’s financial position, results of
operations or cash flows.


F-20


Subsequent
Events.  In May 2009, the FASB issued FASB Statement
No. 165, Subsequent
Events, which was subsequently incorporated in ASC 855, “Subsequent
Events” (“ASC 855”). The new guidance established general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. The
circumstances under which these events or transactions should be recognized or
disclosed in financial statements were defined.  Disclosure of the
date through which subsequent events have been evaluated was also required, as
well as whether that date was the date the financial statements were issued or
the date the financial statements were available to be
issued.


The new
guidance was effective for interim or annual reporting periods ending after
June 15, 2009. In February 2010, the FASB issued Accounting Standards
Update (“ASU”) 2010-09 to further amend ASC 855. ASU 2010-09 removed the
requirement for an entity that is an SEC filer to disclose the date through
which subsequent events have been evaluated. Although the Company has evaluated
events and transactions that occurred after the balance sheet date through the
issuance date of these financial statements to determine if financial statement
recognition or additional disclosure is required, it has discontinued the
separate evaluation date disclosure in its Notes to Consolidated Financial
Statements.





Transfers of Financial
Assets.  In June 2009, the FASB issued two standards changing
the accounting for securitizations. SFAS No. 166, Accounting for Transfers of
Financial Assets(“SFAS 166”),is a revision to SFAS
No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities(“SFAS 140”), and will require more information about transfers of
financial assets, including securitization transactions, and where entities have
continuing exposure to the risks related to transferred financial assets. It
also changes the requirements for derecognizing financial assets, and requires
additional disclosures. The Company does not currently engage in the transfer of
financial assets and therefore, it does not expect the adoption of SFAS 166 to
have a material impact on its consolidated financial
statements.  These changes have been incorporated in ASC 860,
“Transfers and Servicing”.




Consolidation.  In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)” (“SFAS 167”) to amend certain requirements of
FASB Interpretation No. 46 (revised December 2003), “Consolidation of
Variable Interest Entities,” to improve financial reporting by enterprises
involved with variable interest entities and to provide more relevant and
reliable information to users of financial statements.  SFAS 167 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter.  Earlier application is prohibited.  The Company
does not expect that the adoption of SFAS 167 will have a material impact on the
Company’s consolidated financial statements.  SFAS 167 has been
included in ASC 810, “Consolidation.”





Revenue
Recognition.  In October 2009, the FASB issued ASU
No. 2009-13, “Multiple Deliverable Arrangements” (“ASU No. 2009-13”),
an update to ASC 605. ASU No. 2009-13 amends ASC 605 for how to determine
whether an arrangement involving multiple deliverables (i) contains more
than one unit of accounting and (ii) how the arrangement consideration
should be (a) measured and (b) allocated to the separate units of
accounting. ASU No. 2009-13 is effective prospectively for arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Early adoption is permitted. The Company is currently
evaluating the impact of adopting ASU No. 2009-13 on its Consolidated
Financial Statements.





The FASB,
the EITF and the SEC have issued certain other accounting pronouncements and
regulations that will become effective in subsequent periods; however,
management of the Company does not believe that any of those pronouncements
would have significantly affected the Company’s financial accounting measures or
disclosures had they been in effect during the years ended December 31, 2009 and
2008, and it does not believe that any of those pronouncements will have a
significant impact on the Company’s condensed consolidated financial statements
at the time they are issued.


F-21


NOTE 4 –
Nycon Acquisition and
Discontinued Operations




Nycon
Acquisition




Effective
April 1, 2008, New Nycon completed the purchase of specified assets from Nycon,
Inc. (“Nycon”), a concrete reinforcing fiber company headquartered in Westerly,
Rhode Island.  Prior to this acquisition, Nycon was engaged in the
business of processing, packaging and selling reinforcing fibers used as a
component of concrete materials.  Pursuant to the terms of the
purchase agreement, the Company acquired Nycon’s accounts receivable, equipment
and all intangible assets and intellectual property.  In connection
with the purchase of Nycon and formation of New Nycon, the Company entered into
an exclusive licensing agreement with the holder of a patent covering the
process for making and using reinforcing fiber for concrete materials from
post-consumer carpet waste as a substitute for new fibers.  During the
term of the license agreement, the Company was to pay to the licensor an annual
royalty fee equal to 30% of New Nycon’s earnings before taxes, depreciation and
amortization, and the Company also paid the patent holder 15,000 shares of its
common stock, which shares were placed in escrow pending the satisfaction by New
Nycon of certain financial objectives.




The
consideration given by the Company in this acquisition included the Company
agreeing to incur obligations of the seller to repay amounts due under two lines
of credit with a financial institution in the aggregate principal amount of
$225,000, contingent earn-out payments equal to 20% of the free cash flow, as
defined by the purchase agreement, derived from the operation of the Nycon
assets, payable to the former owner of Nycon, in each of the next four years, up
to a maximum cumulative amount of $900,000, not including $75,000 of debt that
the former owner has agreed to repay out of such cash flow.  The
Company also issued 10,000 shares of common stock valued at $2.95 per share to a
broker for assisting in the acquisition of the Nycon assets, which issuance was
accounted for as a direct cost of the acquisition.  The consideration
also includes 15,000 shares of common stock valued at $2.95 per share and the
estimated fair value of contingent earn-out future payments to the licensor of
the recycled fiber patent.  The Company recorded the contingent
consideration as a liability to the extent that the fair value of the net assets
acquired exceeded other non-contingent consideration given in the
acquisition.  The Company also agreed to use its best efforts to
refinance $150,000 of the seller’s indebtedness through a new note to be issued
by New Nycon, with the seller being obligated to repay 20% of the principal
under the new note from the free cash flow of Nycon.  While the
Company sought to refinance this note, it agreed to pay interest owed by the
seller under the existing note and to guarantee and indemnify the former owner
of Nycon for certain post-closing liabilities under such note.  In
December of 2008, the former owner of Nycon agreed to convert the Company’s
obligations as to $150,000 of the former owner’s note payable into an additional
$120,000 of contingent earn-out payments based upon the free cash flow of New
Nycon.




The
following table illustrates the Company’s estimated fair value of assets
acquired and liabilities assumed as of the date of acquisition, which includes
adjustments made to finalize the purchase price allocation:




New
      NyconAccounts
      receivable
                  
                  $
                  81,182Inventory
                  
                  
                  149,752Other
      current assets
                  
                  
                  7,443Property
      and equipment
                  
                  
                  52,352Patents
                  
                  
                  10,000Trademarks
                  
                  
                  180,000Licensing
      agreement
                  
                  
                  730,000Customer
      list
                  
                  
                  700,000Non-compete
      agreement
                  
                  
                  70,000Total
      assets acquired
                  
                  
                  1,980,729


F-22





Accounts
      payable and accrued expenses
                  
                  
                  206,972Other
      current liabilities
                  
                  
                  64,918Long-term
      debt
                  
                  
                  225,000Other
      long-term liabilities(1)
                  
                  
                  44,803Contingent
      consideration
                  
                  
                  1,364,536Total
      liabilities assumed
                  
                  
                  1,906,229Net
      purchase price
                  
                  $
                  74,500


(1)      Extinguished upon
acquisition since it was payable to the Company.





During
the year ended December 31, 2009, the Company and the former owner of Nycon
amended the asset purchase agreement as follows:




·
            In
      June of 2009, the purchase price was reduced to $600,000 and the earn-out
      rate was reduced from 20% to 12.5%.  This amendment resulted in
      a pro-rata reduction of the intangible assets and a corresponding
      reduction of the contingent
consideration.




·
            In
      December of 2009, the Company issued 3,750 shares of Series C Preferred
      Stock valued at $37,500 to the former owner in exchange for the former
      owner: 1) taking back the obligation for the $75,000 note payable
      previously assumed by the Company as part of the asset purchase agreement,
      2) the remaining contingent earn-out was reduced from $600,000 to zero,
      and 3) the former owner’s monthly consulting fee was
      eliminated.  This amendment resulted in the recognition of
      $37,500 of other income derived from the extinguishment of the $75,000 of
      debt and another pro-rata reduction of the intangible assets and a
      corresponding reduction of the contingent
  consideration.




Discontinued
Operations




In
December 2009, the Company made a decision to discontinue the operations of New
Nycon, Inc. and the Concrete Fibers segment.  Accordingly New Nycon’s
financial position as of December 31, 2009 and 2008 and its results of
operations for the years ended December 31, 2009 and 2008 are presented as
discontinued operations in the accompanying consolidated financial
statements.




In
conjunction with the discontinuance of operations, the Company recognized losses
of $357,985 and $312,494 for the years ended December 31, 2009 and 2008,
respectively.  The assets and liabilities of the discontinued
operations are presented separately under the captions “Assets held for sale”
and “Liabilities held for sale,” respectively in the accompanying consolidated
balance sheets as of December 31, 2009 and 2008.  Effective March 31,
2010, the Company completed the sale of substantially all of New Nycon’s assets
and liabilities.  In conjunction with this sale, the exclusive
licensing agreement for using recycled carpet waste as a substitute for new
fibers was also terminated along with the contingent earn-out (see Note
21).




The
assets and liabilities of the discontinued operations as of December 31, 2009
and 2008 were as follows:




December
      31,2009
                  
                  
                  2008ASSETS:Accounts
      receivable, less allowance for doubtful accounts of $7,980 and
      $4,064
                  
                  
                  142,332
                  
                  
                  
                  130,611Inventory
                  
                  
                  231,036
                  
                  
                  
                  226,292Prepaid
      expenses and other current assets
                  
                  
                  19,779
                  
                  
                  
                  20,887Property,
      plant and equipment, net of accumulated depreciation of $46,244 and
      $12,463
                  
                  
                  39,330
                  
                  
                  
                  39,889Intangible
      assets
                  
                  
                  524,446
                  
                  
                  
                  1,569,238Assets
      of Discontinued Operations
                  
                  $
                  956,923
                  
                  
                  $
                  1,989,917Liabilities:Accounts
      payable
                  
                  $
                  139,409
                  
                  
                  $
                  296,912Accrued
      expenses and other liabilities
                  
                  
                  49,351
                  
                  
                  
                  7,845Note
      payable to former owner
                  
                  
                  —
                  
                  
                  
                  75,000Contingent
      consideration
                  
                  
                  607,756
                  
                  
                  
                  1,507,756Liabilities
      of Discontinued Operations
                  
                  $
                  796,516
                  
                  
                  $
                  1,887,513


F-23


The
results of discontinued operations for the years ended December 31, 2009 and
2008 are as follows:




December
      31,2009
                          
                          
                          2008Revenue
                          
                          $
                          1,551,511
                          
                          
                          $
                          1,571,229Costs
      of Revenues (including $25,998 and $19,301 of
depreciation)
                          
                          
                          1,144,691
                          
                          
                          
                          1,262,324Gross
      profits
                          
                          $
                          406,820
                          
                          
                          $
                          308,905Operating
      expenses
                          
                          
                          799,783
                          
                          
                          
                          642,804Loss
      from operations
                          
                          
                          (392,963
                          )
                          
                          
                          (333,899
                          )Other
      income
                          
                          
                          35,068
                          
                          
                          
                          21,405Loss
      from Discontinued Operations
                          
                          $
                          (357,895
                          )
                          
                          $
                          (312,494
                          )





NOTE 5-
Other Acquisitions,
Assets Purchases and Joint Ventures




Echo
Lake




On
September 14, 2007, PE Environmental formed a wholly owned subsidiary, Echo
Lake, a Connecticut limited liability company.  Echo Lake was formed
for the purpose of owning and developing a Brownfield site in the State of
Connecticut.  On January 3, 2008, the Company completed the
acquisition of this Brownfield site for a purchase price of $50,000 and assumed
estimated cleanup costs of approximately $233,000.  The Company spent
approximately $57,000 on site evaluation costs prior to purchasing the
Brownfield site.  As of December 31, 2009, the Company has invested
approximately $340,000 in the purchase and development of this
property.  Echo Lake’s operations since formation have consisted
primarily of legal and engineering costs incurred in relation to obtaining the
permits and approvals necessary to begin the Brownfield site development and
rehabilitation.  For the years ended December 31, 2009 and 2008, the
Company incurred losses of $0.2 million and $0.1 million, respectively, related
to this project.




F-24


Advanced Catalyst Recycling,
LLC (“ACR”)




On April
30, 2007, Casie entered into an agreement to form ACR.  ACR is a joint
venture between Advanced Recycling Technology, Inc. (“ARTI”) and Pure Earth
Recycling (NJ), Inc. , as successor to Pure Earth Treatment (NJ),
Inc.  [Pure Earth Recycling (NJ), Inc. and ARTI each own a 50%
interest in ACR with equal decision making and voting interests and contributed
$1,000 in start-up capital to the joint venture.  The purpose of the
joint venture is to identify and enter into recycling opportunities in the
market for spent metal catalysts and to market recycling solutions to the
generators of spent metal catalysts.  The Company accounts for its
investment in ACR under the equity method of accounting for investments as
prescribed by ASC 323, “Investments – Equity Method and Joint Ventures”
(formerly APB 18) (“ASC 323”).  At December 31, 2009, the Company’s
investment in ACR was $(0.4) million and at December 31, 2008, the Company’s
recorded investment in ACR was $(0.3) million, which are included as a component
of deposits and other assets.  The Company’s recorded investment
includes $143,431 of pretax losses from its share of ACR’s net loss for the year
ended December 31, 2009 and $310,678 of pretax losses from its share of ACR’s
net loss for the year ended December 31, 2008.




NOTE 6 -
Concentrations of
Credit Risk




Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade
accounts receivable.  The Company maintains cash and cash equivalent
balances at several financial institutions throughout its operating area of
which, at times, may exceed insurance limits and expose the Company to credit
risk.  As part of its cash management process, the Company
periodically reviews the relative credit standing of these financial
institutions.




Credit
risk with respects to accounts receivable was concentrated with two customers in
2009 and two other customers in 2008. These customers accounted for
approximately $853,870 (13%) and $3,305,389 (28%) of the accounts receivable at
December 31, 2009 and 2008, respectively. The Company performs ongoing credit
evaluations of its customers’ financial condition and if necessary would require
collateral to mitigate its credit risk. Two customers accounted for $5,757,876
(13%) of its revenue during year ended December 31, 2009, and three customers
accounted for $11,696,340 (19%) of the Company’s revenue year ended December 31,
2008.  These revenues were reported as a component of the
Transportation and Disposal segment revenues.  The deterioration of
the financial condition of one or more of its major customers could adversely
impact the Company’s operations.  The breakdown of revenue between
these customers was as follows:




Year ended
                              December 31,
                              2009
                            
                            
                            Percentage of
                              Revenue
                            
                            
                            Year ended
                              December 31,
                              2008
                            
                            
                            Percentage of
                              RevenueCustomer
      A
                            
                            $
                            3,342,019
                            
                            
                            
                            8
                            %
                            
                            
                            —
                            
                            
                            
                            —Customer
      B
                            
                            
                            2,415,857
                            
                            
                            
                            5
                            %
                            
                            
                            —
                            
                            
                            
                            —Customer
      C
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            $
                            2,994,589
                            
                            
                            
                            5
                            %Customer
      D
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            4,235,925
                            
                            
                            
                            7
                            %Customer
      E
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            4,465,826
                            
                            
                            
                            7
                            %Total
                            
                            $
                            5,757,876
                            
                            
                            
                            13
                            %
                            
                            $
                            11,696,340
                            
                            
                            
                            19
                            %





NOTE 7 -
Idle
Machinery




Included
in the PE Recycling acquisition was equipment having a fair value of $8,450,000
at the date of purchase on March 30, 2007.  During the year ended
December 31, 2008, the Company recorded $1,618,125 of impairment relating to
this idle machinery due to the softening of the overall economy.




During
the year ended December 31, 2009, the Company made the following changes to the
idle machinery:




·
            In
      April 2009, the Company placed into service $2,018,750 of equipment that
      was previously classified as idle;




F-25


·
            In
      December of 2009, the Company placed into service $1,000,000 of equipment
      that was previously classified as idle in exchange for removing equipment
      with a net carrying value of $733,333.  The Company
      recorded a loss of $733,333 in relation to the equipment that
      was removed from service due to its poor condition at the time of
      removal.  In relation to this exchange of equipment the Company
      spent approximately $0.3 million in additional parts and labor which was
      capitalized into fixed assets as part of the retrofitting and
      refurbishment of this equipment.




As of
December 31, 2009, the carrying value of the idle equipment at PE Recycling was
$3,813,125 and the Company had recorded deferred tax liabilities of
approximately $1.5 million in relation to this equipment.  As of
December 31, 2008, the carrying value of the idle equipment at PE Recycling was
$6,831,875 and the Company had recorded deferred tax liabilities of
approximately $2.7 million in relation to this equipment.




In
November 2008, PE Materials shifted its rock crushing operations from the North
Bergen, New Jersey facility to its other location in Lyndhurst, New
Jersey.  As a result of this move, approximately $345,000 of equipment
was no longer needed for operations and was transferred into idle
machinery.  The Company intends to hold this equipment for
sale.




NOTE 8 -
Intangible
Assets




Through
its acquisitions and asset purchases, the Company has acquired and recorded
certain identifiable intangible assets.In
connection with the acquisition of Nycon, the Company obtained certain
intangible assets including a customer list, patents, trademarks, a non-compete
agreement and a licensing agreement.  The Company recorded intangible
asset additions in the gross amount of $1,690,000, all relating to the Nycon
acquisition.  The fair value of these intangible assets was determined
based upon the expected future cash flows expected to be derived from their
usage.  During the year ended December 31, 2009, the Company recorded
reductions of $900,000 to the carrying value of the Nycon intangible assets as a
result of purchase price adjustments with the former owner of Nycon (see Note
3).  As of December 31, 2009 and 2008 the intangible assets of New
Nycon, Inc. were included within the “Assets held for sale” (see Note
3).




On
November 20, 2007, the Company acquired identifiable intangible assets from Soil
Disposal, in the form of a five year sales representative agreement and covenant
not to compete.  As a result of this transaction the Company has
recorded an intangible asset in the amount of $1,007,259, for which fair value
was determined based upon the fair value of the consideration given up to obtain
it.  This intangible asset is being amortized over the period of
expected benefit, which the Company believes is equal to the initial term of the
sales representative agreement and covenant not to compete.




In
connection with the PE Recycling acquisition the Company obtained valuable state
and local permits which allow it to operate the recycling and soil remediation
facility.  These permits were valued and recorded at
$2,200,000.  The Company also obtained a covenant not to compete from
one of the former owners of PE Recycling in the amount of $275,742 for a period
of 10 years, for which the fair value was based upon the amount of the payments
required to be made to this individual in exchange for the
covenant.  In 2006, the Company acquired customer lists from PE
Transportation and Disposal, Alchemy Development, LLC, and an independent third
party.




Below is
a summary of intangible assets at December 31, 2009 and 2008:




Balance as of December 31, 2009
                  
                  
                  Balance as of December 31, 2008Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                  
                  
                  Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  NetFinite
      Lives:Customer
      lists
                  
                  $
                  1,417,552
                  
                  
                  $
                  (562,438
                  )
                  
                  $
                  855,114
                  
                  
                  $
                  1,417,552
                  
                  
                  $
                  (420,683
                  )
                  
                  $
                  996,869Other
      intangible assets
                  
                  
                  1,283,001
                  
                  
                  
                  (490,924
                  )
                  
                  
                  792,077
                  
                  
                  
                  1,283,001
                  
                  
                  
                  (261,898
                  )
                  
                  
                  1,021,1032,700,553
                  
                  
                  
                  (1,053,362
                  )
                  
                  
                  1,647,191
                  
                  
                  
                  2,700,553
                  
                  
                  
                  (682,581
                  )
                  
                  
                  2,017,972Indefinite
      Lives:Permits
                  
                  
                  2,200,000
                  
                  
                  
                  —
                  
                  
                  
                  2,200,000
                  
                  
                  
                  2,200,000
                  
                  
                  
                  —
                  
                  
                  
                  2,200,000Total
                  
                  $
                  4,900,553
                  
                  
                  $
                  (1,053,362
                  )
                  
                  $
                  3,847,191
                  
                  
                  $
                  4,900,553
                  
                  
                  $
                  (682,581
                  )
                  
                  $
                  4,217,972


F-26


Expected
future amortization expense for amortizable intangible assets with finite lives
is as follows for the years subsequent to December 31, 2009:




Twelve
      months ending December 31,2010
                    
                    $
                    370,7812011
                    
                    
                    370,7812012
                    
                    
                    353,9942013
                    
                    
                    169,3302014
                    
                    
                    169,330Thereafter
                    
                    
                    212,975$
                    1,647,191





Amortization
expense of intangible assets was $370,781 and $378,171 for the years ended
December 31, 2009 and 2008, respectively.




NOTE 9 -
Line of
Credit




At
December 31, 2009, the Company had a $3,150,000 revolving line of credit with a
bank that was due to expire on April 23, 2010.  The line of credit was
used to fund working capital needs and bore interest at the bank’s prime rate,
subject to a minimum of 5%, plus 5.75% (10.75% at December 31, 2009) and
outstanding borrowings were collateralized by accounts receivable and
inventories as defined in the agreement.  Outstanding borrowings on
the line were $1,884,529 at December 31, 2009 and $407,822 at December 31,
2008.  These borrowings were collateralized by $2,847,224 and
$3,349,812 of eligible trade accounts receivable as of December 31, 2009 and
December 31, 2008, respectively.





During
the year ended December 31, 2009 the Company amended this revolving line of
credit as follows:





·
            On
      March 13, 2009, the Company amended this revolving line of credit
      agreement to add PE Recycling and the Company’s other subsidiaries as
      borrowers and the accounts receivable and inventory of these entities
      became collateral and, to the extent eligible, part of the available
      borrowing base.  As a result, as of March 13, 2009, $2.2 million
      of borrowing availability was added to the revolving line of
      credit.  This amendment also added certain financial covenants
      including minimum adjusted net income and debt service coverage ratio and
      amended the tangible net worth
requirements.





·
            As
      of June 30, 2009, the Company was not in compliance with the minimum
      adjusted net income and debt service coverage ratio covenants and as a
      result, under the revolving line of credit agreement, events of default
      were deemed to have occurred.  On August 18, 2009, the Company
      entered into an amendment of this revolving line of credit
      agreement.  This amendment included the following
      provisions:


a.
            The
      existing events of default were waived by the lender, retroactively
      effective as of June 30, 2009.


F-27


b.
            The
      maximum line of credit amount was reduced from $7,500,000 to $4,700,000
      and lender-imposed loan reserves and letters of credit totaling $1,890,000
      were removed, including the requirement to maintain minimum availability
      of $500,000.


c.
            The
      interest rate under this line of credit was increased from 7.75% to the
      bank’s prime rate, subject to a minimum of 5%, plus 5.75%, or 10.75% as of
      August 18, 2009.  This increase was retroactively applied as of
      June 1, 2009.


d.
            The
      first $1,000,000 of otherwise eligible accounts receivable were deemed
      ineligible for the purpose of serving as available borrowing
      collateral.


e.
            The
      lender prohibited the Company from making any cash payments to the holder
      of its Series B Preferred Stock during the remainder of the loan
      term.





·
            On
      October 23, 2009, the Company entered into an amendment of this revolving
      line of credit which extended the expiration date until April 23, 2010,
      and reduced the maximum line amount to $3,300,000, with subsequent
      reductions to $3,150,000 on December 15, 2009 and $3,000,000 on February
      15, 2010.  This amendment removed the existing financial
      covenants and replaced them with the following financial
      covenants:





a.
            Minimum
      Debt Service Coverage Ratio- Beginning on the month ending January 31,
      2010, the Company was required to maintain a debt service coverage ratio
      (as defined in the revolving line of credit agreement) of 1.0 to
      1.0.


b.
            Capital
      Expenditures-The Company could not incur unfinanced capital expenditures
      in excess of $50,000 from November 1, 2009 through the maturity
      date.


c.
            Account
      Aging Limits- Beginning on November 30, 2009, the Company’s accounts
      receivable older than 90 days past the invoice date could not exceed the
      greater of 13% of all accounts receivable or $1.25
  million.





The
October 23, 2009 amendment also continued the lender-imposed prohibition on the
cash payment of dividends to the Company’s Series B Preferred stockholder, which
would have constituted an event of noncompliance under the Series B Preferred
Stock investment agreement and related agreements for amounts due and
payable.  The Company obtained a waiver from the holder of the Series
B Preferred Stock waiving the events of noncompliance arising from the Company’s
lender imposed prohibition on the payment of the cash dividends otherwise due on
September 30, 2009 and December 31, 2009.





Additionally
under this amendment, the Company was required to obtain additional capital in
the form of equity or subordinated debt of no less than $0.8 million by November
30, 2009, and an additional $1.0 million of equity or subordinated debt by
February 15, 2010.  On November 30, 2009, the Company raised
approximately $1.0 million of equity in the form of Series C Convertible
Preferred Stock (see Note 15), satisfying this requirement. On February 11,
2010, the Company refinanced this line of credit with a new lender, thereby
eliminating the requirement to raise additional equity by February 15, 2010 (see
Note 21).





The
Company incurred $150,000 of additional costs in relation to the amendments of
this line of credit during the year ended December 31, 2009, and approximately
$112,000 of additional costs for the year ended December 31,
2008.  The Company recorded these fees as deferred financing costs to
be amortized over the term of the financing or expensed immediately upon
extinguishment.


F-28


NOTE 10 -
PE Recycling
Refinancing




On
November 12, 2008, PE Recycling (as borrower) and Pure Earth (as guarantor)
completed a $8,000,000 term loan with Susquehanna Bank (“Susquehanna”), the
proceeds of which were used for refinancing existing debt (including the line of
credit) at PE Recycling with the previous lender and for reimbursing the Company
for capital expenditures and working capital advances made to or on behalf of PE
Recycling.  The previous debt held by PE Recycling consisted of a $2.4
million revolving line of credit and $2.9 million in various bank and equipment
notes payable which carried interest rates ranging from 6.50% to 8.50% with
varying maturities.  The consolidated term loan matures on November
15, 2015, is payable in 84 monthly installments and bears interest at an
adjustable rate equal to 250 basis points above the one-month LIBOR, which was
approximately 2.94% as of December 31, 2008, and 0.23% as of December 31,
2009.  This interest rate is adjusted on the 15th of every month
beginning December 15, 2008.  PE Recycling also entered into an $8.0
million interest rate swap agreement with Susquehanna by which PE Recycling is
required to pay a fixed rate of interest at 6.10% to Susquehanna over a 7 year
term corresponding to the loan term, in exchange for the payment by Susquehanna
to PE Recycling of adjustable rate payments based on 1 month LIBOR, plus 250
basis points.  This swap agreement effectively converted the
adjustable rate loan into a fixed rate loan at 6.10%.  The loan is
collateralized by the mortgaged properties and equipment held by PE Recycling,
excluding accounts receivable, inventory and three pieces of excluded
equipment.




On
November 16, 2009, PE Recycling and Susquehanna entered into an amendment of the
Susquehanna term loan whereby commencing on November 15, 2009 and through
January 15, 2010, PE Recycling will make monthly installment payments of accrued
interest only, equal to approximately $40,000 per month.  The loan
will retain the original maturity of November 15, 2015, subject to a revised
loan amortization schedule spread evenly over the remaining period from February
15, 2010 through maturity.  PE Recycling also amended the related
interest rate swap agreement to coincide with the amended term loan at a fixed
rate of 6.10%.




The
consolidated term loan contains a financial covenant which requires Pure Earth
as the guarantor to maintain a maximum leverage ratio of 4.0 to 1.0, measured
annually at the end of each fiscal year commencing on December 31,
2009.  In addition, Pure Earth is required to provide annual financial
statement and other financial information as requested by the lender, as well as
quarterly environmental reports for compliance purposes and certain customary
negative and affirmative covenants.  As of December 31, 2009 and 2008,
Pure Earth and PE Recycling were in compliance with the covenants and
restrictions under this term loan agreement.




NOTE 11 -
Long-Term
Debt




At
December 31, 2009 and 2008, long-term debt (including the current portion)
consisted of the following:




December
      31,2009
                
                
                2008PE
      Recycling term loan
                
                $
                7,144,790
                
                
                $
                7,927,349Equipment
      term loan
                
                
                1,205,396
                
                
                
                1,603,204Various
      equipment notes payable
                
                
                315,893
                
                
                
                377,681Total
                
                
                8,666,079
                
                
                
                9,908,234Less
      current portion
                
                
                (1,462,224
                )
                
                
                (1,556,494
                )Long-term
      portion
                
                $
                7,203,855
                
                
                $
                8,351,740





Equipment Term
Loan




The
Company had a combined equipment term loan outstanding with an outstanding
principal balance of $1,205,396 and $1,603,204 as of December 31, 2009 and 2008,
respectively.  This loan consists of an initial refinancing of
existing equipment loans on November 19, 2007 into a consolidated term loan in
the amount of $2,265,000, which is collateralized by equipment having a carrying
value of $2,745,500.  The loan is payable in 48 monthly payments of
$55,828 beginning on January 1, 2008, with interest at a rate of 8.5% per annum.
..  On June 11, 2008, the Company received an additional $200,000 of
funding from the lender based upon satisfactory review of the Company’s
financial statements for the year ended December 31, 2007.  This
additional funding carries an interest rate of 8.5% and monthly payments of
$4,930.  The combined monthly payment amounts were reduced to
approximately $51,00 per month through the reduction of the outstanding debt
following the sale of certain pieces of equipment which had served as
collateral.




F-29


On
December 7, 2009, the Company entered into a loan restructure agreement with the
lender, whereby beginning on November 1, 2009 and ending April 1, 2010, the
Company agreed to make revised monthly payment amounts of $10,029, representing
the interest portion of the previous payment amounts. Beginning May 1, 2010 and
through the end of the original maturities in December 2011 and June 2012, the
Company will make revised principal and interest payments of approximately
$65,000 per month.




Various Equipment Notes
Payable




In
connection with the PE Recycling acquisition and the Environmental Services
segment operations, the Company had several bank and equipment notes payable,
the majority of which were refinanced on November 12, 2008.  At
December 31, 2009 and 2008, the remaining outstanding notes payable had monthly
payments of $11,676, including interest ranging from 0% to
9.5%.  These notes have varying maturities up through September
2012.  The outstanding principal balance on these equipment notes
payable were $315,893 and $377,681 as of December 31, 2009 and 2008,
respectively.




Future
maturities of long-term debt at December 31, 2009 were as
follows:





Year
      ending December 31,2010
                    
                    $
                    1,462,2242011
                    
                    
                    1,901,4302012
                    
                    
                    1,225,3262013
                    
                    
                    1,216,5312014
                    
                    
                    1,276,291Thereafter
                    
                    
                    1,584,277$
                    8,666,079





NOTE 12 -
Officer Loans and
Related Party Transactions




At
December 31, 2009, the Company had a note payable to Gregory Call (“Call”), a
former officer of PE Recycling in the amount of $1,011,348.  Call was
a former owner of PE Recycling prior to the acquisition on March 30,
2007.  The note payable bears interest at 6.77% per annum and was
subject to repayment, including accrued interest, based upon the following
schedule:





Twelve
      Months Ending December 31,2009
                    
                    
                    333,0002010
                    
                    
                    678,348$
                    1,011,348




F-30


Under the
stock purchase agreement, the Company was to repay $333,000 of the principal on
December 31, 2009, with the remainder of principal and all accrued but unpaid
interest due and payable on December 31, 2010, subject to approval by its
lender.  On June 17, 2009, the Company issued a notice of setoff to
Call notifying him of the Company’s intent to set-off post-closing claims in the
amount of $1,144,984 against this note payable and shares of Pure Earth common
stock that may otherwise be due to Call as permitted under the stock purchase
agreement.  Effective on June 27, 2009, the Company offset the amounts
due to the former owner under this note payable against the post-closing
claims.  Call has denied the validity of these post-closing
claims.  In September 2009, the Company filed a complaint in the
United States District Court for the Eastern District of Pennsylvania against
Call, alleging in excess of $4.0 million in damages resulting from the former
owner’s alleged breach of contract, and seeking from the Court a declaratory
judgment as to the Company’s right of setoff as to these post-closing claims
(see Note 19).   The ultimate outcome of this litigation and
these post-closing claims remains uncertain, and therefore the note payable will
remain outstanding on the Company’s consolidated financial statements until
either a settlement with Call is reached or the Company is legally released from
this obligation.




As of
December 31, 2009, the Company had approximately $0.1 million in due from
affiliates, which consists of amounts due from PE Recycling to ACR, in which it
owns a non-controlling 50% interest.  The $0.1 million reflects the
value of goods and services performed and provided by PE Recycling to the joint
venture, for which PE Recycling has not yet been compensated.




The
following is a summary of transactions and balances with related parties as of
and for the years ended December 31, 2009 and December 31, 2008:




December
      31,2009
                  
                  
                  2008Due
      from joint venture
                  
                  $
                  118,270
                  
                  
                  $
                  342,552Notes
      payable to related party (including accrued interest)
                  
                  $
                  1,011,348
                  
                  
                  $
                  983,296





NOTE 13 –
Mandatorily Redeemable
Preferred Stock




Series B Preferred Stock and
Warrants




On March
2, 2008, the Company’s Board of Directors approved the designation of 20,000
shares of preferred stock as Series B Preferred Stock (the “Series B Preferred
Stock”).  On March 4, 2008, the Company sold and issued to Fidus
Mezzanine Capital, L.P. (“Fidus”), a Delaware limited partnership, 6,300 shares
of its Series B Preferred Stock and a Warrant to purchase 767,375 shares of the
Company’s common stock for an aggregate purchase price of
$6,300,000.  Fidus is entitled to receive cumulative quarterly cash
dividends at 14% per annum, compounded on a quarterly basis.  The
Company may, at its option, elect to pay a portion of the quarterly dividend
equal to 4% per annum in kind.  Any dividends paid in kind, will be
added onto the outstanding balance of the Series B Preferred Stock and will
accrue interest at 14% per annum.  The Company is required to redeem
any and all outstanding shares of Series B Preferred Stock on March 3,
2013.  The Series B Preferred Stock is also required to be redeemed in
the event that, among other things, the current executive officers fail to
continue to serve in their current capacity, cease to serve on the board of
directors, or cease to beneficially own a specified number of shares of the
Company’s common stock. The Series B Preferred Stock ranks prior to all classes
or series of common and preferred stock of the Company with respect to dividend
rights and liquidation preferences.  The Series B Preferred Stock
contains positive covenants including a debt incurrence test, in addition to
customary negative covenants.


F-31


The
amendment to the Pure Earth line of credit agreement in August 2009 prohibited
us from declaring or paying any cash dividends, including to the holder of the
Series B Preferred Stock, which would have constituted an event of noncompliance
under the Series B Preferred Stock investment agreement and related agreements
for nonpayment of amounts otherwise due and payable.  On August 18,
2009, the holder of the Series B Preferred Stock agreed that in lieu of making
the dividend payment otherwise due on September 30, 2009, Pure Earth would be
required to pay the holder such cash dividend payments, plus 14% interest
thereon, in one lump sum representing the full dividend payment plus accrued
interest on November 30, 2009, or if Pure Earth were to refinance this revolving
line of credit with an alternative lender prior to such dates, then any unpaid
portion of the dividend payment, plus accrued interest, was to be paid on the
date such refinancing was consummated.  In addition, on November 30,
2009, the holder of the Series B Preferred Stock consented to Pure Earth’s
issuance of Series C Preferred Stock (see Note __) and, with respect thereto,
agreed to waive all rights of notice, first refusal, preemptive or similar
rights, and to waive the application of any covenant prohibiting the offer and
sale of the Series C Preferred Stock.  Further, the holder of the
Series B Preferred Stock then agreed that in lieu of making the dividend payment
otherwise due on each of September 30, 2009 and December 31, 2009, Pure Earth
would pay such holder these cash dividend payments, plus 14% interest thereon,
either (i) on February 15, 2010; or (ii) if Pure Earth were to refinance this
revolving line of credit with an alternative lender or extend its maturity date
prior to February 15, 2010, on the date of such refinancing or
extension.





Pursuant
to the terms of the Warrant agreement, Fidus is granted the right to purchase a
number of shares of the Company’s common stock equal to 4.2% of the outstanding
shares of common stock on a fully diluted basis as of March 4, 2008 (767,375
shares).  The Warrants have an indefinite term and are exercisable
from and after the fourth anniversary of March 4, 2008, at an exercise price
ranging from $0.001 to $6.00 per share, depending upon the fair market value of
the Company’s stock at the date of exercise.  The Warrants also
contain a put option which allows the holder to put the Warrants back to the
Company in exchange for cash if a triggering event occurs.  Triggering
events include the redemption or repurchase by the Company of all of the
outstanding Series B Preferred Stock or an event of noncompliance including
failure to comply with covenants contained in the Series B Preferred
Stock.




In
connection with the offering of the Series B preferred stock and related
warrants, the Company entered into a registration rights agreement pursuant to
which it agreed to file a registration statement under the Securities Act of
1933 covering the resale of any outstanding shares of the Company’s common stock
issued or issuable to the holders of Series B Preferred Stock.  Such
registration would cover 767,375 shares of our common stock underlying the
warrant issued to the investor.  Until March 4, 2018, the investor may
request that the Company register such securities at any time after it
consummates a “qualified public offering” of common stock under the Securities
Act, as defined by the terms of the agreement.




The
Company accounts for its preferred stock based upon the guidance enumerated in
ASC 480.  The Series B Preferred Stock is mandatorily redeemable on
March 3, 2013 and therefore is classified as a liability instrument on the date
of issuance.  The Warrants issued in connection with the Series B
Preferred Stock provide the holders with a put option that is exercisable upon
the occurrence of certain specified events and at the discretion of the
holder.  The Company evaluated the Warrants and the put option
pursuant to ASC 815 and determined that the Warrants should be classified as
assets or liabilities because they contain redemption rights that are not solely
within the Company’s control as of the date of issuance and at December 31, 2009
and 2008.  Accordingly, the Company recorded the Warrants at their
estimated fair value of $2,263,223 on the date of issuance.  The
remainder of the $6,300,000 in proceeds received, or $4,036,777, was allocated
to the mandatorily redeemable Series B Preferred Stock.  As of
December 31, 2009 and 2008 the carrying values of the mandatorily redeemable
preferred stock were $5,359,206 and $4,447,437, respectively.




The
Company has recorded the resulting discount on debt related to the Warrants and
is amortizing the discount using the effective interest rate method over the
five year term of the Series B Preferred Stock.  Although the stated
interest rate of the Series B Preferred Stock is 14%, as a result of the
discount recorded for the Warrants, the effective interest rate is
27.22%.  The Company also incurred approximately $507,000 of costs in
relation to this transaction, which were recorded as deferred financing costs to
be amortized over the term of the financing or immediately upon the redemption
of the Series B Preferred Stock.




The
Company calculated the fair value of the warrants at the date of issuance using
the Black-Scholes option pricing model with market based
assumptions.  The changes in fair value of the Warrants issued in
connection with the Series B Preferred Stock from the date of issuance to
December 31, 2008, was a decrease of approximately $1.2 million from $2.3
million as of March 4, 2008 to $1.1 million as of December 31, 2008, and a
decrease of $0.8 million for the year ended December 31, 2009  These
changes in fair value of the Warrants were reflected as a component of other
income within the statements of operations for the years ended December 31, 2009
and 2008.


F-32


NOTE 14 –
Fair Value
Measurements




Effective
January 1, 2008, the Company adopted ASC 820, which establishes a framework for
measuring fair value and enhances disclosures about fair value
measurements.  As defined in ASC 820, fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the principal or most advantageous
market for the asset or liability at the measurement date (exit
price).  ASC 820 establishes a three-level hierarchy for disclosure of
fair value measurements based upon the transparency of inputs to the valuation
of an asset or liability as of the measurement date.  The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active
markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3).  The level in the fair value hierarchy
within which the fair value measurement in its entirety falls is determined
based upon the lowest level input that is significant to the measurement in its
entirety.




The three
levels are defined as follows:





·
            Level
      1 — Inputs to the valuation are unadjusted quoted prices in active markets
      for identical assets or
liabilities.


·
            Level
      2 — Inputs to the valuation may include quoted prices for similar assets
      and liabilities in active or inactive markets, and inputs other than
      quoted prices, such as interest rates and yield curves, that are
      observable for the asset or liability for substantially the full term of
      the financial instrument.


·
            Level
      3 — Inputs to the valuation are unobservable and significant to the fair
      value measurement. Level 3 inputs shall be used to measure fair value only
      to the extent that observable inputs are not
  available.





The
Company uses a derivative financial instrument in the form of an interest-rate
swap to manage its exposure to the effects of changes in market interest rates
as they relate to the Susquehanna term loan which has an adjustable rate of
interest based upon the LIBOR.  PE Recycling entered into an
interest-rate swap under which it pays a fixed annual rate of interest of 6.10%
and receives payments from the counterparty based upon the substantially the
same LIBOR terms as the Susquehanna term loan, thereby converting the adjustable
rate payments into a fixed rate instrument.





The
outstanding derivative is recorded on the consolidated balance sheets at its
fair value as a liability at December 31, 2009 and 2008. Because the Company’s
derivative is not listed on an exchange, the Company values this instrument
using a valuation model with pricing inputs that are observable in the market or
that can be derived principally from or corroborated by observable market
data.  The Company’s methodology also incorporates the impact of both
the Company’s and the counterparty’s credit standing.





In
connection with the Susquehanna refinancing and entering into the interest-rate
swap described above, the Company elected to measure the Susquehanna term loan
at fair value, pursuant to ASC 820, which was adopted concurrently with this
transaction.  This election was made specifically for this liability
and was not elected for the Company’s other debt instruments or
liabilities.  The Company’s fair value election for the Susquehanna
term loan is intended to better reflect the underlying economics of the term
loan and its relationship to the corresponding interest-rate
swap.  The Company’s fair value election for the Susquehanna term loan
allows the Company to record any change in fair value of this liability as a
gain or loss through the Consolidated Statement of Operations, along with the
changes in fair value of the interest rate swap.  Because the
Company’s debt is not listed on a public exchange, the Company values this
liability using an internal valuation model with significant pricing inputs that
are not fully observable in the marketplace.





Assets
and liabilities measured at fair value on a recurring basis or elected to be
measured at fair value include the following as of December 31,
2009:


F-33





Fair
      Value Measurements Using:
                                  
                                  
                                  Assets / LiabilitiesLevel 1
                                  
                                  
                                  Level 2
                                  
                                  
                                  Level 3
                                  
                                  
                                  at Fair ValueAssets:—
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Liabilities:Interest-rate
      swaps
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  274,257
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  274,257Susquehanna
      term loan
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  6,870,533
                                  
                                  
                                  
                                  6,870,533





Assets
and liabilities measured at fair value on a recurring basis or elected to be
measured at fair value include the following as of December 31,
2008:





Fair Value Measurements Using:
                
                
                Assets / LiabilitiesLevel 1
                
                
                Level 2
                
                
                Level 3
                
                
                at Fair ValueAssets:—
                
                
                
                —
                
                
                
                —
                
                
                
                —Liabilities:Interest-rate
      swaps
                
                
                —
                
                
                $
                466,897
                
                
                
                —
                
                
                $
                466,897Susquehanna
      term loan
                
                
                —
                
                
                
                —
                
                
                
                7,460,450
                
                
                
                7,460,450





During
the year ended December 31, 2009 the Company recorded a gain of $192,640 and a
loss of $466,897 for the year ended December 31, 2008 as a result of changes in
the fair value its outstanding interest-rate swap.   During the
year ended December 31, 2009, the Company recorded a loss of $196,957 and a gain
of $466,546 for the year ended December 31, 2008 as a result of changes in the
fair value of the Susquehanna term loan. These gains and losses were recorded as
components of other income within the Consolidated Statements of
Operations.





NOTE 15-
Stockholders’
Equity




Common
Stock




In
January of 2008, the Company issued 5,000 shares of common stock valued at $3.00
per share to a consultant for services received.




In April
of 2008, in connection with the Nycon acquisition, the Company issued 15,000
shares of common stock valued at $2.95 per share to the licensor of the recycled
carpet fiber patent.  The Company also issued an additional 10,000
shares of common stock valued at $2.95 per share to a third party for services
provided in connection with this acquisition, which was recorded as part of the
cost of the acquisition.




In June
of 2008, the Company issued 20,000 shares of common stock valued at $2.95 per
share to a new sales and marketing executive, pursuant to the terms of the
individual’s employment agreement.  The Company also issued 20,000
shares of common stock valued at $2.95 per share to a consultant in connection
with that individual’s filing of a patent application related to certain waste
conversion technology intended to be used by or for the benefit of the Company
and its subsidiaries via a licensing agreement.




In
October of 2008, the Company issued 5,000 shares of common stock valued at $2.95
per share to a new employee pursuant to the terms of the individual’s employment
agreement.




F-34




On April
20, 2009, the Company retired 200,000 shares of its outstanding common stock,
which were previously pledged as collateral for reimbursement of the $200,000
payment made by the Company on behalf of the former owners of Juda for the
settlement of the withdrawal liability lawsuit brought by the trustees of the
Local 282 union trust fund.  On December 14, 2009, at the Company’s
request, the former owners of Juda posted an additional 150,000 shares of Pure
Earth common stock as collateral for their obligation to repay the second
$200,000 payment made by the Company in December 2009.  Subsequent to
the retirement of these shares, the Company has 225,000 shares of its common
stock remaining as collateral from the former owners of Juda which were pledged
against any future remaining liabilities (see Note 19).





On May
26, 2009, the Company issued 30,000 shares of common stock valued at $1.00 per
share to an individual in exchange for the settlement of outstanding litigation
against the Company.





On May
29, 2009, the Company issued a total of 50,000 shares of common stock valued at
$1.00 per share to two consultants for marketing services received.





On
September 29, 2009, the Company issued a total of 18,750 shares of common stock
valued at $0.50 per share to two consultants for marketing services
received.





On
October 22, 2009, the Company issued 25,000 shares of common stock valued at
$0.50 per share and on December 17, 2009 the Company issued 25,000 additional
shares of common stock valued at $0.50 per share to a marketing firm for
services received.





Series A Preferred Stock and
Warrants




In May
2007, the Company’s Board of Directors authorized 50,000 shares of Series A
Preferred Stock, $.001 par value, and sold an aggregate of 20,000 shares of
Series A Preferred Stock at a purchase price of $50.00 per share to two
accredited investors for gross proceeds of $1,000,000.  The
Series A Preferred Stock was convertible into shares of common stock at a
rate of 11.11 shares of common stock for each share of Series A Preferred
Stock.  The Series A Preferred Stock was mandatorily convertible
into shares of common stock on June 30, 2008 and also provided the holder
with a put option whereby at any time after March 1, 2008, but prior to
June 30, 2008, the holder had the right to cause the Company to redeem the
Series A Preferred Stock in exchange for cash.  The Company had a call
option whereby at any time prior to June 30, 2008, the Company had the
option to redeem the Series A Preferred Stock in exchange for
cash.  For each 1,000 shares of Series A Preferred Stock
purchased, the investors also received a warrant to purchase 2,222.2 shares of
the Company’s common stock, at an exercise price of $4.50 per share, subject to
adjustment.  These warrants also provide for cashless exercise and are
exercisable over a term of five years.




As
described in Note 3, the Company evaluated the conversion options embedded in
the Series A Preferred Stock to determine whether they were required to be
bifurcated from the host instruments and accounted for as separate derivative
instruments pursuant to ASC 815 and ASC 825.  The Company determined
that the conversion features were not deemed to be beneficial at the commitment
date of the Series A Preferred Stock issuance and therefore were not
required to be separately valued and accounted for.  The Series A
Preferred Stock provided the holders with a put option, which was exercisable at
the discretion of the holders, subject to approval by the Company’s lender under
its revolving line of credit.  Therefore, the Series A Preferred
Stock featured redemption rights that were not solely within the Company’s
control as of December 31, 2007, and as a result, such shares were
presented as temporary equity




On June
29, 2008, the holders of the Series A Preferred Stock and the Company entered
into an investment agreement whereby the holders agreed to forego the right to
exercise the put option embedded in the Series A Preferred Stock in exchange for
the Company issuing an additional 111,134 shares of common stock and making
quarterly cash payments of $25,000 beginning on September 30, 2008 and ending on
June 30, 2009.  On June 30, 2008, the 20,000 shares of outstanding
Series A Preferred Stock were automatically converted into 222,200 shares of the
Company’s common stock pursuant to the terms of the Series A Preferred Stock and
the investment agreement.  Prior to June 30, 2008, the conversion
ratio of the Series A Preferred Stock was out of the money based upon an
estimated fair value of $2.95 per share of common stock.  The Company
recorded the estimated fair value of the additional shares of common stock and
the $100,000 of quarterly cash payments as a dividend to the holders of the
Series A Preferred Stock and deducted from income available for common
stockholders.  The estimated fair value of the additional 111,134
shares of common stock was $327,596 based upon a market price of $2.95 per share
as of June 29, 2008.




F-35




Series C Convertible
Preferred Stock




On
November 18, 2009, Pure Earth’s Board of Directors approved the designation of
260,000 shares of Pure Earth preferred stock as Series C Convertible Preferred
Stock (the “Series C Preferred Stock”).  On November 30, 2009, Pure
Earth closed on a private placement of its Series C Preferred Stock whereby it
sold and issued an aggregate of 101,600 shares of Series C Preferred Stock at a
purchase price of $10.00 per share, and received aggregate gross proceeds
therefore of $1,016,000.  In December 2009, Pure Earth issued an
additional 3,750 shares of Series C Preferred Stock valued at a purchase price
of $10.00 per share in exchange for the extinguishment of the Company’s assumed
obligation to repay $75,000 in debt of the former owner of Nycon.




The
rights of the holders of the Series C Preferred Stock rank (a) senior to and
prior to (i) all classes or series of the Company’s common stock, and (ii) any
class or series of the Company’s preferred stock which by its terms is
subordinated or junior to the Series C Preferred Stock ; (b) junior to the
Series B Preferred Stock and any other class or series of the Company’s
preferred stock which by its terms is senior or prior to the Series C Preferred
Stock; and (c) pari passu and at parity with any class or series of the
Company’s preferred stock which by its terms is neither senior nor junior to the
Series C Preferred Stock.  The holders of the Series C Preferred Stock
are entitled to receive cumulative dividends, payable in cash, in shares of
Series C Preferred Stock, or in the Company’s common stock upon conversion,
when, as and if declared by the Board of Directors of Pure Earth out of funds
legally available therefor, at the rate of (i) 10% per year from the original
issue date through (but not including) the first anniversary of the original
issue date, and (ii) 15% per year thereafter until such share of Series C
Preferred Stock is retired.




The
Series C Preferred Stock is convertible at the option of the holder at any time
in shares of the Company’s common stock at a conversion price of $0.40 per
share, subject to adjustments for dividends, stock splits, combinations,
reorganizations or similar transactions.  In addition, the Series C
Preferred Stock also contains a mandatory conversion by which Pure Earth may
require all outstanding shares of Series C Preferred Stock to be converted into
shares of Common Stock, at the then effective Series C Conversion Price (i) in
the event that, at any time, (x) the 30-day average closing price per share of
its common stock is greater than $1.00 per share for any 30 day period, and (y) the 30-day
average daily trading volume of the common stock for such period is greater than
250,000 shares; or (ii) upon the consummation of one or more qualified public
offerings of the Company’s common stock pursuant to an effective registration
statement.




The
Series C Preferred Stock does not contain any redemption rights that are either
within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within the Company’s control and therefore are
classified as a component of equity as of December 31, 2009 pursuant to the
guidance set forth in ASC 480.  The Company also evaluated the
conversion option featured in the Series C Preferred Stock issued on November
30, 2009 pursuant to the guidance set forth in ASC 815 and ASC
825.  The conversion option provides the holders of the Series C
Preferred Stock with the right to convert the Series C Preferred Stock into a
fixed number of shares of common stock, which was established at the date of
initial issuance of the Series C Preferred Stock.  At the time of
issuance of the Series C Preferred Stock, the conversion features were
determined to be in the money; therefore, a beneficial conversion feature did
exist and was recorded as a dividend equal to the fair value of the beneficial
conversion option at the date of issuance, in the amount of
$272,154.


F-36


Warrants




On June
30, 2006 and July 31, 2006, the Company issued 266,666 detachable warrants to
Dynamic Decisions Strategic Opportunities (the “Holder”) in connection with the
private placement of $500,000 and $300,000 of convertible term notes (see Note
15).  The warrants provided for the purchase of 166,666 and 100,000
shares of common stock, respectively, at an exercise price of $4.50 from the
date of issuance until June 30, 2011 and July 31, 2011, respectively, and may be
exercised in whole or in part.  Pursuant to a registration rights
agreement between the Company and the Holder, if at any time after the date of
issuance of these warrants there is no effective registration statement
registering, or no current prospectus available for, the resale of the warrant
shares by the Holder, then the warrants may be exercised by means of a “cashless
exercise” whereby the Holder would receive a certificate for a determinable
number of shares of common stock pursuant to the investment agreements with no
cash payment required.  In connection with this transaction, the
Company also issued warrants for 26,667 shares of common stock with the same
terms as described above, to the placement agent for their
services.  As of December 31, 2009 and 2008, 13,334 of these warrants
remain outstanding, while the other 13,333 warrants were exercised through the
cashless exercise provision during the year ended December 31,
2007.




In May of
2007, the Company issued 44,444 warrants to purchase common stock having a fair
value of approximately $69,800 in connection with the issuance of the Series A
Preferred Stock.  The warrants are exercisable over a term of five
years from the date of issuance, at a price of $4.50 per share, may be exercised
in whole or in part and provide for cashless exercise.




The
Company determined the fair value of the Company’s warrants at the date of
issuance using the Black-Scholes option pricing model with market based
assumptions.  At December 31, 2009, the weighted average remaining
life of the outstanding warrants was 1.65 years (exclusive of the Warrants
issued in connection with the Series B Preferred Stock, which have an indefinite
life) and 2.65 years at December 31, 2008.




A summary
of the warrant activity for the years ended December 31, 2009 and 2008 is as
follows:




Warrant
                      Shares
                    
                    
                    Weighted Average
                      Exercise PriceBalance,
      January 1, 2008
                    
                    
                    324,443
                    
                    
                    $
                    4.50Issuance
      of common stock warrants – Series B
                    
                    
                    767,375
                    
                    
                    
                    0.001Balance,
      December 31, 2008
                    
                    
                    1,091,818
                    
                    
                    $
                    1.34Issuance
      of common stock warrants
                    
                    
                    —
                    
                    
                    
                    —Balance,
      December 31, 2009
                    
                    
                    1,091,818
                    
                    
                    $
                    1.34




The
following weighted average assumptions were used for valuing the warrants issued
during the year ended December 31, 2008 (no warrants were issued during the year
ended December 31, 2009):




2008Expected
      volatility
                      
                      
                      75.00
                      %Expected
      life
                      
                      IndeterminateExpected
      dividends
                      
                      
                      0.00
                      %Risk-free
      rate
                      
                      
                      3.71
                      %Weighted-average
      stock price
                      
                      $
                      2.95Weighted-average
      exercise price
                      
                      $
                      0.001




The
expected volatility for 2008 was determined by examining the historical
volatilities for industry peers and using an average of the historical
volatilities of the Company’s industry peers as the Company only had limited
trading history for the Company’s common stock.




F-37




NOTE 16 -
Stock-Based
Compensation




The 2007
Stock Incentive Plan (“2007 Plan”) was approved by the Company’s Board of
Directors on July 24, 2007 and by the Company’s stockholders at the Company’s
2007 annual meeting of stockholders held on September 5, 2007. The purpose of
the 2007 Plan is to provide an additional incentive in the form of stock options
(both incentive and nonqualified stock options), restricted stock and restricted
stock units to selected persons providing services to the Company and/or any 50%
or greater owned subsidiary of the Company. Awards under the 2007 Plan may be
granted singly, in combination, or in tandem. Subject to certain adjustments as
provided in the 2007 Plan, a total of 1,000,000 shares of the Company’s common
stock are available for distribution pursuant to the 2007 Plan Awards under the
2007 Plan may be granted to employees, directors, consultants or independent
contractors. However, only employees of the Company and its subsidiaries will be
eligible to receive options that are designated as incentive stock
options.  The vesting period of stock options, restricted stock or
restricted stock units issued are based upon the specifications of each
individual award.  For the years ended December 31, 2009 and 2008, the
Company did not grant any stock option awards.




Restricted Stock
Awards




Restricted
stock awards provide that, during the applicable vesting periods, the shares
awarded may not be sold or transferred by the participant.  The
vesting period for restricted stock awards varies depending upon the specific
terms of each award, and may vest in as little as 90 days from the date of
issuance.




For the
year ended December 31, 2009, the Company granted 118,750 shares of restricted
stock awards totaling $84,376 to sales and marketing consultants in return for
services received.  For the year ended December 31, 2008, the Company
granted 5,000 shares of restricted stock awards totaling $15,000 to a consultant
in return for prior services received and 25,000 shares of restricted stock
awards totaling $73,750 to two new employees pursuant to those individuals’
employment agreements.  At December 31, 2009 and 2008, there was not
any unrecognized compensation cost relating to non-vested restricted stock
grants.




NOTE 17 -
Income
Taxes




The
components of income tax provision (benefit) for the years ended December 31,
2009 and 2008 as shown in the consolidated statement of operations are as
follows:




Years Ended December 31,2009
                        
                        
                        2008Current
      tax expense/(benefit)Federal
                        
                        $
                        (20,002
                        )
                        
                        $
                        (436,835
                        )State
                        
                        
                        98,676
                        
                        
                        
                        (311,985
                        )Total
      current tax expense/(benefit)
                        
                        
                        78,674
                        
                        
                        
                        (748,820
                        )Deferred
      tax expense/(benefit)Federal
                        
                        
                        (1,096,638
                        )
                        
                        
                        (553,280
                        )State
                        
                        
                        (582,051
                        )
                        
                        
                        (755,485
                        )Total
      deferred tax expense/(benefit)
                        
                        
                        (1,678,689
                        )
                        
                        
                        (1,308,765
                        )Income
      tax expense/(benefit)
                        
                        $
                        (1,600,015
                        )
                        
                        $
                        (2,057,585
                        )


The
following is a reconciliation of income taxes at the Federal statutory rate to
the benefit from income taxes:


F-38




December 31,2009
                  
                  
                  2008Amount
                  
                  
                  Percentage of
                    Pre-Tax
                    Earnings
                  
                  
                  Amount
                  
                  
                  Percentage of
                    Pre-Tax
                    EarningsTax
      at statutory rate of 34%
                  
                  $
                  (2,879,467
                  )
                  
                  
                  34.0
                  %
                  
                  $
                  (1,563,097
                  )
                  
                  
                  34.0
                  %State
      taxes, net of Federal benefit
                  
                  
                  (516,925
                  )
                  
                  
                  6.1
                  %
                  
                  
                  (961,394
                  )
                  
                  
                  20.9
                  %Change
      in valuation allowance
                  
                  
                  1,775,515
                  
                  
                  
                  (21.0
                  )%
                  
                  
                  434,299
                  
                  
                  
                  (9.5
                  )%Permanent
      differences
                  
                  
                  77,894
                  
                  
                  
                  (0.9
                  )%
                  
                  
                  80,363
                  
                  
                  
                  (1.7
                  )%Other
      expense (benefit)
                  
                  
                  (57,032
                  )
                  
                  
                  0.7
                  %
                  
                  
                  (47,756
                  )
                  
                  
                  1.1
                  %Income
      tax expense (benefit)
                  
                  $
                  (1,600,015
                  )
                  
                  
                  18.9
                  %
                  
                  $
                  (2,057,585
                  )
                  
                  
                  44.8
                  %





The
tax-effected components of deferred income tax assets and liabilities as of
December 31, 2009 and 2008, consisted of the following:




December 31,2009
                  
                  
                  2008Deferred
      tax assets:Intangible
      assets
                  
                  $
                  252,440
                  
                  
                  $
                  133,225Allowance
      for doubtful accounts
                  
                  
                  184,593
                  
                  
                  
                  394,530Accrued
      disposal costs
                  
                  
                  300,446
                  
                  
                  
                  136,335Net
      operating loss carryforwards
                  
                  
                  4,527,314
                  
                  
                  
                  1,953,219Accrued
      expenses
                  
                  
                  84,497
                  
                  
                  
                  41,110Other
                  
                  
                  (5,063
                  )
                  
                  
                  29,315Total
      deferred tax assets
                  
                  
                  5,344,227
                  
                  
                  
                  2,687,734Less
      valuation allowance
                  
                  
                  (2,636,660
                  )
                  
                  
                  (861,145
                  )Net
      deferred tax asset
                  
                  
                  2,707,567
                  
                  
                  
                  1,826,589Deferred
      tax liabilities:Property
      and equipment basis difference
                  
                  
                  (4,125,075
                  )
                  
                  
                  (5,061,556
                  )Series
      B preferred stock difference
                  
                  
                  (668,374
                  )
                  
                  
                  (437,522
                  )Customer
      List basis difference
                  
                  
                  —
                  
                  
                  
                  (43,386
                  )Permit
      basis difference
                  
                  
                  (880,000
                  )
                  
                  
                  (880,000
                  )Other
                  
                  
                  23,407
                  
                  
                  
                  (25,289
                  )Total
      deferred tax liabilities
                  
                  
                  (5,650,042
                  )
                  
                  
                  (6,447,753
                  )Deferred
      tax asset (liability), net
                  
                  $
                  (2,942,475
                  )
                  
                  $
                  (4,621,164
                  )


F-39


As of
December 31, 2009, the Company has approximately $9,100,000 and $24,100,000 of
Federal and State net operating loss carryforwards which begin to expire in 2018
and 2013, respectively.  As of December 31, 2008, the Company had
approximately $2,800,000 and $16,600,000 of Federal and State net operating loss
carryforwards, respectively, which begin to expire in 2018 and 2013,
respectively.  The net operating loss carryforwards are subject to
limitation under Internal Revenue Code Section 382.  The Company may
be able to utilize additional net operating loss carryforwards obtained from the
acquisition of PE Recycling in 2007, however the potential amount available
cannot be estimated at this time. In assessing the realization of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized.  The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible.  Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment.  Management has established a
valuation allowance against certain portions of the net operating loss
carryforwards because it is more likely than not that a portion of the net
operating loss carryforwards will not be realized.  The increase in
the valuation allowances at December 31, 2009 and 2008 was approximately
$1,776,000 and $434,000, respectively.




The
Company had no unrecognized tax benefits as of December 31, 2009 or December 31,
2008.  The Company and its subsidiaries file income tax returns in
U.S. federal and various state and local jurisdictions.  Various
federal, state and local tax returns are subject to audits by tax authorities
beginning with the 2004 tax year.  It is not expected that the
unrecognized tax benefits will significantly change in the next twelve
months.




NOTE 18 -
Commitments and
Contingencies




Leases




The
Company leases facilities, vehicles, and operating equipment under certain
non-cancelable operating leases that expire beginning in January 2010 through
November 2013.




Minimum
future lease payments are as follows:




Twelve months ending December
      31,2010
                    
                    $
                    1,319,1932011
                    
                    
                    556,6492012
                    
                    
                    489,4382013
                    
                    
                    362,252Thereafter
                    
                    
                    —$
                    2,727,532




The
Company incurred rent expense of $1,503,601 and $1,279,566 for the years ended
December 31, 2009 and 2008, respectively.




Government Regulation, State
and Local Compliance




The
Company is subject to extensive and evolving federal, state and local
environmental, health, safety and transportation laws and
regulation.  These laws and regulations are administered by the
Environmental Protection Agency and various other federal, state and local
environmental, zoning, transportation, land use, health and safety agencies.
Many of these agencies regularly examine our operations to monitor compliance
with these laws and regulations and have the power to enforce compliance, obtain
injunctions or impose civil or criminal penalties in case of
violations.  The Company maintains various licenses and permits with
these agencies that are subject to periodic renewal, and without these licenses
and permits, the Company’s operations would be materially
affected.  In June of 2009, Pure Earth Recycling settled outstanding
fines and compliance issues with various state and local authorities for
approximately $228,000 and for which a $624,300 liability was previously
recorded as part of Pure Earth Recycling’s opening balance sheet.  The
settlement of these compliance issues and fines resulted in a reduction of the
liability of approximately $396,000, which was recorded as a component of other
income for the year ended December 31, 2009.  As of December 31, 2009,
the Company believes it has substantially remediated all prior deficiencies with
respect to the matters described above.


F-40





Employment
Agreements




The
Company has entered into employment agreements with several of its key
executives, officers, and employees, as well as consulting agreements with third
parties.  These agreements provide for approximately $1.6 million in
aggregate annual compensation and various additional bonuses based upon specific
criteria payable in both cash and shares of common stock. The term of the
employment agreements vary depending on the individual, the longest of which
expire in June of 2013.  These agreements include employment contracts
with the Company’s chief executive officer and chief financial officer for
five-year terms, which were entered into on June 1, 2008. Effective June 1,
2009, our executive officers and other employees subject to employment
agreements agreed to voluntarily reduce their salaries in an effort to reduce
the Company’s operating expenses. These reductions were to be in effect for
90 daysafter
which time the executive officers and the Company will review the Company’s
operating results to determine whether the salary reductions will continue
beyond the 90 day period. As of December 31, 2009, these salary reductions
remained in effect for the Company’s executive officers.  All other
terms and conditions in the executive officers’ and other employees’ employment
contracts remain in effect. Payments under certain of these employment
agreements are subject to acceleration clauses and termination provisions in the
event of a change in control of the Company or termination without cause as
defined by the agreements.





Remaining
minimum future payments to key executives, officers, and employees are as
follows:





Twelve
      Months Ending December 31,2010
                  
                  $
                  1,563,3442011
                  
                  
                  611,4442012
                  
                  
                  558,0602013
                  
                  
                  285,836Total
                  
                  $
                  3,018,864




New Jersey Sales and Use Tax
Audit




The State
of New Jersey conducted a sales and use tax audit of PE Recycling. The audit
covered the period from October 2002 through December 2006, prior to
the Company’s acquisition of PE Recycling in March 2007.  The
Company estimated the total potential sales and use tax liability, including
estimated interest and penalty, to be approximately $0.5 million and
established a reserve in this amount.  On June 16, 2008, New
Jersey offered to settle this matter for the full five years at issue for
approximately $265,000, if paid before July 20, 2008. The Company accepted
this offer on June 28, 2008 and paid the proposed settlement amount in
full.




As a
result of the resolution of this liability, the Company would be obligated to
issue additional shares to the former owner of Casie for the reduction in the
liability amount pursuant to the SPA.  As of December 31, 2009 and
2008, the Company has recorded a liability of approximately $72,000 for the
present estimated value of these shares. However, the Company has not issued
these shares to the former owner, as the actual amount of shares to be issued,
if any, remains subject to the resolution of the remaining PE Recycling
post-closing liabilities, as provided for in the Stock Purchase
Agreement.




NOTE 19 -
Litigation




The
Company is party to various claims and legal proceedings from time-to-time
related to contract disputes and other commercial, employment, tax or regulatory
matters.  Except as disclosed below, the Company is not aware of any
pending legal proceedings that it believes could individually, or in the
aggregate, have a material adverse effect on its consolidated financial
position, results of operations or cash flows.




F-41




Soil Disposal
Litigation





Subsequent
to the asset purchase of Soil Disposal Group, Inc. (“Soil Disposal”) in November
of 2007, the former employer of the Soil Disposal sales representatives and
certain of its affiliates (the “Plaintiff”) filed a complaint against Pure
Earth, PEI Disposal Group, Soil Disposal, the Soil Disposal sales
representatives individually, the chief financial officer of Pure Earth
personally, and other named parties (collectively the
“Defendants”).  The complaint alleges, among other things, that the
Defendants breached certain covenants not to compete and a non-solicitation
covenant with respect to customers and employees of the
Plaintiff.  The complaint also claims that Pure Earth interfered with
contractual relations of the Plaintiff and aided and abetted the Soil Disposal
sales representatives’ breach of certain fiduciary duties to the Plaintiff,
unfair competition by the Defendants, and misappropriation of trade secrets and
confidential information.  The Plaintiff also applied for a temporary
restraining order (“TRO”) to prevent the consummation of the transaction and
restrict the subsequent business activities of the Defendants, which was
dismissed.





In
September 2008, the Plaintiff amended its claim and also moved to compel the
Company and the other Defendants to produce additional documents.  The
Defendants opposed these motions and cross-moved for summary judgment dismissing
the case.  On April 15, 2009, the court referred the case to an
alternative dispute resolution program for a 45-day period during which time the
parties were unable to resolve the case. In the meantime the court, at the
Defendants’ request, ordered a stay of all further discovery.  On July
6, 2009, the court initially denied the Defendants’ motion for summary judgment,
but later granted re-argument on the motion.  The Defendants have also
sought dismissal of the case on the grounds that the Plaintiff has failed to
produce documents relevant to its claims and as of November 14, 2009, no
hearings are scheduled while the parties await the court’s decision on
re-argument of the summary judgment motion.  The Company and the other
Defendants deny liability and are vigorously defending all claims.





Juda
Litigation





On April
17, 2006, a lawsuit was filed in the state of New Jersey, whereby Whitney
Contracting, Inc. (“Whitney”), a company from whom the Company acquired certain
assets in January 2006, was named as the defendant relating to an alleged breach
of a lease agreement.  Juda and the former owners of Whitney and Juda
were named in the suit as co-defendants.  The plaintiff alleged that
Juda misrepresented Whitney’s credit worthiness and was unjustly enriched by its
use of the leased premises.  The plaintiff had sought damages in
excess of $1 million dollars for unpaid rent and other claims.  In
March 2009, without defendants admitting any liability or wrongdoing or
acknowledging the validity of any of plaintiff’s allegations, the parties
settled this lawsuit for $350,000, of which Juda paid $50,000 and all other
defendants but one paid the remaining $300,000.





Defamation
Litigation




On
January 10, 2008, a lawsuit was filed in the state of New Jersey, whereby the
plaintiffs alleged that Pure Earth and certain former employees and current
officers of Pure Earth spread false rumors and defamed the plaintiffs in
connection with carrying out a waste disposal contract.  The
plaintiffs are seeking compensatory damages for costs incurred, lost business,
punitive damages and attorney’s fees.  On March 16, 2009, the Company
agreed to settle this matter for 30,000 shares of Pure Earth common stock and
entered into an agreement with the plaintiff whereby Pure Earth Recycling will
accept a specified quantity of soils from the plaintiff at a stated
price.  The Company issued the 30,000 shares of Pure Earth common
stock to the plaintiff in settlement of this case on May 28, 2009.




F-42


Accounts Receivable
Litigation




In
September of 2007, PE Transportation and Disposal began transportation and
disposal work on a large construction job in New York City to redevelop several
city blocks.  Beginning in September 2007 and through September 30,
2008, PE Transportation and Disposal billed a total of $9.2 million to this
customer for which it received payments totaling $7.3 million, leaving an
outstanding receivable balance of $1.9 million.  In addition, PE
Transportation and Disposal also billed an additional $0.9 million in September
of 2008 relating to this same job through another one of its major customers,
which is also outstanding as of September 30, 2009 and for which PE
Transportation and Disposal has a payment bond in the amount of $0.9 million in
place.  In August of 2008, the Company was notified by the customers
that they were stopping payment due to a dispute over the tonnage of material
removed from the construction site.  PE Transportation and Disposal
promptly ceased work on the job and filed a mechanics’ lien on the properties in
September of 2008.  In December of 2008, PE Transportation and
Disposal filed three lawsuits in the Supreme Court for the State of New York,
County of New York, against these customers and other lien holders, alleging
that approximately $2.8 million in amounts owed to us for transportation and
disposal fees, plus applicable interest, have not been paid.  PE
Transportation and Disposal sought to foreclose on a mechanics’ lien and alleged
breach of contract, unjust enrichment and account stated
claims.  Certain of the defendants have filed counterclaims against PE
Transportation and Disposal for breach of contract, fraud and willful lien
exaggeration, and seek at least $2.0 million in damages in each of the three
cases, plus punitive damages and attorneys’ fees in an amount to be proven at
trial.  On May 29, 2009, the Company agreed to a settlement whereby it
will receive a total of $2.0 million in satisfaction of the $2.8 million of
outstanding accounts receivable and dismissal of the
counterclaims.  Of this settlement amount, $1.0 million was to be
received within 15 days of the final settlement and the remaining $1.0 million
is scheduled to be repaid in 18 monthly installments of $55,555 beginning on
September 1, 2009.  On July 1, 2009, the Company received the first
installment of $1.0 million, and has received subsequent monthly payments
totaling $222,220 for the months of September, October, November and December
2009.  The remaining note receivable is secured by approximately
$888,000 in payment bonds held by the Company in the event of nonpayment by the
customers.




PE Recycling
Litigation





In
September 2009, Pure Earth filed a complaint in the United States District Court
for the Eastern District of Pennsylvania against Gregory Call a former owner of
Pure Earth Recycling, claiming that Call breached the terms of a stock purchase
agreement by which Pure Earth acquired Pure Earth Recycling.  Under
the terms of the stock purchase agreement, Call is legally obligated to
indemnify and hold harmless Pure Earth from and against all liabilities, losses,
damages, costs and expenses arising from Call’s breach of any representation or
warranty in the stock purchase agreement.  Pure Earth has alleged that
Call has breached numerous representations and warranties in the stock purchase
agreement and thereby has triggered Call’s obligation to indemnify Pure Earth,
which Call has disputed.  In the complaint, Pure Earth alleges that
the Call’s failure to indemnify Pure Earth has breached the terms of the stock
purchase agreement.  Pure Earth seeks from the Court an unspecified
amount of monetary damages (as well as attorney’s fees and expenses) and a
declaratory judgment as to Pure Earth’s right to set off its damages under the
stock purchase agreement against any amounts the Company may owe Call
thereunder.





In
November 2009, Call filed an answer to this complaint, generally denying Pure
Earth’s claims and asserting a number of affirmative defenses.  In his
answer, Call also asserted counterclaims and third-party claims against Pure
Earth and its chief executive officer and chief financial officer (collectively,
the “Counterclaim Defendants”) for fraudulent inducement, violations of
specified antifraud provisions of the federal securities laws, breach of
contract, breach of fiduciary duty, unjust enrichment, civil conspiracy and
breach of an implied covenant of good faith and fair dealing.  Call
seeks against the Counterclaim Defendants an unspecified amount of compensatory
and punitive damages, as well as attorney’s fees and costs of suit, and any
other relief that the Court deems equitable and just.  The Company
denies any liability to Call, believes that his defenses and counterclaims are
without merit and will seek to vigorously defend itself against these
counterclaims.





On
February 12, 2010, Call commenced an action against PE Recycling, the Company’s
chief executive officer, and the Company’s chief financial officer in the
Superior Court of New Jersey in Cumberland County.  Call alleges the
Company’s chief executive officer and chief financial officer made material
misrepresentations and omissions to induce him to enter into an employment
agreement on March 30, 2007, and that the employment agreement was breached when
he was terminated in July 2009.  Call also asserts a claim under the
New Jersey Conscientious Employee Protection Act, alleging that he was
terminated in retaliation for disclosing to a governmental agency alleged acts
of his employer that he reasonably believed violated the law.  Call
also seeks a declaratory judgment that the non-compete provisions contained in
the employment agreement are void.  PE Recycling and the Company’s
chief executive officer and chief financial officer have responded to this
complaint denying any liability to Call and the Company believes that his claims
are without merit and we will seek to vigorously contest these
claims.




F-43




Due to
the inherent uncertainties of litigation, and because the pending actions
described above are at a preliminary stage, the Company cannot accurately
predict the outcome of these matters at this time.  The Company
intends to respond appropriately in defending against the alleged claims in each
of these matters.  The ultimate resolution of these pending matters
could have a material adverse effect on the Company’s business, consolidated
financial position, results of operations, or cash flows.


Environmental
Matters
  On
September 28, 2007, the EPA brought an administrative complaint against PE
Recycling, alleging that it failed to submit a response plan under the Clean
Water Act with respect to its facility in Millville, New Jersey. The complaint
proposes to assess a civil penalty in the amount of $103,000. On or about
December 11, 2009, PE Recycling submitted a detailed technical response to the
EPA summarizing the reasons why it is not subject to the facility response plan
requirements.   That submission is under review by the EPA, which has
advised PE Recycling that no further action is required until the EPA completes
its review.  PE Recycling intends to vigorously defend this matter, as the
technical review confirms that it has not been and is not now subject to the
facility response plan requirements.
  In
October 2007, PE Recycling received a notice of violation from the EPA under
RCRA, asserting that its facility, since at least 2003, has been improperly
processing used oil, alleged to be a hazardous waste, for distribution into
commerce.  The EPA has alleged that PE Recycling over a three year
period from 2006 to 2009 processed and sold at least 2 million gallons of used
oil for fuel that should have been processed as a hazardous
waste.  The EPA has requested under RCRA specific information with
regard to this notice of violation.  PE Recycling has been cooperating
with the EPA’s information requests.  The Company believes that it can
assert valid defenses to the EPA’s allegations; however, in an effort to resolve
this matter amicably, in August 2009 the Company initiated settlement
discussions with the EPA.  The EPA responded that it would need to
receive additional information from the Company before it could properly
consider a settlement offer.  To support the settlement efforts, the
Company intends to comply with the EPA’s requests for
information.  However, should these settlement efforts be
unsuccessful, the Company intends to contest the EPA’s allegations in the notice
of violation vigorously.
  Teamsters Local Union 282
Benefit Fund Litigation




On March
8, 2010, Juda, PE Materials, PE Transportation and Disposal and PEI Disposal
Group (collectively, the “Subsidiary Defendants”), and Pure Earth, were sued in
the U.S. District Court for the Southern District of New York.  The
plaintiffs are the trustees of several boards of trustees of employee benefit
funds (collectively, “Plaintiffs”) which are associated with the Teamsters Local
Union 282 (“Local 282”).  The funds are the Local 282 Welfare Fund,
the Local 282 Pension Fund, the Local 282 Annuity Fund, the Local 282 Job
Training Fund, and the Local 282 Vacation and Sick Leave Trust Fund
(collectively, the “Funds”).  All of the funds are multi-employer
benefit funds governed by the Taft-Hartley Act and by ERISA. Other named
defendants are Whitney Trucking, Inc. (“Whitney Trucking”), and three
individuals who are alleged to have owned and/or controlled Whitney Trucking and
Juda and caused an under-reporting and failure to make payments of contributions
to the Local 282 Union funds.




The
Plaintiffs are seeking collection of moneys allegedly due for delinquent
contributions to them in accordance with the terms of various collective
bargaining agreements which existed between Local 282 and either Whitney
Trucking or Juda. The plaintiffs allege that these companies owe contributions
to the Funds for the period from 2000 to 2004 and from January 19, 2006 to the
present.




The Funds
have calculated that the amounts due from 2000 to 2004 consist of $1,355,378 in
unpaid contributions, $1,483,933 in interest calculated through the dates of the
audits conducted by the Funds’ auditors and $97,535 in audit fees. In the
aggregate the amount sought for the period 2000 to 2004 is
$2,936,847.




The
Plaintiffs have also asserted pursuant to Pure Earth’s January 19, 2006
acquisition of certain assets of Whitney Contracting, Inc. and the January 19,
2006 purchase of 100% of the stock of Juda that Pure Earth and the Subsidiary
Defendants became liable for the obligations of Juda which included the
delinquent contributions owed to the Funds for the period from 2000 to
2004.  The Funds acknowledge that they have not conducted audits nor
have reviewed the books and records of Pure Earth and the Subsidiary Defendants
to determine the amount of delinquent contributions being sought for the period
from January 19, 2006 to present. Rather, Plaintiffs assert until such audit is
completed that the Funds are permitted in accordance with the language of the
respective trust agreements to “estimate” the amount of contributions due in
their sole discretion. In this regard, Plaintiffs have noted that they are
seeking $6,000,000 for allegedly unpaid contributions for the period from
December 1, 2007 to September 30, 2009, plus any additional contributions which
the auditors might determine are owing for the periods from January 20, 2006
through November 2007 and from October 1, 2009 to the present. Notably, the
Funds have failed to disclose any information about the methodology or basis
used in their “estimation” exercise for the period from December 1, 2007 to
September 30, 2009, and have otherwise failed to justify the $6,000,000
“estimate”.




Additionally,
the Funds are claiming that Pure Earth and the Subsidiary Defendants became
bound to the terms of the collective bargaining agreements which had been
executed between Juda and Local 282 for the period from 2004 to 2012 and to the
terms of the 2006-2009 Metropolitan Truckers’ Association and Independent
Trucker’s Agreement (“MTA”). Moreover, Plaintiffs assert that Pure Earth and the
Subsidiary Defendants have failed to comply with the terms of the collective
bargaining agreements with Local 282 and with the MTA Agreement for the period
commencing on January 20, 2006. As a result the Funds are seeking to conduct an
audit of those companies’ books and records by the Funds’ auditors to determine
the amount of contributions due to the Funds from that date. The Funds are
seeking the remedies permitted by ERISA which include payments of contributions,
interest, liquidated damages, costs and disbursements and reimbursement of
reasonable counsel fees.




F-44




The
litigation was only filed very recently. As a result, Pure Earth is still
evaluating the merits of the lawsuit as well as the potential impact of the
allegations in the complaint and is in the early stage of preparing defenses and
responses to those allegations. Pure Earth, however, intends to contest
Plaintiffs’ claims in this lawsuit and to vigorously assert its
defenses.




Other Legal
Matters





During
the year ended December 31, 2007, the Company, Juda and the former owners of
Juda were named as co-defendants in a lawsuit relating to the withdrawal
liability owed to the Local 282 pension trust fund.  On January 10,
2008, this case was settled in the US District Court for $650,000, plus 10%
annual interest, payable over a two year period.  All defendants
agreed to be jointly and severally liable for payment of the suit amount. The
former owners of Juda (the “Indemnitors”) have agreed to reimburse Pure Earth
for any costs and liabilities incurred as a result of this litigation as well as
agreeing to indemnify and hold harmless Pure Earth from and against any claims,
suits, causes of action or losses. The Company and the former owners of Juda
agreed to settle this liability as follows: i) $250,000 payable upon execution
of the settlement agreement, and ii) two consecutive payments of $200,000 each,
plus accrued interest, due on or before December 10, 2008 and 2009,
respectively.  To facilitate this settlement, Pure Earth posted a
$400,000 letter of credit to serve as a credit
enhancement.   Pursuant to a Reimbursement and Indemnity
Agreement with the Indemnitors, Pure Earth has the right to offset any amounts
owed from the Indemnitors against salary compensation or annual bonuses, which
they would otherwise be due from the Company.  Pure Earth also
required that the Indemnitors pledge 150,000 shares of Pure Earth common stock
as collateral for the letter of credit.  The pledged shares were
deposited into an escrow account that is jointly held by Pure Earth and the
Indemnitors.  On December 10, 2008, the Company made the payment of
$200,000 due on that date and at which time the outstanding letter of credit was
reduced to $200,000.  The Company also required the Indemnitors to
post an additional 125,000 shares of Pure Earth common stock as additional
collateral as a result of this payment.  On December 10, 2009, the
remaining $200,000 letter of credit was drawn down upon by the Local 282 pension
trust fund in satisfaction of the payment amount due on that date on behalf of
the former owners of Juda.




On April
20, 2009, the Company retired 200,000 shares of its outstanding common stock,
which were previously pledged as collateral for reimbursement of the $200,000
payment made by the Company on behalf of the former owners of Juda for the
settlement of the pension liability lawsuit for union truckers, as described
above.   Subsequent to the retirement of these shares the Company
had 75,000 shares of its common stock remaining as collateral from the former
owners of Juda which were pledged against any future remaining
liabilities.  On December 14, 2009, at the Company’s
request,  the Indemnitors posted an additional 150,000 shares of Pure
Earth common stock as collateral for the Indemnitors’ obligation to repay the
second $200,000 payment made by the Company in December 2009.  In
January of 2010, the Company notified the Indemnitors of its intention to offset
the $200,000 receivable due and owing to the Company against salaries and other
compensation amounts due to these individuals over the remaining term of their
employment agreements.


F-45





NOTE 20 -
Segment
Reporting




The
Company and management have organized the Company’s operations into four
reportable business segments for the years ended December 31, 2009 and 2008:
Transportation and Disposal, Materials, Environmental Services and Treatment and
Recycling. The operating results of the Concrete Fibers segment have been
presented as discontinued operations as of and for the years ended December 31,
2009 and 2008 (see Note 4).  Certain income and expenses not allocated
to the four reportable segments and intersegment eliminations are reported under
the heading “Corporate and Other”.  The performance of the segments is
evaluated on several factors, of which the primary financial measure is net
income before interest, taxes, depreciation, and amortization (“Adjusted
EBITDA”).




Summarized
financial information concerning the Company’s reportable segments as of and for
the years ended December 31, 2009 and 2008 is shown in the following
tables:




As of and for the Year Ended
                            December 31, 2009
                          
                          Transportation
                            and Disposal
                          
                          
                          Materials
                          
                          
                          Environmental
                            Services
                          
                          
                          Treatment and
                            Recycling
                          
                          
                          Corporate and
                            Other (a), (b)
                          
                          
                          Total (d)Third
      Party Revenues
                          
                          $
                          20,387,791
                          
                          
                          $
                          2,811,927
                          
                          
                          $
                          570,630
                          
                          
                          $
                          19,541,815
                          
                          
                          $
                          —
                          
                          
                          $
                          43,312,163Intercompany
      Revenues (b)
                          
                          
                          406,348
                          
                          
                          
                          541,685
                          
                          
                          
                          13,627
                          
                          
                          
                          1,756,323
                          
                          
                          
                          (2,717,983
                          )
                          
                          
                          —Total
      Revenues
                          
                          
                          20,794,139
                          
                          
                          
                          3,353,612
                          
                          
                          
                          584,257
                          
                          
                          
                          21,298,138
                          
                          
                          
                          (2,717,983
                          )
                          
                          
                          43,312,163Third
      Party Cost of Revenues
                          
                          
                          15,604,630
                          
                          
                          
                          3,229,802
                          
                          
                          
                          542,663
                          
                          
                          
                          19,328,365
                          
                          
                          
                          —
                          
                          
                          
                          38,705,460Intercompany
      Cost of Revenues
                          
                          
                          2,272,154
                          
                          
                          
                          —
                          
                          
                          
                          14,759
                          
                          
                          
                          441,383
                          
                          
                          
                          (2,728,296
                          )
                          
                          
                          —Total
      Cost of Revenues
                          
                          
                          17,876,784
                          
                          
                          
                          3,229,802
                          
                          
                          
                          557,422
                          
                          
                          
                          19,769,748
                          
                          
                          
                          (2,728,296
                          )
                          
                          
                          38,705,460Gross
      Profit  (Loss)
                          
                          
                          2,917,355
                          
                          
                          
                          123,810
                          
                          
                          
                          26,835
                          
                          
                          
                          1,528,390
                          
                          
                          
                          10,313
                          
                          
                          
                          4,606,703Operating
      Expenses
                          
                          
                          3,272,743
                          
                          
                          
                          519,389
                          
                          
                          
                          472,179
                          
                          
                          
                          4,132,540
                          
                          
                          
                          2,903,077
                          
                          
                          
                          11,299,928Income
      (Loss) from Operations
                          
                          
                          (355,388
                          )
                          
                          
                          (395,579
                          )
                          
                          
                          (445,344
                          )
                          
                          
                          (2,604,150
                          )
                          
                          
                          (2,892,764
                          )
                          
                          
                          (6,693,225
                          )Adjusted
      EBITDA
                          
                          
                          322,203
                          
                          
                          
                          (215,910
                          )
                          
                          
                          (386,812
                          )
                          
                          
                          (282,055
                          )
                          
                          
                          (2,067,785
                          )
                          
                          
                          (2,630,359
                          )Reconciliation
      to Consolidated Statement of Operations:Depreciation
      and Amortization (c)
                          
                          
                          677,591
                          
                          
                          
                          179,669
                          
                          
                          
                          58,532
                          
                          
                          
                          2,073,493
                          
                          
                          
                          46,380
                          
                          
                          
                          3,035,665Interest
      Expense (Income), Net
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          3,432
                          
                          
                          
                          499,115
                          
                          
                          
                          1,942,058
                          
                          
                          
                          2,444,605Income
      (Loss) Before Provision for Income Taxes
                          
                          
                          (355,388
                          )
                          
                          
                          (395,579
                          )
                          
                          
                          (448,776
                          )
                          
                          
                          (2,854,663
                          )
                          
                          
                          (4,056,223
                          )
                          
                          
                          (8,110,629
                          )Capital
      Expenditures (e)
                          
                          $
                          —
                          
                          
                          $
                          35,326
                          
                          
                          $
                          —
                          
                          
                          $
                          369,339
                          
                          
                          $
                          —
                          
                          
                          $
                          404,665Total
      Assets (d)
                          
                          $
                          7,103,975
                          
                          
                          $
                          1,090,558
                          
                          
                          $
                          1,319,435
                          
                          
                          $
                          23,799,161
                          
                          
                          $
                          3,147,508
                          
                          
                          $
                          36,460,637Goodwill
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          $
                          759,694
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          $
                          759,964




(a)
              Corporate
      operating results reflect the costs incurred for various support services
      that are not allocated to our four operating segments. These support
      services include, among other things, treasury, legal, information
      technology, tax, insurance, and other administrative
      functions.  It also includes eliminations of intersegment
      revenues and costs of sales.


(b)
              Intercompany
      operating revenues reflect each segment’s total intercompany sales,
      including intercompany sales within a segment and between segments.
      Transactions within and between segments are generally made on a basis
      intended to reflect the market value of the
  service.


(c)
              Includes
      depreciation and amortization expense classified above as a component of
      cost of sales and operating
expenses.


(d)
              The
      “Consolidated Total Assets” above reflects the elimination of $5,214,144
      of the Company’s investment in subsidiaries, and intersegment receivables,
      plus assets from discontinued
operations.


(e)
              Includes
      non-cash items and assets acquired through acquisition.  Capital
      expenditures are reported in the Company’s operating segments at the time
      they are recorded within the segments’ property, plant and equipment
      balances and, therefore, may include amounts that have been accrued but
      not yet paid.


F-46




As of and for the Year Ended
                          December 31, 2008
                        
                        Transportation
                          and Disposal
                        
                        
                        Materials
                        
                        
                        Environmental
                        
                        
                        Treatment and
                          Recycling
                        
                        
                        Corporate and
                          Other (f), (g)
                        
                        
                        Total (i)Third
      Party Revenues
                        
                        $
                        32,454,300
                        
                        
                        $
                        1,826,218
                        
                        
                        $
                        2,008,337
                        
                        
                        $
                        24,878,077
                        
                        
                        $
                        —
                        
                        
                        $
                        61,166,932Intercompany
      Revenues (g)
                        
                        
                        305,242
                        
                        
                        
                        1,068,914
                        
                        
                        
                        5,239
                        
                        
                        
                        1,897,384
                        
                        
                        
                        (3,276,779
                        )
                        
                        
                        —Total
      Revenues
                        
                        
                        32,759,542
                        
                        
                        
                        2,895,132
                        
                        
                        
                        2,013,576
                        
                        
                        
                        26,775,461
                        
                        
                        
                        (3,276,779
                        )
                        
                        
                        61,166,932Third
      Party Cost of Revenues
                        
                        
                        22,627,637
                        
                        
                        
                        3,827,104
                        
                        
                        
                        1,685,418
                        
                        
                        
                        22,233,599
                        
                        
                        
                        —
                        
                        
                        
                        50,373,760Intercompany
      Cost of Revenues
                        
                        
                        3,069,474
                        
                        
                        
                        11,158
                        
                        
                        
                        141,984
                        
                        
                        
                        54,163
                        
                        
                        
                        (3,276,779
                        )
                        
                        
                        —Total
      Cost of Revenues
                        
                        
                        25,697,111
                        
                        
                        
                        3,838,262
                        
                        
                        
                        1,827,402
                        
                        
                        
                        22,287,762
                        
                        
                        
                        (3,276,779
                        )
                        
                        
                        50,373,760Gross
      Profit  (Loss)
                        
                        
                        7,062,431
                        
                        
                        
                        (943,130
                        )
                        
                        
                        186,174
                        
                        
                        
                        4,487,699
                        
                        
                        
                        —
                        
                        
                        
                        10,793,172Operating
      Expenses
                        
                        
                        3,719,205
                        
                        
                        
                        659,648
                        
                        
                        
                        519,474
                        
                        
                        
                        5,571,897
                        
                        
                        
                        3,476,383
                        
                        
                        
                        13,946,607Income
      (Loss) from Operations
                        
                        
                        3,343,226
                        
                        
                        
                        (1,602,778
                        )
                        
                        
                        (333,300
                        )
                        
                        
                        (1,084,198
                        )
                        
                        
                        (3,476,383
                        )
                        
                        
                        (3,153,435
                        )Adjusted
      EBITDA
                        
                        
                        4,047,005
                        
                        
                        
                        (1,282,924
                        )
                        
                        
                        (261,938
                        )
                        
                        
                        520,200
                        
                        
                        
                        (2,523,355
                        )
                        
                        
                        498,988Reconciliation
      to Consolidated Statement of Operations:Depreciation
      and Amortization (h)
                        
                        
                        703,778
                        
                        
                        
                        319,854
                        
                        
                        
                        71,362
                        
                        
                        
                        1,754,656
                        
                        
                        
                        44,914
                        
                        
                        
                        2,894,564Interest
      Expense (Income), Net
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        5,221
                        
                        
                        
                        530,261
                        
                        
                        
                        1,353,793
                        
                        
                        
                        1,889,275Income
      (Loss) Before Provision for Income Taxes
                        
                        
                        3,343,227
                        
                        
                        
                        (1,602,778
                        )
                        
                        
                        (338,521
                        )
                        
                        
                        (1,764,717
                        )
                        
                        
                        (3,922,062
                        )
                        
                        
                        (4,284,851
                        )Capital
      Expenditures (j)
                        
                        $
                        3,293
                        
                        
                        $
                        150,638
                        
                        
                        $
                        347,623
                        
                        
                        $
                        827,287
                        
                        
                        $
                        51,360
                        
                        
                        $
                        1,380,201Total
      Assets (i)
                        
                        $
                        10,611,588
                        
                        
                        $
                        1,300,782
                        
                        
                        $
                        1,787,476
                        
                        
                        $
                        27,284,204
                        
                        
                        $
                        2,512,273
                        
                        
                        $
                        43,496,323Goodwill
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        $
                        759,694
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        $
                        759,964




(f)
            Corporate
      operating results reflect the costs incurred for various support services
      that are not allocated to the four operating Groups. These support
      services include, among other things, treasury, legal, information
      technology, tax, insurance, and other administrative
      functions.  It also includes eliminations of intersegment
      revenues and costs of sales.


(g)
            Intercompany
      operating revenues reflect each segment’s total intercompany sales,
      including intercompany sales within a segment and between segments.
      Transactions within and between segments are generally made on a basis
      intended to reflect the market value of the
  service.


(h)
            Includes
      depreciation expense classified above as a component of cost of sales and
      operating expenses.


(i)
            The
      “Consolidated Total Assets” above reflects the elimination of $5,152,431
      of the Parent’s investment in subsidiaries and intersegment
      receivables.


(j)
            Includes
      non-cash items and assets acquired through acquisition.  Capital
      expenditures are reported in our operating segments at the time they are
      recorded within the segments’ property, plant and equipment balances and,
      therefore, may include amounts that have been accrued but not yet
      paid





For the
years ended December 31, 2009 and 2008 the Company derived approximately $0.2
million and $0.5 million of its revenues (all within discontinued operations)
from customers located outside of the United States.  In addition at
December 31, 2009 and 2008, all of the Company’s operations and long-lived
assets were located in the United States.




F-47




NOTE 21 -
Subsequent
Events




Refinancing of Revolving
Line of Credit Agreement




On
February 11, 2010, the Company refinanced its existing revolving line of credit
with a new lender in order provide additional availability to fund the growth of
its accounts receivable.  The new commercial financing agreement
provides a line of credit in a principal amount of up to the lesser of (i) $5.0
million, or (ii) 85% of all eligible accounts receivable (as defined under the
agreement) that have not been paid.  The lender also has the right to
reduce the 85% advance percentage with respect to a particular account in its
reasonable discretion.  Eligible accounts receivable will also be
reduced by, among other things, (i) the amount of any account that at the time
exceeds 20% of all accounts receivable, but only to the extent of such excess,
and (ii) the amount of any account that is the subject to a claim or
disagreement by a customer against the Company or its
subsidiaries.  This new commercial financing agreement expires on July
31, 2010, and will be automatically renewed for successive six-month periods
unless the Company delivers written notice of cancellation to the lender not
earlier than 90 days and not later than 30 days prior to the expiration date of
the initial term or any succeeding renewal term.




The
Company is required to pay the lender an invoice service fee equal to 0.95%
charged monthly on the daily outstanding principal balance under the line of
credit.  Interest shall be charged by the lender on the daily
outstanding principal balance of the line of credit at the prime rate plus 2.5%
on an annualized basis charged daily, collected at the end of each
month.  The prime rate is the greater of the prime rate as published
in the Wall Street
Journal as the “Prime Rate” (equal to the base rate on corporate loans
posted by at least 75% of the nation’s 30 largest banks) or 5% per
year.  The Company incurred an origination fee of 0.5% of the maximum
line of credit amount, or $25,000 and was also required to pay the lender’s
legal fees and expenses and other customary closing costs in connection with the
revolving line of credit agreement.




The
refinancing of the Company’s previous revolving line of credit resulted in an
initial increase in availability of approximately $1.4 million due to a higher
advance rate and less stringent eligibility criteria.  The new line of
credit also provides for maximum borrowing capacity up to $5.0 million as
compared to the $3.1 million of borrowing capacity that existed at December 31,
2009.




After
completing the refinancing of the revolving line of credit facility, Pure Earth
was not able to make the cash dividend payment, plus accrued interest, otherwise
due to the holder of the Series B Preferred Stock on February 15,
2010.  On March 26, 2010, Pure Earth obtained a waiver from the holder
of the Series B Preferred Stock as to the non-payment of the September 30, 2009,
December 31, 2009 and March 31, 2010 quarterly cash dividends as well as the
required payment on February 15, 2010 as outlined in the November 30, 2009
agreement.  In lieu thereof, Pure Earth agreed to pay the Series B
Preferred Stock holder the amount of such unpaid dividends plus 14% accrued
interest by June 15, 2010.




New Nycon
Sale




On March
31, 2010, the Company completed the sale of substantially all of the assets and
liabilities of New Nycon in exchange for $217,282 in cash received at closing,
with an additional $50,000 in cash to be paid 90 days subsequent to the closing
date.  The additional $50,000 payment is subject to reduction for
accounts receivable not collected during that time period.




The
Company and New Nycon agreed to indemnify and hold the buyer harmless from and
against certain liabilities and claims arising out of the operation of the
former New Nycon business and under the Asset Purchase Agreement.  The
indemnification obligation of the Company and New Nycon is limited to a cap of
$300,000 and subject to a $10,000 deductible.   Also, the Company
and New Nycon entered into separate non-compete agreements with the Buyer,
pursuant to which they agreed not to compete with the buyer with respect to the
sold business.


F-48




In
connection with this sale, New Nycon and a licensor of a patent associated with
the sold business agreed to terminate and extinguish for no additional fee an
exclusive License Agreement.  Under the License Agreement, 15,000
shares of the Company’s common stock had been paid to the Licensor and held in
escrow pending the satisfaction by New Nycon of certain financial
objectives.  As a result of entering into the Termination Agreement,
all such shares will be deemed forfeited as of March 31, 2010 as the financial
objectives were not satisfied prior to the termination of the License
Agreement.





The
Company does not expect to recognize a material gain or loss in the quarter
ended March 31, 2010 as a result of this sale transaction.




F-49


EXHIBIT
INDEX




Exhibit
                  No.
              
              Description2.1*
              
              Stock
      Purchase Agreement, dated as of January 19, 2006, by and between South
      Jersey Development, Inc., and its shareholders, and Info Investors, Inc.
      (1)2.2*
              
              Asset
      Purchase Agreement, dated as of January 19, 2006, by and between Whitney
      Contracting, Inc. and South Jersey Development, Inc.
(1)2.3*
              
              Stock
      Purchase Agreement, dated as of January 19, 2006, by and between American
      Transport and Disposal Services Ltd. and South Jersey Development, Inc.
      (1)2.4*
              
              Stock
      Purchase Agreement, dated as of January 19, 2006, by and between Juda
      Construction, Ltd. and South Jersey Development, Inc.
  (1)2.5*
              
              Asset
      Purchase Agreement, dated as of January 5, 2006, by and between Alchemy
      Development, LLC and South Jersey Development, Inc. (1)2.6*
              
              Stock
      Acquisition Agreement, dated as of November 30, 2006, by and among Shari
      L. Mahan, as sole shareholder of Terrasyn Environmental Corp., and Pure
      Earth, Inc. (1)2.7*
              
              Membership
      Interests Purchase Agreement, dated as of November 30, 2006, by and among
      Shari L. Mahan, as sole member of Environmental Venture Partners, LLC, Bio
      Methods LLC and Geo Methods, LLC, and Pure Earth, Inc.
  (1)2.8*
              
              Stock
      Purchase Agreement, dated as of February 13, 2007, by and among Pure
      Earth, Inc., Gregory W. Call, Casie Ecology Oil Salvage, inc., MidAtlantic
      Recycling Technologies, Inc. (n/k/a Pure Earth Recycling (NJ), Inc.) and
      Rezultz, Incorporated (1)2.8.1
              
              First
      Amendment to Stock Purchase Agreement, dated as of February 28, 2007, by
      and among Pure Earth, Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.) and Gregory W. Call (1)2.8.2*
              
              Second
      Amendment to Stock Purchase Agreement, dated as of March 26, 2007, by and
      among Pure Earth, Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.), Rex Mouser and Gregory W. Call
  (1)2.8.3
              
              Third
      Amendment to Stock Purchase Agreement, dated as of May 7, 2007, by and
      among Pure Earth Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.), Rex Mouser and Gregory W. Call
  (1)2.8.4
              
              Fourth
      Amendment to Stock Purchase Agreement, dated as of August 6, 2007, by and
      among Pure Earth Inc. and Casie Ecology Oil Salvage, Inc., Rezultz,
      Incorporated, MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.), Rex Mouser, Brian Horne and Gregory W. Call
      (1)2.8.5*
              
              Letter,
      dated December 21, 2007, from Pure Earth, Inc. to Gregory W. Call
      regarding Final Purchase Price with respect to the Stock Purchase
      Agreement, dated as of February 13, 2007, among Pure Earth, Inc., Casie
      Ecology Oil Salvage, Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a
      Pure Earth Recycling (NJ), Inc.), Rezultz, Incorporated, Rex Mouser, Brian
      Horne and Gregory W. Call, as amended (1)2.8.5(a)
              
              Letter,
      dated January 7, 2008, from Pure Earth, Inc. to Gregory W. Call, dated
      December 21, 2007 (1)2.8.6
              
              Joinder
      Agreement, dated March 21, 2007, of Rex Mouser to the Stock Purchase
      Agreement by and among Pure Earth, Inc., Casie Ecology Oil Salvage, Inc.,
      MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth Recycling (NJ),
      Inc.), Rezultz, Incorporated, Rex Mouser, Brian Horne and Gregory W. Call
      (1)2.8.7
              
              Joinder
      Agreement, dated May 30, 2007, of Brian Horne to the Stock Purchase
      Agreement by and among Pure Earth, Inc., Casie Ecology Oil Salvage, Inc.,
      MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth Recycling (NJ),
      Inc.), Rezultz, Incorporated, Rex Mouser and Gregory W. Call
      (1)


E-1





Exhibit
                  No.
              
              Description2.9*
              
              Asset
      Purchase Agreement, dated November 20, 2007, by and among PEI Disposal
      Group, Inc., Richard Rivkin, Soil Disposal Group, Inc., Aaron
      Environmental Group, Inc., Stephen F. Shapiro, Jeffrey Berger and James
      Case (1)2.10*
              
              Asset
      Purchase Agreement, dated April 1, 2008, by and among Nycon, Inc., Robert
      Cruso, Frank Gencarelli, New Nycon, Inc. and Paul Bracegirdle
      (1)2.10.1
              
              Amendment
      to Asset Purchase Agreement, dated March 9, 2009, by and among New Nycon,
      Inc., Robert Cruso and Frank Gencarelli2.10.2
              
              Amendment
      to Asset Purchase Agreement, dated December 10, 2009, by and among New
      Nycon, Inc., Robert Cruso and Frank Gencarelli3.1
              
              Second
      Amended and Restated Certificate of Incorporation of Pure Earth, Inc., as
      amended (2) (3) (4)3.2
              
              Second
      Amended and Restated Bylaws of Pure Earth, Inc. (2) (3)4.1
              
              Specimen
      Common Stock Certificate (1)4.2
              
              Specimen
      Series B Preferred Stock Certificate (1)4.3
              
              Form
      of Common Stock Purchase Warrant issued to DD Growth Premium pursuant to
      the Securities Purchase Agreement, dated as of June 30, 2006
      (1)4.4
              
              Form
      of Registration Rights Agreement, dated June 30, 2006, by and between Pure
      Earth, Inc. and DD Growth Premium (1)4.5
              
              Form
      of Common Stock Purchase Warrant issued to Charles Hallinan and Black
      Creek Capital Corp. pursuant to the Subscription Agreement, dated as of
      May 22, 2007 (1)4.6
              
              Debenture
      Redemption Agreement, dated as of August 17, 2007, by and among Pure
      Earth, Inc. and Dynamic Decisions Strategic Opportunities
    (1)4.6.1
              
              First
      Amendment to Debenture Redemption Agreement, dated as of October 2, 2007,
      by and among Pure Earth, Inc. and Dynamic Decisions Strategic
      Opportunities (1)4.7
              
              Stock
      Purchase Agreement, dated August 17, 2007, by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc. (1)4.7.1
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of September 18,
      2007, by Kim C. Tucker Living Trust (1)4.7.2**
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of August 30, 2007,
      by Brent Kopenhaver and Emilie Kopenhaver (1)4.7.3**
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of August 30, 2007,
      by Mark Alsentzer (1)4.7.4**
              
              Joinder
      Agreement to the Stock Purchase Agreement by and among Dynamic Decisions
      Strategic Opportunities and Pure Earth, Inc., dated as of September 20,
      2007, by Charles Hallinan (1)4.8
              
              Investment
      Agreement, dated as of March 4, 2008, among Pure Earth, Inc. and Fidus
      Mezzanine Capital, L.P. (1)4.8.1
              
              Letter,
      dated August 18, 2009, from Pure Earth, Inc. to Fidus Mezzanine Capital,
      L.P. (5)4.8.2
              
              Letter,
      dated November 30, 2009, from Pure Earth, Inc. to Fidus Mezzanine Capital,
      L.P. (4)4.9
              
              Warrant,
      dated March 4, 2008, to purchase Common Stock of Pure Earth, Inc. issued
      to Fidus Mezzanine Capital, L.P. (1)4.10
              
              Registration
      Rights Agreement, dated as of March 4, 2008, between Pure Earth, Inc. and
      certain holders (1)4.11**
              
              Securityholders
      Agreement, dated as of March 4, 2008, by and among Pure Earth, Inc., Brent
      Kopenhaver, Mark Alsentzer, Fidus Mezzanine Capital, L.P. and holders of
      the Warrants and Warrant Shares, as defined therein (1)4.12
              
              Guaranty
      Agreement, dated as of March 4, 2008, by certain subsidiaries of Pure
      Earth, Inc. in favor of Fidus Mezzanine Capital, L.P. and any other
      Investors party thereto (1)4.13
              
              Investment
      Agreement, effective June 29, 2008, by and among Pure Earth, Inc., Black
      Creek Capital Corp. and Charles M. Hallinan
(3)




E-2





Exhibit
                  No.
              
              Description4.14
              
              Form
      of Subscription Agreement with respect to Series C Convertible Preferred
      Stock (4)4.15
              
              Specimen
      Series C Convertible Preferred Stock Certificate (4)4.16
              
              Form
      of Registration Rights Agreement with respect to the Series C Convertible
      Preferred Stock Offering (4)4.17
              
              Letter
      from Pure Earth, Inc. to Fidus Mezzanine Capital, L.P., dated November 24,
      2009, regarding mandatory conversion right of Series C Convertible
      Preferred Stock (4)10.1**
              
              Employment
      Agreement, dated as of June 1, 2008, by and between Pure Earth, Inc. and
      Mark Alsentzer (1)10.2**
              
              Employment
      Agreement, dated as of June 1, 2008, by and between Pure Earth, Inc. and
      Brent Kopenhaver (1)10.3**
              
              Pure
      Earth, Inc. 2007 Stock Incentive Plan (1)10.4**
              
              Form
      of Restricted Stock Agreement for awards under the Pure Earth, Inc. 2007
      Stock Incentive Plan (1)10.5
              
              Credit
      and Security Agreement, dated as of October 24, 2006, between Pure Earth,
      Inc., South Jersey Development, Inc., American Transportation &
      Disposal Systems, Ltd., Juda Construction, Ltd. and Wells Fargo Bank,
      National Association (1)10.5.1
              
              First
      Amendment to Credit and Security Agreement, dated December 29, 2006, by
      and between Pure Earth, Inc., South Jersey Development, Inc., American
      Transportation & Disposal Systems, Ltd., Juda Construction, Ltd. and
      Wells Fargo Bank, National Association (1)10.5.2
              
              Second
      Amendment to Credit and Security Agreement and Waiver of Defaults, dated
      May 16, 2007, by and between Pure Earth, Inc., Pure Earth Transportation
      and Disposal, Inc., Pure Earth Materials, Inc., Juda Construction, Ltd.
      and Wells Fargo Bank, National Association (1)10.5.3
              
              Third
      Amendment to Credit and Security Agreement, dated November 13, 2007, by
      and between Pure Earth, Inc., Pure Earth Transportation and Disposal,
      Inc., Pure Earth Materials, Inc., Juda Construction, Ltd. and Wells Fargo
      Bank, National Association (1)10.5.4
              
              Fourth
      Amendment to Credit and Security Agreement, effective April 28, 2008, by
      and between Pure Earth, Inc., Pure Earth Transportation & Disposal,
      Inc., Pure Earth Materials, Inc., Juda Construction, Ltd. and Wells Fargo
      Bank, National Association (3)10.5.5
              
              Fifth
      Amendment to Credit and Security Agreement, portions effective as of
      October 21, 2008 and March 13, 2009, by and among Pure Earth, Inc., each
      of its subsidiaries, and Wells Fargo Bank, National Association
      (6)10.5.6
              
              Sixth
      Amendment to Credit and Security Agreement, dated August 19, 2009 and
      effective as of June 30, 2009, by and among Pure Earth, Inc., each of its
      subsidiaries, and Wells Fargo Bank, National Association
    (5)10.5.7
              
              Seventh
      Amendment to Credit and Security Agreement, dated October 23, 2009, by and
      among Pure Earth, Inc., each of its subsidiaries, and Wells Fargo Bank,
      National Association (5)10.6
              
              Sales
      Representative Agreement, dated November 20, 2007, by and between PEI
      Disposal Group, Inc., Soil Disposal Group, Inc., Richard Rivkin, Stephen
      Shapiro, James Case, Jeffrey Berger and Aaron Environmental Group, Inc.
      (1)10.7
              
              Form
      of Confidentiality, Non-Competition and Non-Solicitation Agreement, dated
      November 20, 2007, by and among Soil Disposal Group, Inc., PEI Disposal
      Group, Inc., Pure Earth, Inc., any and all subsidiaries of PEI Disposal
      Group, Inc. and Pure Earth, Inc., and certain employees of Soil Disposal
      Group, Inc. signatory thereto (1)10.8
              
              Commercial
      Lease, dated October 26, 2007, between Red Rock Land Development, LLC and
      Pure Earth Materials (NJ) Inc.(1)10.8.1
              
              Memorandum
      of Understanding, dated September 25, 2008, between Red Rock Land
      Development, LLC and Pure Earth Materials (NJ) Inc., amending Commercial
      Lease dated October 26, 2007 (7)10.9
              
              Subordinated
      Promissory Note, dated November 15, 2007, by Casie Ecology Oil Salvage,
      Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth Recycling
      (NJ), Inc.) and Rezultz, Incorporated in the principal amount of
      $1,000,000 in favor of Gregory W. Call
(1)


E-3





Exhibit
                  No.
              
              Description10.10
              
              Promissory
      Note, dated November 20, 2007, by PEI Disposal Group, Inc., as maker, in
      the principal amount of $640,000, in favor of Soil Disposal Group,
      Inc.(1)10.11
              
              Promissory
      Note, dated November 28, 2007, by Pure Earth, Inc., Juda Construction,
      Ltd. and Pure Earth Materials, Inc., as makers, in the principal amount of
      $2,265,000, in favor of CoActiv Capital Partners LLC
(1)10.11.1
              
              Loan
      Restructure Agreement, dated December 7, 2009, by and between CoActiv
      Capital Partners LLC and Pure Earth, Inc., Pure Earth Materials, Inc., and
      Juda Construction, LTD. as co-borrowers.10.12
              
              Exclusive
      License, dated April 30, 2008, by and between New Nycon, Inc. and Paul E.
      Bracegirdle (1)10.13
              
              Term
      Loan Agreement, dated November 12, 2008, by and among Casie Ecology Oil
      Salvage, Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.) and Rezultz, Incorporated and Susquehanna Bank
      (6)10.13.1
              
              First
      Amendment to Term Loan Agreement, dated November 16, 2009, by and among
      Pure Earth Treatment (NJ), Inc. (f/k/a Casie Ecology Oil Salvage, Inc.),
      Pure Earth Recycling (NJ), Inc. (f/k/a MidAtlantic Recycling Technologies,
      Inc.), Rezultz, Incorporated and Susquehanna
    Bank10.14
              
              Guaranty,
      dated November 12, 2008, of Pure Earth, Inc. in favor of Susquehanna Bank
      (6)10.14.1
              
              First
      Amendment to Guaranty Agreement, dated November 16, 2009, of Pure Earth,
      Inc., in favor of Susquehanna Bank10.14.2
              
              ISDA®
      Master Agreement, dated November 12, 2008, by and among Susquehanna Bank,
      Casie Ecology Oil Salvage, Inc., MidAtlantic Recycling Technologies, Inc.
      (n/k/a Pure Earth Recycling (NJ), Inc.) and Rezultz, Incorporated
      (6)10.14.3
              
              Amendment
      to ISDA® Master Agreement, dated November 13, 2009, by and among
      Susquehanna Bank, Pure Earth Treatment (NJ), Inc. (f/k/a Casie Ecology Oil
      Salvage, Inc.), Pure Earth Recycling (NJ), Inc. (f/k/a MidAtlantic
      Recycling Technologies, Inc.) and Rezultz, Incorporated10.14.4
              
              Schedule
      to the Master Agreement, dated November 12, 2008, by and among Susquehanna
      Bank, Casie Ecology Oil Salvage, Inc., MidAtlantic Recycling Technologies,
      Inc. (n/k/a Pure Earth Recycling (NJ), Inc.) and Rezultz, Incorporated
      (6)10.14.5
              
              Confirmation,
      dated November 12, 2008, by and among Susquehanna Bank, Casie Ecology Oil
      Salvage, Inc., MidAtlantic Recycling Technologies, Inc. (n/k/a Pure Earth
      Recycling (NJ), Inc.) and Rezultz, Incorporated (6)10.14.6
              
              Amendment
      to Confirmation, dated November 13, 2009, by and among Susquehanna Bank,
      Pure Earth Treatment (NJ), Inc. (f/k/a Casie Ecology Oil Salvage, Inc.),
      Pure Earth Recycling (NJ), Inc. (f/k/a MidAtlantic Recycling Technologies,
      Inc.) and Rezultz, Incorporated10.14.7
              
              Term
      Loan Note, dated November 12, 2008, issued by Casie Ecology Oil Salvage,
      Inc. (n/k/a Pure Earth Treatment (NJ), Inc), MidAtlantic Recycling
      Technologies, Inc. (n/k/a Pure Earth Recycling (NJ), Inc.), and Rezultz,
      Incorporated, as borrowers, in favor of Susequehanna Bank, as
      payee10.14.8
              
              Amendment
      to Term Loan Note, dated November 16, 2009, issued by Pure Earth Treatment
      (NJ), Inc. (f/k/a Casie Ecology Oil Salvage, Inc.), Pure Earth Recycling
      (NJ), Inc. (f/k/a MidAtlantic Recycling Technologies, Inc.) and Rezultz,
      Incorporated, as borrowers, in favor of Susequehanna Bank, as
      payee10.15**
              
              Letter
      dated June 1, 2009, between Pure Earth, Inc. and Mark
      Alsentzer10.15.1**
              
              Letter
      dated June 1, 2009, between Pure Earth, Inc. and Brent
  Kopenhaver10.15.2**
              
              Letter
      dated June 1, 2009, between Pure Earth, Inc. and Joseph T.
    Kotrosits21.1
              
              Subsidiaries
      of the Registrant31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under
      the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”)31.2
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) promulgated under
      the Exchange Act32.1
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002





*
            The
      schedules to this agreement have been omitted in accordance with the rules
      of the SEC.  A list of omitted schedules has been included in
      this exhibit and will be provided supplementally to the SEC upon
      request.




**
            Management
      contract or compensatory plan or
arrangement.




(1)
            Previously
      filed as an exhibit to our registration statement on Form 10 (File No.
      0-53287), as filed with the SEC on June 20,
  2008.





(2)
            Included
      is the revised version of this exhibit, redlined to show the new
      amendments.  The redlined version is being provided pursuant to
      SEC staff Compliance & Disclosure Interpretation
    246.01.





(3)
            Previously
      filed as an exhibit to Pre-Effective Amendment No. 1 to our registration
      statement on Form 10/A (File No. 0-53287), as filed with the SEC on August
      8, 2008.


E-4





(4)
            Previously
      filed as an exhibit to our Current Report on Form 8-K dated November 30,
      2009 (File No. 0-53287), as filed with the SEC on December 3,
      2009.





(5)
            Previously
      filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter
      ended September 30, 2009 (File No. 0-53287), as filed with the SEC on
      November 16, 2009.





(6)
            Previously
      filed as an exhibit to our Annual Report on Form 10-K for the year ended
      December 31, 2008 (File No. 0-53287), as filed with the SEC on March 31,
      2009.





(7)
            Previously
      filed as an exhibit to Post-Effective Amendment No. 2 to our registration
      statement on Form 10/A (File No. 0-53287), as filed with the SEC on
      November 4, 2008.


E-5