**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**











Quarterly
      Report Pursuant to Section 13 or 15(d)


of
      the
      Securities Exchange Act of 1934











For
      the
      quarterly period
      ended    June 30,
      2007





Commission
      File
      Number0-10786





Insituform
      Technologies, Inc.


(Exact
        name of registrant as specified in its charter)








Delaware
            13-3032158





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








17988
        Edison Avenue, Chesterfield, Missouri 63005-1195


(Address
        of principal executive offices)








(636)
      530-8000


(Registrant’s
        telephone number, including area code)











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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
      accelerated  ̈
      Accelerated þ
      Non-accelerated  ̈





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act).


Yes
 ̈
      No þ





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at July 26, 2007


Class
                A Common Stock, $.01 par value
            
            27,299,148











**INDEX**





Page





**PART
                I—FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements:Unaudited
                Consolidated Statements of Operations for the Three and Six
                MonthsEnded
                June 30, 2007 and 2006
            3Consolidated
                Balance Sheets as of June 30, 2007 (unaudited) and December 31,
                2006
            4Unaudited
                Consolidated Statements of Cash Flows for the Six MonthsEnded
                June 30, 2007 and 2006
            5Notes
                to Unaudited Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            19Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            28Item
                4.
            Controls
                and Procedures
            29**PART
                II—OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            30Item
                1A.
            Risk
                Factors
            30Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            31Item
                5.
            Other
                Information
            31Item
                6.
            Exhibits
            31**SIGNATURE**
            32**INDEX
                TO EXHIBITS**
            33






2





**PART
      I—FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**INSITUFORM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**


**(in
      thousands, except per share amounts)**














**For
                the Three Months**
              **Ended
                June 30,**
            
            
            **For
                the Six Months**
              **Ended
                June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Revenues**
            
            $
            144,708
            
            
            $
            154,201
            
            
            $
            275,656
            
            
            $
            297,765**Cost
                of revenues**
            
            
            114,814
            
            
            
            120,140
            
            
            
            225,192
            
            
            
            235,039**Gross
                profit**
            
            
            29,894
            
            
            
            34,061
            
            
            
            50,464
            
            
            
            62,726**Operating
                expenses**
            
            
            24,640
            
            
            
            25,876
            
            
            
            49,868
            
            
            
            48,763**Costs
                of closure of tunneling business**
            
            ─
            
            
            ─
            
            
            
            16,843
            
            
            ─**Operating
                income (loss)**
            
            
            5,254
            
            
            
            8,185
            
            
            
            (16,247
            )
            
            
            13,963**Other
                income (expense):**Interest
                expense
            
            
            (1,315
            )
            
            
            (1,617
            )
            
            
            (2,808
            )
            
            
            (3,427
            )Interest
                income
            
            
            710
            
            
            
            1,262
            
            
            
            1,659
            
            
            
            1,780Other
            
            
            (87
            )
            
            
            306
            
            
            
            654
            
            
            
            439**Total
                other expense**
            
            
            (692
            )
            
            
            (49
            )
            
            
            (495
            )
            
            
            (1,208
            )**Income
                (loss) before taxes on income (tax benefit)**
            
            
            4,562
            
            
            
            8,136
            
            
            
            (16,742
            )
            
            
            12,755**Taxes
                on income (tax benefit)**
            
            
            1,268
            
            
            
            2,807
            
            
            
            (5,114
            )
            
            
            4,400**Income
                (loss) before minority interest and equity in earnings
                (losses)**
            
            
            3,294
            
            
            
            5,329
            
            
            
            (11,628
            )
            
            
            8,355**Minority
                interests**
            
            
            (84
            )
            
            
            (98
            )
            
            
            (132
            )
            
            
            (125
            )**Equity
                in earnings (losses) of affiliated companies**
            
            
            (14
            )
            
            
            284
            
            
            
            (320
            )
            
            
            318**Net
                income (loss)**
            
            $
            3,196
            
            
            $
            5,515
            
            
            $
            (12,080
            )
            
            $
            8,548**Earnings
                (loss) per share:******Basic
            
            $
            0.12
            
            
            $
            0.20
            
            
            $
            (0.44
            )
            
            $
            0.32****Diluted
            
            
            0.12
            
            
            
            0.20
            
            
            
            (0.44
            )
            
            
            0.31












































See
      accompanying notes to consolidated financial statements.





3








**INSITUFORM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE
      SHEETS**


**(in
      thousands, except share amounts)**







**June
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006****(Unaudited)****Assets****Current Assets**Cash and cash equivalents
            
            $
            73,836
            
            
            $
            96,393Restricted cash
            
            
            2,126
            
            
            
            934Receivables, net
            
            
            81,295
            
            
            
            90,678Retainage
            
            
            34,622
            
            
            
            37,193Costs and estimated earnings in excess of billings
            
            
            53,482
            
            
            
            41,512Inventories
            
            
            19,386
            
            
            
            17,665Prepaid expenses and other assets
            
            
            31,184
            
            
            
            25,989**Total
                current assets**
            
            
            295,931
            
            
            
            310,364**Property,
                plant and equipment**, less accumulated
                depreciation
            
            
            90,462
            
            
            
            90,453**Other
                assets**Goodwill
            
            
            122,619
            
            
            
            131,540Other assets
            
            
            20,726
            
            
            
            17,712**Total
                other assets**
            
            
            143,345
            
            
            
            149,252**Total
                Assets**
            
            $
            529,738
            
            
            $
            550,069**Liabilities
                and Stockholders’ Equity****Current
                liabilities**Current
                maturities of long-term debt and notes payable
            
            $
            564
            
            
            $
            16,814Accounts payable and accrued expenses
            
            
            105,261
            
            
            
            107,320Billings in excess of costs and estimated earnings
            
            
            11,503
            
            
            
            12,371**Total  current
                liabilities**
            
            
            117,328
            
            
            
            136,505**Long-term
                debt**, less current maturities
            
            
            65,001
            
            
            
            65,046**Other
                liabilities**
            
            
            8,849
            
            
            
            7,726**Total
                liabilities**
            
            
            191,178
            
            
            
            209,277**Minority
                interests**
            
            
            2,348
            
            
            
            2,181**Stockholders’
                equity**Preferred stock, undesignated, $.10 par – shares
                authorized2,000,000; none outstanding
            
            
            -
            
            
            
            -Common stock, $.01 par – shares authorized 60,000,000;shares issued 27,299,148 and 29,597,044;shares outstanding 27,299,148 and 27,239,580
            
            
            273
            
            
            
            296Additional paid-in capital
            
            
            102,659
            
            
            
            149,802Retained
                earnings
            
            
            224,353
            
            
            
            236,763Treasury stock – at cost, shares outstanding 0 and
                2,357,464
            
            
            -
            
            
            
            (51,596
            )Accumulated
                other comprehensive income
            
            
            8,927
            
            
            
            3,346**Total Stockholders’ Equity**
            
            
            336,212
            
            
            
            338,611**Total
                Liabilities and Stockholders’ Equity**
            
            $
            529,738
            
            
            $
            550,069














See
      accompanying notes to consolidated financial statements.






4







**INSITUFORM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH
      FLOWS**


**(Unaudited)**


**(in
      thousands)**








**For
                the Six Months**
              **Ended
                June 30,****2007**
            
            
            **2006****Cash
                flows from operating activities:****Net
                income (loss)**
            
            $
            (12,080
            )
            
            $
            8,548**Adjustments
                to reconcile to net cash (used in) provided by operating
                activities:**Depreciation
            
            
            8,901
            
            
            
            9,790Amortization
            
            
            264
            
            
            
            632Deferred
                income taxes
            
            
            (6,696
            )
            
            
            (2,467
            )Equity-based
                compensation expense
            
            
            3,207
            
            
            
            2,794Non-cash
                charges associated with closure of tunneling business
            
            
            11,955
            
            
            ─Other
            
            
            (561
            )
            
            
            1,317Change
                in restricted cash related to operating activities
            
            
            (1,174
            )
            
            
            (1,531
            )**Changes
                in operating assets and liabilities:**Receivables
                net, retainage and costs and estimated earnings in excess of
                billings
            
            
            2,125
            
            
            
            (6,062
            )Inventories
            
            
            (1,428
            )
            
            
            (1,661
            )Prepaid
                expenses and other assets
            
            
            (3,419
            )
            
            
            954Accounts
                payable and accrued expenses
            
            
            (5,634
            )
            
            
            5,922**Net
                cash (used in) provided by operating activities**
            
            
            (4,540
            )
            
            
            18,236**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            (10,244
            )
            
            
            (8,572
            )Proceeds
                from sale of fixed assets
            
            
            1,313
            
            
            
            850Liquidation
                of life insurance cash surrender value
            
            ─
            
            
            
            1,423**Net
                cash used in investing activities**
            
            
            (8,931
            )
            
            
            (6,299
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of common stock
            
            
            1,080
            
            
            
            3,779Additional
                tax benefit from stock option exercises recorded in
                additional
              paid-in
                capital
            
            
            129
            
            
            
            1,357Proceeds
                from notes payable
            
            685
            
            
            
            843Principal
                payments on notes payable
            
            
            (1,212
            )
            
            
            (2,787
            )Proceeds
                on line of credit
            
            
            5,000
            
            
            ─Payments
                on line of credit
            
            
            (5,000
            )
            
            ─Principal
                payments on long-term debt
            
            
            (15,768
            )
            
            
            (15,726
            )Deferred
                financing charges paid
            
            ─
            
            
            
            (103
            )**Net
                cash used in financing activities**
            
            
            (15,086
            )
            
            
            (12,637
            )Effects
                of exchange rate changes on cash
            
            
            6,000
            
            
            
            1,201**Net
                increase (decrease) in cash and cash equivalents for the
                period**
            
            
            (22,557
            )
            
            
            501**Cash
                and cash equivalents, beginning of period**
            
            
            96,393
            
            
            
            77,069**Cash
                and cash equivalents, end of period**
            
            $
            73,836
            
            
            $
            77,570














See
      accompanying notes to consolidated financial statements


.


5





**INSITUFORM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Unaudited)**


**June
      30, 2007**








**1.**
            **GENERAL**





The
      accompanying unaudited consolidated financial statements of Insituform
      Technologies, Inc. and its subsidiaries (“Insituform” or the “Company”) reflect
      all adjustments (consisting only of normal recurring adjustments) that are,
      in
      the opinion of management, necessary for a fair presentation of financial
      position and results of operations and cash flows. The unaudited consolidated
      financial statements have been prepared in accordance with the requirements
      of
      Form 10-Q and, consequently, do not include all the disclosures normally made
      in
      an Annual Report on Form 10-K. Accordingly, the unaudited consolidated financial
      statements included herein should be read in conjunction with the audited
      consolidated financial statements and footnotes included in the Company’s 2006
      Annual Report on Form 10-K.





The
      results of operations for the three and six months ended June 30, 2007 are
      not
      necessarily indicative of the results to be expected for the full
      year.





**2.**
            **EQUITY-BASED
                COMPENSATION**





At
      June
      30, 2007, the Company had two active equity-based compensation plans under
      which
      equity-based awards may be granted, including stock appreciation rights,
      restricted shares of common stock, performance awards, stock options and stock
      units. There were 2.2 million shares authorized for issuance under these plans.
      At June 30, 2007, 1.8 million shares remained available for future issuance
      under these plans.





Restricted
      Stock Shares





Restricted
      shares of the Company’s common stock are awarded from time to time to the
      executive officers and certain key employees of the Company subject to a
      three-year service restriction, and may not be sold or transferred during the
      restricted period. Restricted stock compensation is recorded based on the fair
      value of the restricted stock shares on the grant date, which is equal to the
      Company’s stock price, and charged to expense ratably through the restriction
      period. Forfeitures cause the reversal of all previous expense recorded as
      a
      reduction of current period expense. In the first six months of 2007, no
      restricted shares were granted. The following table summarizes information
      about
      restricted stock activity during the six months ended June 30,
      2007:





**Weighted**
              **Average****Grant
                Date****Shares**
            
            
            **Fair
                Value**Outstanding
                at December 31, 2006
            
            
            131,500
            
            
            $
            17.73Granted
            
            
            –
            
            
            
            –Vested
            
            
            (12,000
            )
            
            
            15.50Forfeited
            
            
            –
            
            
            
            –Outstanding
                at June 30, 2007
            
            ****
            **119,500**
            
            
            **$**
            **17.96**





6





Expense
      associated with grants of restricted stock shares is presented below (in
      thousands):





**Three
                Months Ended**
            
            
            **Six
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Restricted
                stock share expense
            
            $
            189
            
            
            $
            197
            
            
            $
            384
            
            
            $
            408Forfeitures
            
            ─
            
            
            
            (15
            )
            
            ─
            
            
            
            (15
            )Restricted
                stock share expense, net
            
            
            189
            
            
            
            182
            
            
            
            384
            
            
            
            393Tax
                benefit
            
            
            (74
            )
            
            
            (71
            )
            
            
            (149
            )
            
            
            (153
            )Net
                expense
            
            **$**
            **115**
            
            
            **$**
            **111**
            
            
            **$**
            **235**
            
            
            **$**
            **240**





Unrecognized
      pre-tax expense of $0.7 million related to restricted stock share awards is
      expected to be recognized over the weighted average remaining service period
      of
      1.0 years for awards outstanding at June 30, 2007.





Restricted
      Stock Units





On
      January 11, 2007, restricted stock units were awarded to the executive officers
      and certain key employees of the Company. The restricted stock units will vest
      fully on the third anniversary date of the award if the recipient’s employment
      with the Company has not terminated on or prior to that date. The restricted
      stock unit awards for executive officers also are subject to the Company’s
      achievement of a pre-established net income target during the performance period
      beginning on January 1, 2007 and ending on December 31, 2007. Restricted stock
      unit compensation is recorded based on the fair value of the restricted stock
      units on the grant date, which is equal to the Company’s stock price, and
      charged to expense ratably through the restriction period. Forfeitures cause
      the
      reversal of all previous expense recorded as a reduction of current period
      expense. The following table summarizes information about restricted stock
      unit
      activity during the six months ended June 30, 2007:





**Weighted****Average****Restricted**
            
            
            **Award
                Date****Stock
                Units**
            
            
            **Fair
                Value**Outstanding
                at December 31, 2006
            
            
            –
            
            
            $
            –Awarded
            
            
            50,830
            
            
            
            25.60Shares
                distributed
            
            
            –
            
            
            
            –Forfeited/Expired
            
            
            –
            
            
            
            –Outstanding
                at June 30, 2007
            
            ****
            **50,830**
            
            
            **$**
            **25.60**





Expense
      associated with awards of restricted stock units is presented below (in
      thousands):





**Three
                Months Ended**
            
            
            **Six
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Restricted
                stock unit expense
            
            $
            108
            
            
            $
            –
            
            
            $
            217
            
            
            $
            –Forfeitures
            
            ─
            
            
            
            –
            
            
            ─
            
            
            
            –Restricted
                stock unit expense, net
            
            
            108
            
            
            
            –
            
            
            
            217
            
            
            
            –Tax
                benefit
            
            
            (42
            )
            
            
            –
            
            
            
            (84
            )
            
            
            –Net
                expense
            
            **$**
            **66**
            
            
            **$**
            –
            
            
            **$**
            **133**
            
            
            **$**
            –





Unrecognized
      pre-tax expense of $1.1 million related to restricted stock unit awards is
      expected to be recognized over the weighted average remaining service period
      of
      2.5 years for awards outstanding at June 30, 2007.






7








Deferred
      Stock Units





Deferred
      stock units generally are awarded to directors of the Company and represent
      the
      Company’s obligation to transfer one share of the Company’s common stock to the
      grantee at a future date and generally are fully vested on the date of grant.
      The expense related to the issuance of deferred stock units is recorded in
      full
      on the date of grant.





The
      following table summarizes information about deferred stock unit activity during
      the six months ended June 30, 2007:





**Weighted****Average****Deferred**
            
            
            **Award
                Date****Stock
                Units**
            
            
            **Fair
                Value**Outstanding
                at December 31, 2006
            
            
            93,807
            
            
            $
            18.53Awarded
            
            
            28,000
            
            
            
            21.71Shares
                distributed
            
            
            –
            
            
            
            –Outstanding
                at June 30, 2007
            
            ****
            **121,807**
            
            
            **$**
            **19.26**





Deferred
      stock units awarded and the associated expense for the three- and six-month
      periods ended June 30, 2007 and 2006 are presented in the table below (dollars
      in thousands):





**Three
                Months Ended**
            
            
            **Six
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Deferred
                stock unit expense
            
            $
            608
            
            
            $
            603
            
            
            $
            608
            
            
            $
            603Tax
                benefit
            
            
            (236
            )
            
            
            (234
            )
            
            
            (236
            )
            
            
            (234
            )Net
                expense
            
            **$**
            **372**
            
            
            **$**
            **369**
            
            
            **$**
            **372**
            
            
            **$**
            **369**






8





Stock
      Options





Stock
      options granted generally have a term of seven to ten years and an exercise
      price equal to the market value of the underlying common stock on the date
      of
      grant. A summary of option activity for the first six months of 2007
      follows:





**Weighted****Weighted**
            
            
            **Average****Average**
            
            
            **Remaining**
            
            
            **Aggregate****Exercise**
            
            
            **Contractual**
            
            
            **Intrinsic****Shares**
            
            
            **Price**
            
            
            **Term
                (Yrs)**
            
            
            **Value**Outstanding
                at December 31, 2006
            
            
            1,298,392
            
            
            $
            19.85Granted
            
            
            342,455
            
            
            
            25.55Exercised
            
            
            (59,568
            )
            
            
            14.78Forfeited/Expired
            
            
            (18,008
            )
            
            
            22.96**Outstanding
                at June 30, 2007**
            
            ****
            **1,563,271**
            
            
            **$**
            **21.23**
            
            
            ****
            **4.8**
            
            
            **$**
            **4,067,451****Exercisable
                at June 30, 2007**
            
            ****
            **1,048,734**
            
            
            **$**
            **20.70**
            
            
            ****
            **4.3**
            
            
            **$**
            **3,264,317**





**Options
                Outstanding**
            
            
            **Options
                Exercisable****Weighted****Average**
            
            
            **Weighted**
            
            
            
            
            
            
            
            
            **Weighted****Remaining**
            
            
            **Average**
            
            
            **Aggregate**
            
            
            
            
            
            **Average**
            
            
            **Aggregate****Range
                of**
            **Number**
            
            
            **Contractual**
            
            
            **Exercise**
            
            
            **Intrinsic**
            
            
            **Number**
            
            
            **Exercise**
            
            
            **Intrinsic****Exercise
                Price**
            **Outstanding**
            
            
            **Term
                (Yrs)**
            
            
            **Price**
            
            
            **Value**
            
            
            **Exercisable**
            
            
            **Price**
            
            
            **Value**$
            4.00
                - $10.00
            15,400
            
            
            
            0.4
            
            
            $
            8.75
            
            
            $
            201,124
            
            
            
            15,400
            
            
            $
            8.75
            
            
            $
            201,124$
            10.01
                - $20.00
            708,058
            
            
            
            4.6
            
            
            
            16.53
            
            
            
            3,735,207
            
            
            
            502,183
            
            
            
            15.90
            
            
            
            2,965,693$20.01
                and above
            839,813
            
            
            
            5.1
            
            
            
            25.42
            
            
            
            131,120
            
            
            
            531,151
            
            
            
            25.58
            
            
            
            97,500**Total
                Outstanding**
            **1,563,271**
            
            
            ****
            **4.8**
            
            
            **$**
            **21.23**
            
            
            **$**
            **4,067,451**
            
            
            ****
            **1,048,734**
            
            
            **$**
            **20.70**
            
            
            **$**
            **3,264,317**





The
      intrinsic values above are based on the Company’s closing stock price of $21.81
      on June 29, 2007. The weighted average grant-date fair value of options granted
      during the first six months of 2007 was $10.96. There were 324,000 stock options
      granted in the first six months of 2006. In the first six months of 2007, the
      Company collected $1.1 million for option exercises that had a total intrinsic
      value of $0.5 million. In the first six months of 2006, the Company collected
      $3.8 million for option exercises that had a total intrinsic value of $2.1
      million. In the first six months of 2007 and 2006, the Company recorded a tax
      benefit from stock option exercises of $0.1 million and $1.4 million,
      respectively, in additional paid-in capital on the consolidated balance sheet
      and as a cash flow from financing activities on the consolidated statements
      of
      cash flows for the six months ended June 30, 2007 and 2006. In the first six
      months of 2007 and 2006, the Company recorded pre-tax expense of $2.0 million
      ($1.4 million after-tax) and $1.8 million ($1.2 million after-tax),
      respectively, related to stock option awards. Unrecognized pre-tax expense
      of
      $2.8 million related to stock options is expected to be recognized over the
      weighted average remaining service period of 1.9 years for awards outstanding
      at
      June 30, 2007.





Beginning
      in 2007, the Company changed from using the Black-Scholes option-pricing model
      to the binomial option-pricing model for valuation purposes to more accurately
      reflect the features of stock options granted.









9





The
      fair
      value of stock options awarded during the first six months of 2007 was estimated
      at the date of grant using the binomial option-pricing model based on the
      assumptions presented in the table below. Volatility, expected term and
      high-yield assumptions were based on the Company’s historical experience. The
      risk-free rate was based on a U.S. treasury note with a maturity similar to
      the
      option award’s expected term.





****


**2007**Volatility
            45.0
            %Expected
                term (years)
            4.5Dividend
                yield
            0.0
            %Risk-free
                rate
            4.4
            %





During
      2006, the fair value of stock options awarded was estimated at the date of
      grant
      using the Black-Scholes option-pricing model based on the assumptions presented
      in the table below. Volatility, dividend yield and expected term assumptions
      were based on the Company’s historical experience. The risk-free rate was based
      on a U.S. treasury note with a maturity similar to the option award’s expected
      term.





****


**2006**Volatility
            41.9
            %Expected
                term (years)
            4.8Dividend
                yield
            0.0
            %Risk-free
                rate
            4.3
            %





**3.****COMPREHENSIVE (LOSS) INCOME**





For
      the
      three months ended June 30, 2007 and 2006, comprehensive income was $7.1 million
      and $8.5 million, respectively. For the six months ended June 30, 2007 and
      2006,
      comprehensive income (loss) was $(6.5) million and $11.3 million, respectively.
      The Company’s adjustment to net income (loss) to calculate comprehensive income
      (loss) consisted solely of cumulative foreign currency translation adjustments
      of $3.9 million and $3.0 million for the three months ended June 30, 2007 and
      2006, respectively, and $5.6 million and $2.8 million for the six months ended
      June 30, 2007 and 2006, respectively.





**4.    SHARE
      INFORMATION**





Earnings
      (loss) per share have been calculated using the following share
      information:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2007**
            **2006**
            
            **2007**
            **2006**Weighted
                average number ofcommon
                shares used for basic EPS
            27,281,051
            27,060,374
            
            27,267,789
            26,989,770Effect
                of dilutive stock options andrestricted
                stock
            269,335
            428,564
            
            ─
            489,450Weighted
                average number of commonshares
                and dilutive potential commonstock
                used in dilutive EPS
            27,550,386
            27,488,938
            
            27,267,789
            27,479,220




The
      effect of stock options, restricted stock, restricted stock units and deferred
      stock units of 354,617 was not considered in the calculation of loss per share
      in the six-month period ended June 30, 2007 as the effect would have been
      anti-dilutive.





Treasury
      Stock Retirement





On
      January 24, 2007, the Company’s Board of Directors approved the retirement of
      the Company’s treasury stock. Consequently, the Company’s 2,357,464 shares of
      treasury stock were retired on March 20, 2007, and the number of issued shares
      was reduced accordingly. The effects on stockholders’ equity included a
      reduction in common stock by the par value of the shares, and a reduction in
      additional paid-in capital.







10







**5.     INCOME
      TAXES**





On
      January 1, 2007, the Company adopted the provisions of Interpretation No. 48,
      “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB
      Statement No. 109” (“FIN 48”). The total amount of unrecognized tax benefits as
      of the date of adoption was $4.1 million. As a result of the implementation
      of
      FIN 48, the Company recognized a $2.8 million increase in the liability for
      unrecognized tax benefits, which was accounted for as an approximately $0.3
      million cumulative charge to the January 1, 2007 balance of retained earnings,
      approximately $0.4 million additional deferred tax assets and $2.1 million
      additional non-current receivables. Included in the balance of unrecognized
      tax
      benefits at January 1, 2007 are $1.5 million of tax benefits that, if
      recognized, would affect the effective income tax rate. The remaining $2.6
      million of tax benefits, if recognized, would result in adjustments to other
      income tax accounts.





The
      Company recognizes interest and penalties accrued related to unrecognized tax
      benefits in the tax provision. Upon adoption of FIN 48, the Company accrued
      $0.6
      million for interest and penalties. In addition, during the first six months
      of
      2007, approximately $0.1 million was accrued for interest and
      penalties.





The
      Company believes that it is reasonably possible that the total amount of
      unrecognized tax benefits will change within twelve months of the date of
      adoption. The Company has certain tax return years subject to statutes of
      limitation that will close within twelve months of the date of adoption. Unless
      challenged by tax authorities, the closure of those statutes of limitation
      is
      expected to result in the recognition of uncertain tax positions in the amount
      of approximately $0.4 million.





The
      Company is subject to taxation in the United States, various states and foreign
      jurisdictions. The Company’s tax years for 1999 through 2006 are subject to
      examination by the tax authorities. With few exceptions, the Company is no
      longer subject to U.S. federal, state, local or foreign examinations by tax
      authorities for years before 1999.





**6.   
      CLOSURE OF TUNNELING BUSINESS**





On
      March
      29, 2007, the Company announced plans to exit its tunneling business in an
      effort to improve its overall financial performance and to better align its
      operations with its long-term strategic initiatives. The tunneling business
      is
      reported as a separate segment for financial reporting purposes. See Note 7
      for
      further information regarding segment reporting.





The
      Company currently expects to substantially complete the exit of its tunneling
      business by the end of 2007. The Company ceased bidding new contracts concurrent
      with the announcement. The Company’s overall disposal strategy involves the sale
      or completion of all on-going tunneling projects. The Company expects the
      on-site work related to existing jobs to be substantially completed within
      the
      next six months and is seeking a buyer or buyers for the business and/or assets.
      However, there can be no assurances that a suitable buyer or buyers will be
      identified.





As
      a
      result of the exit and disposal activities relating to the closure of its
      tunneling business, the Company anticipates that it will incur pre-tax charges
      of approximately $21.0 million, of which approximately $8.0 million relate
      to
      cash charges which will include approximately $4.5 million relating to property,
      equipment and vehicle lease terminations and buyouts, approximately $2.5 million
      relating to employee termination benefits and retention incentives and
      approximately $1.0 million of other ancillary expenses. During the first six
      months of 2007, the Company recorded a total of $4.8 million (pre-tax) related
      to these activities, including accruals for $3.6 million (pre-tax) associated
      with equipment lease buyouts, $1.1 million (pre-tax) for employee termination
      benefits and $0.1 million related to debt financing fees paid on March 28,
      2007
      in connection with certain amendments to the Company’s Senior Notes and credit
      facility relating to the closure of the tunneling operation. All of these costs
      have been paid at June 30, 2007.





The
      Company also incurred impairment charges for goodwill and other intangible
      assets of $9.0 million during the first six months of 2007. These impairment
      charges occurred as a result of a thorough review of the fair value of assets
      and future cash flows to be generated by the business. This review concluded
      that insufficient fair value existed to support the value of the goodwill and
      other intangible assets recorded on the balance sheet.





In
      addition, the Company announced that it would incur impairment charges of up
      to
      $4.0 million for equipment and other assets. In the first six months of 2007,
      the Company recorded charges totaling $3.0 million (pre-tax). These charges
      relate to assets that, at June 30, 2007, currently were not being utilized
      in
      the business. The impairment was calculated by subtracting current book values
      from estimated fair values of each of the idle assets. Fair values






11







were
      determined using data from recent sales of similar assets and other market
      information. The Company believes the fair value of the remaining fixed assets
      exceeded the carrying value as of June 30, 2007. These assets are currently
      being utilized on existing projects.





Each
      of
      the above charges has been recorded in the consolidated statements of operations
      as “Costs of closure of tunneling business” as a component of operating
      income.





**7.   
      SEGMENT REPORTING**





The
      Company has three principal operating segments: rehabilitation; tunneling;
      and
      Tite Liner®, the Company’s corrosion and abrasion segment. The segments were
      determined based upon the types of products and services sold by each segment
      and each is regularly reviewed and evaluated separately.





The
      following disaggregated financial results have been prepared using a management
      approach that is consistent with the basis and manner with which management
      internally disaggregates financial information for the purpose of making
      internal operating decisions. The Company evaluates performance based on
      stand-alone operating income (loss).





Financial
      information by segment was as follows (in thousands):





**Three
                Months Ended**
            
            
            **Six
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Revenues**Rehabilitation
            
            $
            114,281
            
            
            $
            125,218
            
            
            $
            217,601
            
            
            $
            236,876Tunneling
            
            
            19,739
            
            
            
            14,458
            
            
            
            35,706
            
            
            
            33,842Tite
                Liner®
            
            
            10,688
            
            
            
            14,525
            
            
            
            22,349
            
            
            
            27,047**Total
                revenues**
            
            $
            144,708
            
            
            $
            154,201
            
            
            $
            275,656
            
            
            $
            297,765**Gross
                profit (loss)**Rehabilitation
            
            $
            23,536
            
            
            $
            29,174
            
            
            $
            38,953
            
            
            $
            54,508Tunneling
            
            
            1,844
            
            
            
            166
            
            
            
            2,032
            
            
            
            (450
            )Tite
                Liner®
            
            
            4,514
            
            
            
            4,721
            
            
            
            9,479
            
            
            
            8,668**Total
                gross profit**
            
            $
            29,894
            
            
            $
            34,061
            
            
            $
            50,464
            
            
            $
            62,726**Operating
                income (loss)**Rehabilitation
            
            $
            2,505
            
            
            $
            7,275
            
            
            $
            (3,616
            )
            
            $
            13,736Tunneling
            
            
            (58
            )
            
            
            (2,094
            )
            
            
            (18,793
            )(1)
            
            
            (5,123
            )Tite
                Liner®
            
            
            2,807
            
            
            
            3,004
            
            
            
            6,162
            
            
            
            5,350**Total
                operating income (loss)**
            
            $
            5,254
            
            
            $
            8,185
            
            
            $
            (16,247
            )(1)
            
            $
            13,963


__________





(1)
            Includes
                $16.8 million of charges associated with the closure of the tunneling
                business.






12









The
      following table summarizes revenues, gross profit and operating (loss) income
      by
      geographic region (in thousands):







**Three
                Months Ended**
              **June
                30,**
            
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Revenues:**United
                States
            
            $
            104,526
            
            
            $
            115,885
            
            
            $
            201,506
            
            
            $
            229,215Canada
            
            
            13,158
            
            
            
            10,667
            
            
            
            23,989
            
            
            
            19,741Europe
            
            
            23,559
            
            
            
            21,687
            
            
            
            44,007
            
            
            
            38,772Other
                foreign
            
            
            3,465
            
            
            
            5,962
            
            
            
            6,154
            
            
            
            10,037**Total
                revenues**
            
            $
            144,708
            
            
            $
            154,201
            
            
            $
            275,656
            
            
            $
            297,765**Gross
                profit:**United
                States
            
            $
            18,941
            
            
            $
            22,876
            
            
            $
            31,037
            
            
            $
            43,868Canada
            
            
            4,604
            
            
            
            3,955
            
            
            
            8,121
            
            
            
            6,948Europe
            
            
            5,282
            
            
            
            5,735
            
            
            
            8,965
            
            
            
            9,392Other
                foreign
            
            
            1,067
            
            
            
            1,495
            
            
            
            2,341
            
            
            
            2,518**Total
                gross profit**
            
            $
            29,894
            
            
            $
            34,061
            
            
            $
            50,464
            
            
            $
            62,726**Operating
                income (loss):**United
                States
            
            $
            1,786
            
            
            $
            3,764
            
            
            $
            (20,508
            )(1)
            
            $
            7,999Canada
            
            
            2,744
            
            
            
            2,518
            
            
            
            4,267
            
            
            
            4,134Europe
            
            
            88
            
            
            
            928
            
            
            
            (1,634
            )
            
            
            225Other
                foreign
            
            
            636
            
            
            
            975
            
            
            
            1,628
            
            
            
            1,605**Total
                operating income (loss)**
            
            $
            5,254
            
            
            $
            8,185
            
            
            $
            (16,247
            )(1)
            
            $
            13,963


__________


(1)   Includes
      $16.8 million of charges associated with the closure of the tunneling
      business.








13







**8.    ACQUIRED
      INTANGIBLE ASSETS**





Acquired
      intangible assets include license agreements, customer relationships, patents
      and trademarks, and non-compete agreements. Intangible assets at June 30, 2007
      and December 31, 2006 were as follows (in thousands):





**As
                of June 30, 2007**




**Gross**
            
            
            
            
            
            **Net****Carrying
                Amount**
            
            
            **Accumulated
                Amortization**
            
            
            **Carrying
                Amount**Amortized
                intangible assets:License
                agreements
            
            $
            3,894
            
            
            $
            (1,889
            )
            
            $
            2,005Customer
                relationships
            
            
            1,797
            
            
            
            (451
            )
            
            
            1,346Patents
                and trademarks
            
            
            16,782
            
            
            
            (13,447
            )
            
            
            3,335Non-compete
                agreements
            
            
            315
            
            
            
            (315
            )
            
            ─Total
            
            $
            22,788
            
            
            $
            (16,102
            )
            
            $
            6,686





**As
                of December 31, 2006**




**Gross**
            
            
            
            
            
            **Net****Carrying
                Amount**
            
            
            **Accumulated
                Amortization**
            
            
            **Carrying
                Amount**Amortized
                intangible assets:License
                agreements
            
            $
            3,894
            
            
            $
            (1,813
            )
            
            $
            2,081Customer
                relationships
            
            
            1,797
            
            
            
            (391
            )
            
            
            1,406Patents
                and trademarks
            
            
            16,048
            
            
            
            (13,283
            )
            
            
            2,765Non-compete
                agreements
            
            
            3,252
            
            
            
            (3,056
            )
            
            
            196Total
            
            $
            24,991
            
            
            $
            (18,543
            )
            
            $
            6,448





Amortization
      expense for the six months ended June 30, 2007 and 2006 and estimated
      amortization expense for the next five years are as follows (in
      thousands):








**2007**
            
            
            **2006**Aggregate
                amortization expenseThree
                months ended June 30
            
            $
            47
            
            
            $
            325Six
                months ended June 30
            
            
            264
            
            
            
            632Estimated
                amortization expense:For
                year ending December 31, 2007
            
            $
            573For
                year ending December 31, 2008
            
            
            580For
                year ending December 31, 2009
            
            
            544For
                year ending December 31, 2010
            
            
            467For
                year ending December 31, 2011
            
            
            385





**9.    COMMITMENTS
      AND CONTINGENCIES**





Litigation





In
      the
      third quarter of 2002, an accident on an Insituform® cured-in-place-pipe
      (“CIPP”) process project in Des Moines, Iowa resulted in the death of two
      workers and the injury of five workers. The Company fully cooperated with Iowa’s
      state OSHA in the investigation of the accident. Iowa OSHA issued a citation
      and
      notification of penalty in connection with the accident, including several
      willful citations. After numerous administrative and judicial proceedings and
      appeals, including appeals to the Iowa Supreme Court, on June 15, 2007, the
      Iowa
      District Court entered a final order in the amount of $733,750 against the
      Company. The Company recorded approximately $0.5 million with respect to this
      matter in the first quarter of 2007. The Company paid the assessed penalties
      on
      June 27, 2007.





In
      December 2003, Environmental Infrastructure Group, L.P. (“EIG”) filed suit in
      the District Court of Harris County, Texas, against several defendants,
      including Kinsel Industries, Inc. (“Kinsel”), a wholly owned subsidiary of the
      Company, seeking unspecified damages. The suit alleges, among other things,
      that
      Kinsel failed to pay EIG monies due under a subcontractor agreement. In February
      2004, Kinsel filed an answer, generally denying all




14





claims,
      and also filed a counterclaim against EIG based upon EIG’s failure to perform
      work required of it under the subcontract. In June 2004, EIG amended its
      complaint to add the Company as an additional defendant and included a claim
      for
      lost opportunity damages. In December 2004, the Company and Kinsel filed
      third-party petitions against the City of Pasadena, Texas, and Greystar-EIG,
      LP,
      Grey General Partner, LLC and Environmental Infrastructure Management, LLC
      (collectively, the “Greystar Entities”). EIG also amended its petition to add a
      fraud claim against Kinsel and the Company and also requested exemplary damages.
      The original petition filed by EIG against Kinsel seeks damages for funds that
      EIG claims should have been paid to EIG on a wastewater treatment plant built
      for the City of Pasadena. Kinsel’s third-party petition against the City of
      Pasadena seeks approximately $1.4 million in damages to the extent EIG’s claims
      against Kinsel have merit and were appropriately requested. The third-party
      petition against the Greystar Entities seeks damages based upon fraudulent
      conveyance, alter ego and single business enterprise (the Greystar Entities
      are
      the successors-in-interest to all or substantially all of the assets of EIG,
      now
      believed to be defunct). Following the filing of the third-party petitions,
      the
      City of Pasadena filed a motion to dismiss based upon lack of jurisdiction
      claiming the City is protected by sovereign immunity. The trial court denied
      the
      City’s motion and the suit was stayed pending appeal of the City’s motion to the
      Court of Appeals in Corpus Christi, Texas. On March 16, 2006, the Texas Court
      of
      Appeals affirmed the trial court’s denial of the City’s motion. The City
      appealed the matter to the Texas Supreme Court. Recently, the Texas Supreme
      Court reversed and remanded the case back to the District Court to consider
      the
      City’s plea to jurisdiction in light of a recently enacted Texas statute that
      waives governmental immunity. The Company believes that the factual allegations
      and legal claims made against it and Kinsel are without merit and intends to
      vigorously defend them.





In
      1990,
      the Company initiated proceedings against Cat Contracting, Inc., Michigan Sewer
      Construction Company, Inc. and Inliner U.S.A., Inc. (subsequently renamed
      FirstLiner USA, Inc.), along with another party, alleging infringement of
      certain in-liner Company patents. In August 1999, the United States District
      Court in Houston, Texas found that one of the Company’s patents was willfully
      infringed and awarded $9.5 million in damages. After subsequent appeals, the
      finding of infringement has been affirmed, but the award of damages and finding
      of willfulness was subject to rehearing. The Company believed that it had a
      strong position in upholding the original damage award and, after investigation,
      concluded that the defendants had a viable source to collect all or a portion
      of
      the award if confirmed. On the basis of these determinations, the Company
      decided to aggressively pursue the rehearing on damages. The damages hearing
      was
      completed in the third quarter of 2006. The Company currently is awaiting the
      Court’s decision. At June 30, 2007, the Company had not recorded any receivable
      related to this matter.





On
      June
      3, 2005, the Company filed a lawsuit in the United States District Court in
      Memphis, Tennessee against Per Aarsleff A/S, a publicly traded Danish company,
      and certain of its subsidiaries and affiliates. Since approximately 1980, Per
      Aarsleff and its subsidiaries held licenses for the Insituform CIPP process
      in
      various countries in Northern and Eastern Europe, Taiwan, Russia and South
      Africa. Per Aarsleff also is a 50% partner in the Company’s German joint venture
      and a 25% partner in the Company’s manufacturing company in Great Britain. The
      Company’s lawsuit seeks, among other things, monetary damages in an unspecified
      amount for the breach by Per Aarsleff of its license and implied license
      agreements with the Company and for royalties owed by Per Aarsleff under the
      license and implied license agreements. On May 12, 2006, the Company amended
      its
      lawsuit in Tennessee to (i) seek damages based upon Per Aarsleff’s use of
      Company trade secrets in connection with the operation of its Danish
      manufacturing facility and (ii) seek an injunction against Per Aarsleff’s
      continued operation of its manufacturing facility. Per Aarsleff filed its Answer
      and Affirmative Defenses to the Company’s Amended Complaint on May 25, 2006. On
      October 25, 2006, Per Aarsleff filed a two-count counterclaim against the
      Company seeking to recover royalty payments paid to the Company. On December
      29,
      2006, the Company and Per Aarsleff’s 50%-owned Taiwanese subsidiary (“PIEC”)
      settled their respective claims against each other in exchange for PIEC paying
      the Company $375,000, which amount was paid on December 29, 2006 (settlement
      of
      Taiwanese claims only, remainder of lawsuit continues). Based upon the results
      of audits performed by the Company at Per Aarsleff’s facilities in Denmark,
      Finland, Sweden and Poland, on May 25, 2007 the Company, with leave granted
      by
      the Court, amended its lawsuit in Tennessee to allege that Per Aarsleff
      committed fraud in its underreporting as well as misreporting of installation
      contract revenues for the years 1999-2004. As a result of the addition of the
      fraud claims, the Company also is now seeking punitive damages in addition
      to
      actual damages. At June 30, 2007, excluding the effects of the claims specified
      in the lawsuit, Per Aarsleff owed the Company approximately $0.5 million related
      to royalties due under the various license and implied license agreements (over
      and above the Taiwanese settlement amount and the amounts allegedly
      underreported or misreported by Per Aarsleff) based upon royalty reports
      prepared and submitted by Per Aarsleff. The Company believes that these
      receivables are fully collectible at this time. At June 30, 2007, the Company
      had not recorded any receivable related to this lawsuit.





*Boston
      Installation*





In
      August
      2003, the Company began a CIPP process installation in Boston. The $1.0 million
      project required the Company to line 5,400 feet of a 109-year-old, 36- to
      41-inch diameter unusually shaped hand-laid rough brick pipe.




15





Many
      aspects of this project were atypical of the Company’s normal CIPP process
      installations. Following installation, the owner rejected approximately 4,500
      feet of the liner and all proposed repair methods. All rejected liner was
      removed and re-installed, and the Company recorded a loss of $5.1 million on
      this project in the year ended December 31, 2003. During the first quarter
      of
      2005, the Company, in accordance with its agreement with the client, inspected
      the lines. During the course of such inspection, it was determined that the
      segment of the liner that was not removed and re-installed in early 2004 was
      in
      need of replacement in the same fashion as all of the other segments replaced
      in
      2004. The Company completed its assessment of the necessary remediation and
      related costs and began work with respect to such segment late in the second
      quarter of 2005. The Company’s remediation work with respect to this segment was
      completed during the third quarter of 2005. The Company incurred costs of
      approximately $2.3 million with respect to the 2005 remediation
      work.





Under
      the
      Company’s “Contractor Rework” special endorsement to its primary comprehensive
      general liability insurance policy, the Company filed a claim with its primary
      insurance carrier relative to rework of the Boston project. The carrier has
      paid
      the Company the primary coverage of $1 million, less a $250,000 deductible,
      in
      satisfaction of its obligations under the policy.





The
      Company’s excess comprehensive general liability insurance coverage is in an
      amount far greater than the costs associated with the liner removal and
      re-installation. The Company believes the “Contractor Rework” special
      endorsement applies to the excess insurance coverage; it incurred costs in
      excess of the primary coverage and it notified its excess carrier of the claim
      in 2003. The excess insurance carrier denied coverage in writing without
      referencing the “Contractor Rework” special endorsement, and subsequently
      indicated that it did not believe that the “Contractor Rework” special
      endorsement applied to the excess insurance coverage.





In
      March
      2004, the Company filed a lawsuit in United States District Court in Boston,
      Massachusetts against its excess insurance carrier for such carrier’s failure to
      acknowledge coverage and to indemnify the Company for the entire loss in excess
      of the primary coverage. In March 2005, the Court granted the Company’s partial
      motion for summary judgment, concluding that the Company’s policy with its
      excess insurance carrier followed form to the Company’s primary insurance
      carrier’s policy. On May 25, 2006, the Court entered an order denying a motion
      for reconsideration previously filed by the excess insurance carrier, thereby
      reaffirming its earlier opinion. In September 2006, the Company filed a motion
      for summary judgment as to the issue of whether the primary insurance carrier’s
      policy provided coverage for the underlying claim and as to the issue of
      damages. The excess insurance carrier also filed a motion for summary judgment
      as to the issue of primary coverage. The Court heard oral arguments on the
      motions on November 20, 2006. The parties are awaiting a ruling from the
      Court.





During
      the second quarter of 2005, the Company, in consultation with outside legal
      counsel, determined that the likelihood of recovery from the excess insurance
      carrier was probable and that the amount of such recovery was estimable. An
      insurance claims expert retained by the Company’s outside legal counsel reviewed
      the documentation produced with respect to the claim and, based on this review,
      provided the Company with an estimate of the costs that had been sufficiently
      documented and substantiated to date. The excess insurance carrier’s financial
      viability also was investigated during this period and was determined to have
      a
      strong rating of A+ with the leading insurance industry rating service. Based
      on
      these factors, the favorable court decision in March 2005 and the
      acknowledgement of coverage and payment from the Company’s primary insurance
      carrier, the Company believes that recovery from the excess insurance carrier
      is
      both probable and estimable and has recorded an insurance claim receivable
      in
      connection with this matter.




16








The
      total
      claim receivable was $7.4 million at June 30, 2007 and is composed of documented
      remediation costs and pre-judgment interest as outlined in the table
      below:





**Documented**
              **Remediation**
              **Costs**
            
            
            **Pre-Judgment**
              **Interest**
            
            
            **Total***(in
                thousands)*Claim
                recorded June 30, 2005
            
            $
            5,872
            
            
            $
            275
            
            
            $
            6,147Interest
                recorded July through December 31, 2005
            
            
            -
            
            
            
            165
            
            
            
            165Additional
                documented remediation costs recorded in the second
              quarter
                of 2006
            
            
            526
            
            
            
            -
            
            
            
            526Adjustment
                based on current developments
            
            
            (343
            )
            
            
            -
            
            
            
            (343
            )Interest
                recorded in 2006 and 2007
            
            
            -
            
            
            
            866
            
            
            
            866**Claim
                receivable balance, June 30, 2007**
            
            **$**
            **6,055**
            
            
            **$**
            **1,309**
            
            
            **$**
            **7,361**





During
      the second quarter of 2007, the claim was adjusted down by $0.3 million as
      a
      result of current developments in the matter. Interest was adjusted
      accordingly.





*Department
      of Justice Investigation*





The
      Company has incurred costs in responding to two United States government
      subpoenas relating to the investigation of alleged public corruption and bid
      rigging in the Birmingham, Alabama metropolitan area during the period from
      1997
      to 2003. The Company has produced hundreds of thousands of documents in an
      effort to comply fully with these subpoenas, which the Company believes were
      issued to most, if not all, sewer repair contractors and engineering firms
      that
      had public sewer projects in the Birmingham area. Indictments of public
      officials, contractors, engineers and contracting and engineering companies
      were
      announced in February, July and August of 2005, including the indictment of
      a
      former joint venture partner of the Company. A number of those indicted,
      including the Company’s former joint venture partner and its principals, have
      been convicted or pleaded guilty and have now been sentenced and fined. The
      Company has been advised by the government that it is not considered a target
      of
      the investigations at this time. The investigations are ongoing and the Company
      may have to continue to incur substantial costs in complying with its
      obligations in connection with the investigations. The Company has been fully
      cooperative throughout the investigations.





*Other
      Litigation*





The
      Company is involved in certain other litigation incidental to the conduct of
      its
      business and affairs. Management, after consultation with legal counsel, does
      not believe that the outcome of any such other litigation will have a material
      adverse effect on its consolidated financial condition, results of operations
      or
      cash flows.





Guarantees
      and Indemnification Obligations





The
      Company has entered into several contractual joint ventures in order to develop
      joint bids on contracts for its business. In these cases, the Company could
      be
      required to complete the joint venture partner’s portion of the contract if the
      partner were unable to complete its portion. The Company would be liable for
      any
      amounts for which the Company itself could not complete the work and for which
      a
      third party contractor could not be located to complete the work for the amount
      awarded in the contract. While the Company would be liable for additional costs,
      these costs would be offset by any related revenues due under that portion
      of
      the contract. The Company has not experienced material adverse results from
      such
      arrangements. Based on these facts, while there can be no assurances, the
      Company currently does not anticipate any future material adverse impact on
      its
      consolidated financial position, results of operations or cash
      flows.





The
      Company also has many contracts that require the Company to indemnify the other
      party against loss from claims of patent or trademark infringement. The Company
      also indemnifies its surety against losses from third party claims of
      subcontractors. The Company has not experienced material losses under these
      provisions and, while there can be no assurances, currently does not anticipate
      any future material adverse impact on its consolidated financial position,
      results of operations or cash flows.





The
      Company regularly reviews its exposure under all its engagements, including
      performance guarantees by contractual joint ventures and indemnification of
      its
      surety. As a result of the most recent review, the Company has




17





determined
      that the risk of material loss is remote under these arrangements and has not
      recorded a liability for these risks at June 30, 2007 on its consolidated
      balance sheet.





**10.   FINANCINGS**





Credit
      Facility





On
      March
      28, 2007, the Company amended its $35.0 million credit facility with Bank of
      America, N.A., to incorporate by reference certain amendments to its Senior
      Notes, Series 2003-A, due April 24, 2013, described below. In connection with
      the amendment, the Company paid Bank of America, N.A., an amendment fee of
      0.05%
      of the borrowing capacity of the credit facility, or $17,500.





In
      March
      2007, the Company borrowed $5.0 million on the credit facility. These amounts
      were repaid in April 2007. There were no borrowings on the credit facility
      in
      the first six months of 2006.





Senior
      Notes





On
      March
      28, 2007, the Company amended its $65.0 million Senior Notes, Series 2003-A,
      due
      April 24, 2013, to include in the definition of EBITDA all non-recurring charges
      taken during the year ending December 31, 2007 relating to the Company’s exit
      from the tunneling operation to the extent deducted in determining consolidated
      net income for such period, subject to a maximum amount of $34.2 million. In
      connection with the amendment, the Company paid the noteholders an amendment
      fee
      of 0.05% of the outstanding principal balance of Senior Notes, or
      $32,500.





In
      February 2007, the Company made the final scheduled payment of $15.7 million
      on
      its Senior Notes, Series A, due February 14, 2007.





At
      June
      30, 2007, the Company was in compliance with all debt covenants, and expects
      to
      be in compliance for the balance of 2007.





**11.  NEW
      ACCOUNTING PRONOUNCEMENTS**





On
      January 1, 2007, the Company adopted the provisions of Financial Accounting
      Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), *Accounting for
      Uncertainty in Income Taxes*, and interpretation of FASB Statement No. 109
      which describes a comprehensive model for the measurement, recognition,
      presentation and disclosure of uncertain tax positions in financial statements.
      Under the interpretation, financial statements are required to reflect expected
      future tax consequences of such positions presuming the tax authorities’ full
      knowledge of the position and all relevant facts, but without considering time
      values. See Note 5 for a discussion of the Company’s adoption of FIN
      48.





In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        (“SFAS”) No. 157 – *Fair Value Measurements*, which defines
        fair value, establishes a framework for consistently measuring fair value
        under
        GAAP, and expands disclosures about fair value measurements.
        SFAS No. 157 is effective for the company beginning January 1,
        2008, and the provisions of SFAS No. 157 will be applied prospectively
        as of that date. Management is currently evaluating the effect that adoption
        of
        this statement will have on the Company’s consolidated financial position and
        results of operations when it becomes effective in 2008.





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 No. 159 permits
      entities to choose to measure eligible items at fair value at specified election
      dates and report unrealized gains and losses on items for which the fair value
      option has been elected in earnings at each subsequent reporting date.
      SFAS No. 159 is effective for the company beginning January 1,
      2008. Management is currently evaluating the effect that adoption of this
      statement will have on the Company’s consolidated financial position and results
      of operations when it becomes effective in 2008.




18








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





The
      following is management’s discussion and analysis of certain significant factors
      that have affected our financial condition, results of operations and cash
      flows
      during the periods included in the accompanying unaudited consolidated financial
      statements. This discussion should be read in conjunction with the consolidated
      financial statements and notes included in our Annual Report on Form 10-K for
      the year ended December 31, 2006 (“2006 Annual Report”). See the discussion of
      our critical accounting policies in our 2006 Annual Report. On January 1, 2007,
      we adopted the provisions of FASB Interpretation No. 48, *Accounting for
      Uncertainty in Income Taxes*, which is discussed in Note 5 to the
      consolidated financial statements contained in this report.





**Forward-Looking
      Information**





This
      Quarterly Report on Form 10-Q contains various forward-looking statements (as
      such term is defined in the Private Securities Litigation Reform Act of 1995)
      that are based on information currently available to the management of
      Insituform Technologies, Inc. and on management’s beliefs and assumptions. When
      used in this document, the words “anticipate,” “estimate,” “believe,” “plan,”
and similar expressions are intended to identify forward-looking statements,
      but
      are not the exclusive means of identifying such statements. Such statements
      are
      subject to risks and uncertainties and our actual results may vary materially
      from those anticipated, estimated or projected due to a number of factors.
      Such
      factors include the competitive environment for our products and services,
      the
      availability and pricing of raw materials used in our operations, increased
      competition upon expiration of our patents or the inadequacy of one or more
      of
      our patents to protect our operations, the geographical distribution and mix
      of
      our work, our ability to attract business at acceptable margins, the strength
      of
      our marketing and sales skills, foreseeable and unforeseeable issues in projects
      that make it difficult or impossible to meet projected margins, the timely
      award
      or cancellation of projects, our ability to maintain adequate insurance coverage
      for our business activities, political circumstances impeding the progress
      of
      our work, our ability to remain in compliance with the financial covenants
      included in our financing documents, the regulatory environment, weather
      conditions, the outcome of pending litigation, our ability to enter new markets
      and implement our global growth initiatives, the accuracy of our current
      estimates of aggregate fair value of the tunneling segment’s fixed assets that
      will be realizable in sales transactions, the accuracy of our current
      projections of the cash costs of lease termination or buyout payments, employee
      retention incentives and severance benefits and other shutdown expenses, our
      ability to complete the tunneling segment’s existing contracts on a timely and
      profitable basis, our ability to redeploy the net value of the tunneling
      segment’s fixed assets into our rehabilitation and Tite Liner® business segments
      on an efficient and profitable basis and other factors set forth in reports
      and
      other documents filed by us with the Securities and Exchange Commission from
      time to time. We do not assume a duty to update forward-looking statements.
      Please use caution and do not place reliance on forward-looking
      statements.





**Executive
      Summary**





Insituform
      Technologies, Inc. is a worldwide company specializing in trenchless
      technologies to rehabilitate, replace, maintain and install underground pipes.
      We have three principal operating segments: rehabilitation, tunneling, and
      Tite
      Liner®. These segments have been determined based on the types of products sold,
      and each is reviewed and evaluated separately. While we use a variety of
      trenchless technologies, the Insituform® cured-in-place-pipe (“CIPP”) process
      contributed 76.2% of our revenues in the first six months of 2007 and 71.1%
      of
      our revenues in the first six months of 2006.





Revenues
      are generated principally in the United States, Canada, the Netherlands, the
      United Kingdom, France, Switzerland, Mexico, Spain, Chile, Belgium, Poland
      and
      Romania and include product sales and royalties from our joint ventures in
      Europe and Asia, and our unaffiliated licensees and sub-licensees throughout
      the
      world. The United States remains our single largest market, representing
      approximately 73.1% of total revenue in the first six months of 2007 and 77.0%
      of total revenue in the first six months of 2006. See Note 7 to the consolidated
      financial statements contained in this report for additional segment and
      geographic information and disclosures.




19








**Results
      of Operations**– *Three and Six Months Ended June 30, 2007 and
      2006*





Key
      financial data for each of the segments and periods presented is as follows
      (dollars in thousands):





**Three
      Months Ended June 30, 2007**





**Segment**
            
            **Revenues**
            
            
            **Gross**
              **Profit**
            
            
            **Gross**
              **Profit**
              **Margin**
            
            
            **Operating**
              **Expenses**
            
            
            **Operating**
              **Income
                (Loss)**
            
            
            **Operating**
              **Income
                (Loss)**
              **Margin**Rehabilitation
            
            $
            114,281
            
            
            $
            23,536
            
            
            
            20.6
            %
            
            $
            21,031
            
            
            $
            2,505
            
            
            
            2.2
            %Tunneling
            
            
            19,739
            
            
            
            1,844
            
            
            
            9.3
            
            
            
            1,902
            
            
            
            (58
            )
            
            
            -0.3Tite
                Liner®
            
            
            10,688
            
            
            
            4,514
            
            
            
            42.2
            
            
            
            1,707
            
            
            
            2,807
            
            
            
            26.3Total
            
            $
            144,708
            
            
            $
            29,894
            
            
            
            20.7
            %
            
            $
            24,640
            
            
            $
            5,254
            
            
            
            3.6
            %








**Three
      Months Ended June 30, 2006**





**Segment**
            
            **Revenues**
            
            
            **Gross**
              **Profit**
            
            
            **Gross**
              **Profit**
              **Margin**
            
            
            **Operating**
              **Expenses**
            
            
            **Operating**
              **Income
                (Loss)**
            
            
            **Operating**
              **Income
                (Loss)**
              **Margin**Rehabilitation
            
            $
            125,218
            
            
            $
            29,174
            
            
            
            23.3
            %
            
            $
            21,899
            
            
            $
            7,275
            
            
            
            5.8
            %Tunneling
            
            
            14,458
            
            
            
            166
            
            
            
            1.1
            
            
            
            2,260
            
            
            
            (2,094
            )
            
            
            -14.5Tite
                Liner®
            
            
            14,525
            
            
            
            4,721
            
            
            
            32.5
            
            
            
            1,717
            
            
            
            3,004
            
            
            
            20.7Total
            
            $
            154,201
            
            
            $
            34,061
            
            
            
            22.1
            %
            
            $
            25,876
            
            
            $
            8,185
            
            
            
            5.3
            %








**Six
      Months Ended June 30, 2007**





**Segment**
            
            **Revenues**
            
            
            **Gross**
              **Profit**
            
            
            **Gross**
              **Profit**
              **Margin**
            
            
            **Operating**
              **Expenses(1)**
            
            
            **Operating**
              **Income**
              **(Loss)(1)**
            
            
            **Operating**
              **Income
                (Loss)**
              **Margin**Rehabilitation
            
            $
            217,601
            
            
            $
            38,953
            
            
            
            17.9
            %
            
            $
            42,569
            
            
            $
            (3,616
            )
            
            
            -1.7
            %Tunneling
            
            
            35,706
            
            
            
            2,032
            
            
            
            5.7
            
            
            
            20,825
            
            
            
            (18,793
            )
            
            
            -52.6Tite
                Liner®
            
            
            22,349
            
            
            
            9,479
            
            
            
            42.4
            
            
            
            3,317
            
            
            
            6,162
            
            
            
            27.6Total
            
            $
            275,656
            
            
            $
            50,464
            
            
            
            18.3
            %
            
            $
            66,711
            
            
            $
            (16,247
            )
            
            
            -5.9
            %








**Six
      Months Ended June 30, 2006**





**Segment**
            
            **Revenues**
            
            
            **Gross**
              **Profit
                (Loss)**
            
            
            **Gross**
              **Profit
                (Loss)**
              **Margin**
            
            
            **Operating**
              **Expenses**
            
            
            **Operating**
              **Income
                (Loss)**
            
            
            **Operating**
              **Income
                (Loss)**
              **Margin**Rehabilitation
            
            $
            236,876
            
            
            $
            54,508
            
            
            
            23.0
            %
            
            $
            40,772
            
            
            $
            13,736
            
            
            
            5.8
            %Tunneling
            
            
            33,842
            
            
            
            (450
            )
            
            
            -1.3
            
            
            
            4,673
            
            
            
            (5,123
            )
            
            
            -15.1Tite
                Liner®
            
            
            27,047
            
            
            
            8,668
            
            
            
            32.0
            
            
            
            3,318
            
            
            
            5,350
            
            
            
            19.8Total
            
            $
            297,765
            
            
            $
            62,726
            
            
            
            21.1
            %
            
            $
            48,763
            
            
            $
            13,963
            
            
            
            4.7
            %







**_____________**




(1)
              Consolidated
                  and tunneling operating expenses for the six months ended June
                  30, 2007
                  include $16.8 million in charges associated with the closure of
                  our
                  tunneling business
   20




The
        following table summarizes the increases (decreases) in key financial data
        for
        the three and six months ended June 30, 2007 as compared with the same periods
        in 2006 (dollars in thousands):


**Three
                Months Ended**
              **June
                30, 2007 vs. 2006**
            
            
            **Six
                Months Ended**
              **June
                30, 2007 vs. 2006****Total**
              **Increase**
              **(Decrease)**
            
            
            **Percentage**
              **Increase**
              **(Decrease)**
            
            
            **Total**
              **Increase**
              **(Decrease)**
            
            
            **Percentage**
              **Increase**
              **(Decrease)****Consolidated**Revenues
            
            $
            (9,493
            )
            
            
            -6.2
            %
            
            $
            (22,109
            )
            
            
            -7.4
            %Gross
                profit
            
            
            (4,167
            )
            
            
            -12.2
            
            
            
            (12,262
            )
            
            
            -19.5Operating
                expenses
            
            
            (1,236
            )
            
            
            -4.8
            
            
            
            1,105
            
            
            
            2.3Costs
                of closure of tunneling business
            
            
            –
            
            
            
            –
            
            
            
            16,843
            
            
            
            n/aOperating
                income
            
            
            (2,931
            )
            
            
            -35.8
            
            
            
            (30,210
            )
            
            
            -216.4**Rehabilitation**Revenues
            
            
            (10,937
            )
            
            
            -8.7
            
            
            
            (19,275
            )
            
            
            -8.1Gross
                profit
            
            
            (5,638
            )
            
            
            -19.3
            
            
            
            (15,555
            )
            
            
            -28.5Operating
                expenses
            
            
            (868
            )
            
            
            -4.0
            
            
            
            1,797
            
            
            
            4.4Operating
                income
            
            
            (4,770
            )
            
            
            -65.6
            
            
            
            (17,352
            )
            
            
            -126.3**Tunneling**Revenues
            
            
            5,281
            
            
            
            36.5
            
            
            
            1,864
            
            
            
            5.5Gross
                profit
            
            
            1,678
            
            
            
            1,010.2
            
            
            
            2,482
            
            
            
            551.6Operating
                expenses
            
            
            (358
            )
            
            
            -15.9
            
            
            
            (691
            )
            
            
            -14.8Costs
                of closure of tunneling business
            
            
            –
            
            
            
            –
            
            
            
            16,843
            
            
            
            n/aOperating
                income
            
            
            2,036
            
            
            
            -97.2
            
            
            
            (13,670
            )
            
            
            -266.8**Tite
                Liner®**Revenues
            
            
            (3,837
            )
            
            
            -26.4
            
            
            
            (4,698
            )
            
            
            -17.4Gross
                profit
            
            
            (207
            )
            
            
            -4.4
            
            
            
            811
            
            
            
            9.4Operating
                expenses
            
            
            (10
            )
            
            
            -0.6
            
            
            
            (1
            )
            
            
            -0.0Operating
                income
            
            
            (197
            )
            
            
            -6.6
            
            
            
            812
            
            
            
            15.2**Interest
                Expense and Taxes******Interest
                expense
            
            
            (302
            )
            
            
            -18.7
            
            
            
            (619
            )
            
            
            -18.1****Taxes
                on income
            
            
            (1,539
            )
            
            
            -54.8
            
            
            
            (9,514
            )
            
            
            -216.2








**Overview**





Consolidated
      net income was $1.6 million lower in the second quarter of 2007 than in the
      second quarter of 2006, and $20.6 million lower in the first six months of
      2007
      than in the first six months of 2006. During the first six months of 2007,
      charges of $16.8 million (pre-tax) related to the tunneling closure were
      recorded. Total operating loss for the tunneling segment was $18.8 million
      in
      the first six months of 2007. The decision to close this business, and the
      impact of the related charges, are more fully described in Note 6 to the
      consolidated financial statements contained herein.





Aside
      from the tunneling closure charges, the decrease in consolidated net income
      for
      the first six months of 2007 was principally due to lower revenues in the
      rehabilitation and Tite Liner® segments, along with weaker gross profit margins
      in our rehabilitation business caused by weakness in the U.S. sewer
      rehabilitation market. This weakness resulted not only from shortfalls in
      backlog available for our crews, but also from the compression of margins due
      to
      increased competitive pricing pressure.





21


*Intellectual
      Property and Other Legal Matters*




In
      the
      past few years, we have increased our emphasis on protecting the intellectual
      property that is at the core of our business. As part of this effort, we have
      actively pursued a number of legal proceedings seeking to collect damages and
      to
      enforce other remedies against third parties based upon patent infringement,
      breach of license and implied license agreements, and unauthorized use of trade
      secrets involving our proprietary intellectual property.





In
      one
      such case filed against Cat Contracting, Inc., Michigan Sewer Company and
      FirstLiner USA, Inc. in the United States District Court in Houston, Texas,
      we
      had received a judgment of $9.5 million in 1999 based upon the infringement
      of
      certain in-liner patents we owned. Upon subsequent appeal, the finding of
      infringement was upheld, but the award of damages, including the finding of
      willfulness, was subject to rehearing. We believed that we had a strong position
      in upholding the original damage award and, after investigation, we also
      concluded that the defendants had a viable source to collect all or a portion
      of
      the award, if confirmed. On the basis of these determinations, we decided to
      aggressively pursue the rehearing on damages. The damages rehearing was
      completed in the third quarter of 2006, and we currently are awaiting the
      court’s decision. No receivable related to this matter has been recorded in the
      consolidated financial statements as of June 30, 2007.





In
      June
      2005, after investigation, we commenced a lawsuit in the United States District
      Court in Memphis, Tennessee against our long-time international partner, Per
      Aarsleff A/S, a Danish public company, and certain of its subsidiaries and
      affiliates. The suit alleges breach by these entities of license agreements
      and
      implied license agreements with us involving our proprietary intellectual
      property relating to the Insituform® CIPP process. We seek monetary damages for
      breach of our license agreements and implied license agreements between the
      Per
      Aarsleff entities and our company and for royalties owed by the Per Aarsleff
      entities to us under these agreements. In 2006, we amended our complaint against
      the Per Aarsleff entities to include additional damage claims based upon Per
      Aarsleff’s use of our trade secrets in its Danish tube manufacturing facility.
      Our amended complaint also seeks an injunction against Per Aarsleff’s continued
      operation of the tube manufacturing facility. Based upon the results of audits
      performed by us at Per Aarsleff’s facilities in Denmark, Finland, Sweden and
      Poland, on May 25, 2007 the Company amended its lawsuit in Tennessee to allege
      that Per Aarsleff committed fraud in its underreporting as well as misreporting
      of installation contract revenues for the years 1999-2004. As a result of the
      addition of the fraud claims, the Company also is now seeking punitive damages
      in addition to actual damages. In April 2006, we filed a separate patent
      infringement action in Denmark against Per Aarsleff seeking to enjoin its
      continued use of an inversion device covered by one of our European patents.
      We
      also have filed separate legal actions in Germany against Per Aarsleff relating
      to its conduct involving our joint venture company in Germany and with respect
      to transactions between Per Aarsleff and our German joint venture company,
      which
      we believe were at prices other than arms’-length. We estimate the aggregate
      claims in these matters to be in excess of $20.0 million; however, no claims
      receivable has been recorded in our consolidated financial statements. Due
      to
      the uncertainties of litigation, as well as issues regarding the collectibility
      of damage awards, there can be no assurance regarding these litigations at
      this
      time or as to the amount of money, if any, that we may ultimately recover
      against Per Aarsleff. The Memphis case currently is set for trial in the second
      quarter of 2008.





In
      June
      2005, we filed a petition in State Court in St. Louis County, Missouri against
      Reynolds, Inc., certain of its subsidiaries and affiliates and an officer of
      Reynolds, Inc. The case subsequently was removed to the United States District
      Court in St. Louis. The suit alleged that Reynolds, among other things, (i)
      tortuously interfered with a non-competition and confidentiality agreement
      we
      had with a former employee and (ii) misappropriated our trade secrets. In April
      2005, the St. Louis County Court had entered a temporary injunction against
      our
      former employee, finding that he had violated the terms of his non-competition
      and confidentiality agreement with us and had retained, misappropriated and
      disseminated to Reynolds, Inc. our property for the benefit of Reynolds. In
      light of the court’s April 2005 findings, we amended our petition to add
      Reynolds as a defendant in the action. On May 26, 2007, Reynolds and we settled
      this lawsuit. In connection therewith, Reynolds paid us $0.7
      million.




As
      discussed in previous reports, we also are vigorously pursuing a number of
      tunneling claims, and continue to incur significant legal costs and expenses
      in
      prosecuting such actions. As of June 30, 2007, we had approximately $16.9
      million in tunneling claims, of which approximately $6.8 million has been
      recognized.





We
      have
      recorded significant expenses, including attorneys’ fees and other litigation
      costs, in connection with the prosecution of these intellectual property
      lawsuits, tunneling claims and other legal matters. For the six months ended
      June 30, 2007 and 2006, we incurred attorneys’ fees and litigation costs net of
      recoveries described above of approximately $2.6 million and $3.1 million,
      respectively, with respect to these lawsuits and other legal matters. Other
      than
      $6.8 million and $7.4 million in receivables at June 30, 2007 related to
      tunneling claims and our claim against our excess insurance carrier *(see
      Note 9 “Boston Installation”)*, respectively, we have not recorded any
      receivable related to these lawsuits. We have vigorously pursued these lawsuits
      based upon our business judgment that the possibility of recovery of substantial
      damages, the granting of the requested injunctive relief and other ancillary
      benefits arising from our proactive protection of our intellectual property,
      justifies the expenses previously incurred and currently projected. Because
      of
      the substantial uncertainty at this time with respect to the liability and/or
      damages outcomes, including the collectibility of any damages awarded, we cannot
      estimate a dollar amount or range of recovery from these lawsuits at this
      time.








**Rehabilitation
      Segment**





*Revenues*


Revenues
      decreased by 8.7% in the rehabilitation segment in the second quarter of 2007
      compared to the second quarter of 2006 due primarily to persistently weak market
      conditions in the United States as described below. Additionally, in recent
      quarters, there has been a larger percentage of smaller-diameter installation
      projects in the U.S. marketplace. These trends also have contributed to lower
      revenue. Rehabilitation contract backlog increased 3.2% from March 31, 2007
      to
      June 30, 2007 and was 3.4% higher at June 30, 2007 than at the same point last
      year. Revenues were 51.6% and 8.6% higher in Canada and Europe, respectively,
      in
      the second quarter of 2007 compared to the second quarter of 2006.





Revenues
      decreased by 8.1% in the rehabilitation segment in the first six months of
      2007
      compared to the first six months of 2006 due to the drivers discussed above.
      Rehabilitation contract backlog was 4.3% lower at the end of the second quarter
      compared to the beginning of the first quarter of 2007. Revenues were 65.4%
      and
      13.5% higher in Canada and Europe, respectively, in the first six months of
      2007
      compared to the first six months of 2006.





As
      previously announced, based on our internal market visibility, along with
      various market surveys, the U.S. sewer rehabilitation market has been flat
      to
      declining in the last year. Current projections for 2007 indicate spending
      growth in this market to be down as much as 10%. These market conditions could
      persist for the foreseeable future and we are prepared to weather these
      conditions. We previously announced that we are taking several actions to
      restore profitability and to stimulate growth going forward, including the
      expansion of sewer rehabilitation work outside of the United States,
      acceleration of the growth of Insituform BlueTM by investing further in product
      development, adding project support and business development personnel to pursue
      worldwide opportunities, and proactively looking for ways to stimulate increased
      spending among our customers. In the meantime, to ensure that we continue to
      achieve the productivity gains that we experienced in 2006, we have reduced
      the
      level of U.S. sewer rehabilitation crew resources to better reflect current
      demand. We are also redirecting certain resources to international operations,
      Insituform BlueTM and other potential growth segments.





*Gross
      Profit and Margin*


Rehabilitation
      gross profit decreased by 19.3% in the second quarter of 2007 compared to the
      second quarter of 2006 primarily due to the lower revenues described above.
      The
      weak market conditions in U.S. sewer rehabilitation also have resulted in
      heightened competitive pricing pressure that has compressed gross profit
      margins. The gross profit margin percentage decreased by 2.7 margin points
      to
      20.6% in the second quarter of 2007 from 23.3% in the second quarter of
      2006.





Rehabilitation
      gross profit decreased by 28.5% in the first six months of 2007 compared to
      the
      same period in 2006, largely due to the factors as described above.





*Operating
      Expenses*


Operating
      expenses decreased 4.0% in the second quarter of 2007 compared to the second
      quarter of 2006 primarily due to cost controls in response to weaker revenues.
      In the second quarter of 2007, we received $0.7 million in a legal recovery
      from
      Reynolds, Inc., which was recorded as a credit to operating expenses as a legal
      fee recovery. Operating expenses, as a percentage of revenue, were 18.4% in
      the
      second quarter of 2007 compared to 17.5% in the second quarter of
      2006.





Operating
      expenses increased 4.4% in the first six months of 2007 compared to the first
      six months of 2006. We incurred increased expenses related to our increased
      focus on Insituform BlueTM, increased business development efforts in
      international markets and increased investments in marketing and technology
      development. Operating expenses, as a percentage of revenue, were 19.6% in
      the
      first six months of 2007 compared to 17.2% in the first six months of
      2006.





*Operating
      Income and Margin*


Lower
      revenues and gross profit, offset slightly by lower operating expenses, combined
      to cause operating income to decrease by $4.8 million in the second quarter
      of
      2007 compared to the second quarter of 2006. Rehabilitation operating margin,
      which is operating income as a percentage of revenue, declined to 2.2% in the
      second quarter of 2007 compared to 5.8% in the second quarter of
      2006.





The
      factors described above caused an operating loss for the first six months of
      2007, which represented a 126.3% decrease in operating results as compared
      to
      the corresponding period in 2006. The operating margin decreased to (1.7)%
      in
      the first six months of 2007, compared to 5.8% in the first six months of
      2006.








Insituform
      BlueTM





During
      2006, we launched a new potable water infrastructure division under the name
      Insituform BlueTM. Under Insituform BlueTM, we operate with a variety of
      technologies geared to the global drinking water market. In the first six months
      of 2007, Insituform BlueTM did not have a material effect on our consolidated
      results of operations. Insituform BlueTM is expected to generate modest operating
      losses for the next few years as we establish this business.





**Tunneling
      Segment**





*Revenues*


Tunneling’s
      revenues were 36.5% higher in the second quarter of 2007 compared to the second
      quarter of 2006 as the number of ongoing projects increased year over year.
      As
      of June 30, 2007, backlog decreased significantly from the prior quarters as
      we
      progress towards the closure of the tunneling operation. Backlog at June 30,
      2007 was $35.0 million versus $60.6 million and $75.7 million at March 31,
      2007
      and December 31, 2006, respectively.





For
      the
      first six months of 2007, tunneling revenues increased by 5.5% over the same
      period in the prior year as a result of more active project work. In the prior
      year, the tunneling operation was working on a number of projects that were
      virtually at completion, whereas, in the current period, there were many
      projects ramping up and in earlier stages of completion.





*Gross
      Profit and Margin*


Tunneling’s
      gross profit was $1.8 million in the second quarter of 2007 compared to gross
      profit of $0.2 million in the second quarter of 2006. The gross profit in the
      second quarter of 2007 was primarily due to increased revenues and lower
      underutilized equipment costs, as we recorded impairment charges in the first
      quarter of 2007 related to fixed assets and equipment operating leases. As
      a
      result, there were lower depreciation and lease expenses incurred in the second
      quarter of 2007. In addition, the current contract backlog is carrying better
      gross margin than in the same period in 2006.





Tunneling’s
      gross profit was $2.0 million in the first six months of 2007 compared to a
      gross loss of $0.5 million in the first six months of 2006 primarily due
      principally to the reasons mentioned above.





*Operating
      Expenses*


Operating
      expenses, excluding tunneling closure charges, decreased by 15.9% in the second
      quarter of 2007 and by 14.8% in the first six months of 2007, each compared
      to
      the same periods in 2006. Operating expenses were lower in the second quarter
      and first six months of 2007 due
      to continued reductions in administrative staffing and related costs as a result
      of the winding down of the business. Operating expenses as a percentage
      of revenue were 9.6% and 11.2% in the second quarter and first six months of
      2007, respectively, compared to 15.6% and 13.8% in the same periods of 2006,
      respectively.





*Tunneling
      Closure Charges*


In
      the
      first six months of 2007, we recorded $16.8 million (pre-tax) of charges
      associated with the closure of the tunneling business, which closure was
      announced on March 29, 2007. See Note 6 for a discussion regarding these
      charges.




*Operating
      Loss and Margin*


Tunneling’s
      operating loss decreased by $2.0 million to $0.1 million in the second quarter
      of 2007 compared to the second quarter of 2006 due to continued reductions
      in
      administrative staffing and related costs. Tunneling’s operating margin was
      (0.3)% in the second quarter of 2007 compared to (14.5)% in the second quarter
      of 2006.





Tunneling’s
      operating loss increased
      $13.7 million in the first six months of 2007 compared to the first six months
      of 2006 due primarily to the charges recorded in the first six months of 2007
      related to the closure of the tunneling business. Tunneling closure charges
      were
      $16.8 million during the first six months of 2007. Tunneling’s operating loss
      without these charges was $2.0 million, or $3.2 million less than last year’s
      second quarter, as projects were more profitable in 2007 and operating expenses
      were lower.





24


A
      tabular
      presentation of the costs of closure and the effect on the tunneling segment’s
      operating loss are set forth below (in thousands):





**Six
                Months Ended**
            
            
            **Six
                Months Ended****June
                30, 2007**
            
            
            **June
                30, 2006**Operating
                loss
            
            $
            (18,793
            )
            
            $
            (5,123
            )Costs
                of closure of tunneling business
            
            
            (16,843
            )
            
            ─Operating
                loss excluding closure costs
            
            $
            (1,950
            )
            
            $
            (5,123
            )





**Tite
      Liner® Segment**





*Revenues*


Tite
      Liner® revenues decreased by 26.4% in the second quarter of 2007 compared to the
      second quarter of 2006 due primarily to a reduction in work in South America.
      Contract backlog in the Tite Liner ® segment was $5.6 million lower at the
      beginning of the second quarter of 2007 compared to the beginning of the second
      quarter of 2006 with $3.4 million of the decrease in South America. Tite
      Liner®’s revenues from North American (U.S. and Canada) and South American
      operations were $1.4 million and $2.3 million, respectively, lower during the
      second quarter of 2007 compared to the second quarter of 2006.





Tite
      Liner® revenues were 17.4% lower in the first six months of 2007 compared to the
      same period last year due primarily to the reasons listed above.





*Gross
      Profit and Margin*


Despite
      a
      decrease in second quarter 2007 revenues, gross profit was essentially flat
      in
      the second quarter of 2007 compared to the second quarter of 2006 due to
      stronger gross profit margins from pricing and efficiencies gained throughout
      the last two years and the favorable closeout of a number of projects. Gross
      profit margins were 42.2% in the second quarter of 2007 compared to 32.5% in
      the
      second quarter of 2006.





Gross
      profit was 9.4% higher in the first six months of 2007 compared to the first
      six
      months of 2006 due to favorable closeouts of projects during the period. Tite
      Liner®’s gross profit margin percentages were 42.4% and 32.0% in the first six
      months of 2007 and 2006, respectively. The higher gross profit margin in the
      second quarter of 2007 was due principally to improved margins worldwide
      resulting from the aforementioned project closeouts and improved operational
      efficiencies. Gross profit margins were also higher at 42.4% in the first six
      months of 2007 compared to 32.0% in the first six months of 2006.





*Operating
      Expenses*


Operating
      expenses were essentially unchanged in the second quarter of 2007 compared
      to
      the second quarter of 2006. As a percentage of revenue, operating expenses
      were
      16.0% in the second quarter of 2007 compared to 11.8% in the second quarter
      of
      2006. Operating expenses were higher as a percentage of revenue due to lower
      revenues in the second quarter of 2007 compared to the second quarter of
      2006.





Operating
      expenses were essentially unchanged in the first six months of 2007 compared
      to
      the first six months of 2006. As a percentage of revenue, operating expenses
      were 14.8% in the first six months of 2007 compared to 12.3% in the first six
      months of 2006. Operating expenses were higher as a percentage of revenue due
      to
      lower revenues in the first six months of 2007 compared to the first six months
      of 2006. This also was impacted by increased expenses due primarily to
      additional staffing and additional corporate expenses to support anticipated
      growth in the Tite Liner® business.





*Operating
      Income and Margin*


Operating
      income was 6.6% lower in the second quarter of 2007 compared to the second
      quarter of 2006 despite the 26.4% decrease in revenues. Our slightly higher
      gross profit on stronger gross margins prevented a steeper decrease in operating
      income. Operating margin, which is operating income as a percentage of revenue,
      strengthened to 26.3% in the second quarter of 2007 compared to 20.7% in the
      second quarter of 2006.





Despite
      lower revenues through the first six months of 2007, operating income increased
      by 15.2% during the period compared to the first six months of 2006. Due to
      our
      strengthening gross profit margin, the operating margin likewise increased
      to
      27.6% in the first six months of 2007 compared to 19.8% the first six months
      of
      2006.





25


**Interest
      and Other Income (Expense)**





*Interest
      Expense*


Interest
      expense decreased $0.3 million and $0.6 million in the second quarter and first
      six months of 2007, respectively, primarily related to the payoff on our Senior
      Notes, Series A, in February 2007.




*Interest
      Income*


Interest
      income was $0.7 million and $1.7 million in the second quarter and first six
      months of 2007, respectively, compared to $1.3 million and $1.8 million in
      the
      second quarter and first six months of 2006, respectively. The fluctuations
      are
      driven by interest rates on deposits and adjustments to pre-judgment interest
      on
      an insurance claim receivable from our excess insurance coverage carrier in
      the
      first six months of 2007.





*Other
      Income (Expense)*


Other
      income (expense) was $0.1 million of expense and $0.7 million of income in
      the
      second quarter and first six months of 2007, respectively, compared to other
      income of $0.3 million and $0.4 million in the same periods in 2006. The primary
      components of other income in the second quarter of 2007 included gains of
      $1.1
      million on the disposition of property and equipment, partially offset by losses
      in foreign currency related to transactions of $0.8 million. Likewise, gains
      of
      $1.6 million were recorded on dispositions of property and equipment in the
      first six months of 2007, partially offset by losses in foreign currency related
      transactions of $0.1 million.





**Taxes
      on Income**





Taxes
      on
      income decreased in the second quarter and first six months of 2007 compared
      to
      the same periods in 2006 due primarily to lower pre-tax income. Our effective
      tax rate was 27.8% and 30.5% in the second quarter and first six months of
      2007,
      respectively, compared to 34.5% in both of the corresponding periods in 2006.
      The variances in the effective tax rates reflect differences in pre-tax income
      in various foreign tax jurisdictions with lower tax rates.





**Equity
      in Earnings (Losses) of Affiliated Companies**





In
      the
      second quarter of 2007, equity in earnings (losses) of affiliated companies
      was
      a loss of $14,000, compared to income of $0.3 million in the second quarter
      of
      2006. For the first six months of 2007, equity in earnings (losses) of
      affiliated companies was a loss of $0.3 million, as compared to income of $0.3
      million in the first six months of 2006. We have recently invested in start-up
      joint ventures in Hong Kong and Australia, and losses have been incurred in
      the
      early stages of start-up. In addition, earnings in our German joint venture
      in
      2007 have been lower than in 2006, as market conditions in sewer rehabilitation
      have been weaker in recent months.





**Contract
      Backlog**





Contract
      backlog is our expectation of revenues to be generated from received, signed
      and
      uncompleted contracts, the cancellation of which is not anticipated at the
      time
      of reporting. Contract backlog excludes any term contract amounts for which
      there is not specific and determinable work released and projects where we
      have
      been advised that we are the low bidder, but have not formally been awarded
      the
      contract. The following table sets forth our consolidated backlog by
      segment:





**Backlog**
            **June
                30,**
              **2007**
            **March
                31,**
              **2007**
            **December
                31,**
              **2006**
            **September
                30,**
              **2006**
            **June
                30,**
              **2006***(in
                millions)*Rehabilitation
            $            193.1
            $            187.2
            $              201.7
            $              201.2
            $          186.8Tunneling
            35.0
            60.6
            75.7
            80.7
            70.1Tite
                Liner®
            12.5
            14.5
            12.8
            13.2
            15.6Total
            $            240.6
            $            262.3
            $              290.2
            $              295.1
            $          272.5





The
      dollar amount of the backlog is not necessarily indicative of future revenues
      relative to the performance of such work. Although backlog represents only
      those
      contracts that are considered to be firm, there can be no assurance that
      cancellation or scope adjustments will not occur with respect to such
      contracts.





As
      a
      result of our decision to close the tunneling operation, discussed above,
      backlog in the tunneling segment will continue to decline throughout the
      remainder of 2007 as current projects are completed and new projects are not
      being bid. We currently anticipate that all projects will be completed by
      mid-2008, with the majority of the work to be completed in 2007.





26


**Liquidity
      and Capital Resources**





***Cash
      and Equivalents***





**June
                30, 2007**
            **December
                31, 2006***(in
                thousands)*Cash
                and cash equivalents
            $       
                73,836
            $      
                 96,393Cash
                restricted – in escrow
            2,126
            934





Restricted
      cash is cash held in escrow related to deposits made in lieu of retention on
      specific projects performed for municipalities and state agencies.





*Sources
      and Uses of Cash*


We
      expect
      the principal use of funds for the foreseeable future will be for capital
      expenditures, working capital, debt servicing and investments. Our primary
      source of cash is operating activities. Besides operating activities, we
      occasionally borrow under our line of credit to fund operating activities,
      including working capital investments. Information regarding our cash flows
      for
      the six months ended June 30, 2007 and 2006 is further discussed below and
      is
      presented in our consolidated statements of cash flows contained in this
      report.





*Cash
      Flows from Operations*


Operating
      activities used $4.5 million in the first six months of 2007 compared to $18.2
      million provided in the first six months of 2006. Changes in operating assets
      and liabilities used $8.4 million in the first six months of 2007 compared
      to
      $0.8 million in the same period last year. Compared to December 31, 2006, net
      accounts receivable at June 30, 2007, including retainage and costs and
      estimated earnings in excess of billings (unbilled receivables), decreased
      by
      $2.1 million, inventories increased by $1.4 million and accounts payable and
      accrued expenses decreased by $5.6 million. Depreciation was slightly lower
      in
      the first six months of 2007 compared to the first six months of 2006 as a
      result of a lower level of fixed assets in 2007 principally in the tunneling
      segment. During the first six months of 2007, pre-tax charges related to the
      tunneling closure were recorded totaling $16.8 million, of which $12.0 million
      was related to non-cash or accrued but unpaid impairment charges and expenses
      recorded during the quarter. See Note 6 to the consolidated financial statements
      contained in this report for a discussion of these charges.





*Cash
      Flows from Investing Activities*


In
      the
      first six months of 2007, cash used by investing activities included $10.2
      million in capital expenditures partially offset by $1.3 million of proceeds
      received from the sale of fixed assets. Capital expenditures were primarily
      for
      equipment used for our steam-inversion process and replacement of older
      equipment, primarily in the United States. In addition, $2.6 million was
      invested in the remodeling of an existing facility to be our new corporate
      headquarters in Chesterfield, Missouri. In the first six months of 2006, $8.6
      million was spent on capital expenditures, which primarily related to equipment
      used for our steam-inversion process.





*Cash
      Flows from Financing Activities*


In
      the
      first six months of 2007, cash used in financing activities primarily included
      our regularly scheduled Senior Note amortization payment of $15.7
      million.





During
      the first six months of 2007, we repaid $1.2 million on notes payable as
      compared to $2.8 million in the first six months of 2006. During the first
      six
      months of 2007, we received $1.1 million from the exercise of stock options
      as
      compared to $3.8 million in the first six months of 2006.





In
      March
      2007, we borrowed $5.0 million on our credit facility to fund U.S. operating
      activities. These amounts were repaid in April 2007. There were no outstanding
      borrowings on the credit facility at June 30, 2007 or 2006.





***Financings***





See
      Note
      10 to the consolidated financial statements contained in this report for a
      discussion regarding our financings and debt covenant compliance.





We
      believe we have adequate resources and liquidity to fund future cash
      requirements and debt repayments with cash generated from operations, existing
      cash balances, additional short- and long-term borrowing and the sale of assets,
      for the next twelve months.





27


**Disclosure
      of Financial Obligations and Commercial Commitments**




We
      have
      entered into various financial obligations and commitments in the course of
      our
      ongoing operations and financing strategies. Financial obligations are
      considered to represent known future cash payments that we are required to
      make
      under existing contractual arrangements, such as debt and lease agreements.
      These obligations may result from both general financing activities or from
      commercial arrangements that are directly supported by related revenue-producing
      activities. Commercial commitments represent contingent obligations, which
      become payable only if certain pre-defined events were to occur, such as funding
      financial guarantees. See Note 9 to the consolidated financial statements
      contained in this report for further discussion.





The
      following table provides a summary of our financial obligations and commercial
      commitments as of June 30, 2007 (in thousands). This table includes cash
      obligations related to principal outstanding under existing debt agreements
      and
      operating leases.





**Payments
                Due by Period****Cash
                Obligations(1)(2)(3)**
            **Total**
            **2007**
            **2008**
            **2009**
            **2010**
            **2011**
            **Thereafter**Long-term
                debt
            $
                 65,001
            1
            -
            -
            -
            -
            $65,000Interest
                on long-term debt
            25,506
            2,125
            4,251
            4,251
            4,251
            4,251
            6,377Operating
                leases
            30,510
            6,414
            10,933
            7,999
            2,849
            813
            1,502Total
                contractual cash obligations
            $121,017
            $8,540
            $15,184
            $12,250
            $7,100
            $5,064
            $72,879





(1)
            Cash
                obligations are not discounted. See Notes 9 and 10 to the consolidated
                financial statements contained in this report regarding commitments
                and
                contingencies and financings, respectively.(2)
            A
                resin supply contract with one of our vendors is excluded from this
                table.
                See “Commodity Risk” under Part I, Item 3 of this report for further
                discussion.(3)
            As
                of June 30, 2007, no amounts were borrowed on the $35.0 million credit
                facility. The available balance was $19.5 million, and the commitment
                fee
                was 0.175%. The remaining $15.5 million was used for non-interest
                bearing
                letters of credit, $14.5 million of which were collateral for insurance
                and $1.0 million for work
                performance.





**Off-Balance
      Sheet Arrangements**





We
      use
      various structures for the financing of operating equipment, including
      borrowing, operating and capital leases, and sale-leaseback arrangements. All
      debt, including the discounted value of future minimum lease payments under
      capital lease arrangements, is presented in the balance sheet. Our future
      commitments were $121.0 million at June 30, 2007. We also have exposure under
      performance guarantees by contractual joint ventures and indemnification of
      the
      surety. However, we have never experienced any material adverse effects to
      our
      consolidated financial position, results of operations or cash flows relative
      to
      these arrangements. All of our unconsolidated joint ventures are accounted
      for
      using the equity method. We have no other off-balance sheet financing
      arrangements or commitments. See Note 9 to consolidated financial statements
      regarding commitments and contingencies.





**New
      Accounting Pronouncements**





For
      a
      discussion of new accounting pronouncements see Note 11 to the consolidated
      financial statements contained in this report.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





**Market
      Risk**





We
      are
      exposed to the effect of interest rate changes and of foreign currency and
      commodity price fluctuations. We currently do not use derivative contracts
      to
      manage these risks.





**Interest
      Rate Risk**





The
      fair
      value of our cash and short-term investment portfolio at June 30, 2007
      approximated carrying value. Given the short-term nature of these instruments,
      market risk, as measured by the change in fair value resulting from a
      hypothetical 10.0% change in interest rates, would not be material.





Our
      objectives in managing exposure to interest rate changes are to limit the impact
      of interest rate changes on earnings and cash flows and to lower overall
      borrowing costs. To achieve these objectives, we maintain fixed rate debt.
      The
      fair value of our long-term debt, including current maturities and the amount
      outstanding on the line of credit facility, approximated its carrying value
      at
      June 30, 2007.


28


Market
      risk was estimated to be $0.3 million as the potential increase in fair value
      resulting from a hypothetical 1.0% decrease in our debt specific borrowing
      rates
      at June 30, 2007.





**Foreign
      Exchange Risk**





We
      operate subsidiaries and are associated with licensees and affiliates operating
      solely outside of the United States, and in foreign currencies. Consequently,
      we
      are inherently exposed to risks associated with the fluctuation in the value
      of
      the local currencies compared to the U.S. dollar. At June 30, 2007, a
      substantial portion of our cash and cash equivalents were denominated in foreign
      currencies, and a hypothetical 1.0% change in currency exchange rates could
      result in an approximate $0.6 million impact to our equity through accumulated
      other comprehensive income. We continue to evaluate the use of instruments,
      such
      as forward contracts, to hedge our foreign exchange exposure.





**Commodity
      Risk**





We
      have
      exposure to the effect of limitations on supply and changes in commodity pricing
      relative to a variety of raw materials that we purchase and use in our operating
      activities, most notably, resin, fuel, pipe, fiber and concrete. We manage
      this
      risk by entering into agreements with our suppliers, as well as purchasing
      in
      bulk, when possible. We also manage this risk by continuously updating our
      estimation systems for bidding contracts so that we are able to price our
      products and services appropriately to our customers. However, we face exposure
      on contracts in process that have already been priced and are not subject to
      any
      cost adjustments in the contract. This exposure is potentially more significant
      on our longer-term projects, particularly in the tunneling segment. We do not
      currently hold or issue derivative financial instruments for hedging
      purposes.





We
      entered into a resin supply contract effective March 29, 2005, for the purchase
      and sale of certain proprietary resins we use in our North American operations.
      The contract provides for the exclusive sale of our proprietary resins by the
      vendor to us or to third parties that we designate. Under the terms of the
      contract, in June 2007, we provided written notice to terminate the contract
      effective December 31, 2007. To diversify our supplier base, we have
      solicited proposals with respect to our proprietary resins and have
      pre-qualified multiple vendors who meet our product specifications.





**Item
      4. Controls and
      Procedures**





Our
      Company’s management, under the supervision and with the participation of the
      chief executive officer (our principal executive officer) and controller (our
      principal financial officer), has conducted an evaluation of the effectiveness
      of the design and operation of our disclosure controls and procedures (as
      defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
      1934,
      as amended (the “Exchange Act”)) as of June 30, 2007. Based upon and as of the
      date of this evaluation, the chief executive officer and controller have
      concluded that our disclosure controls were effective to ensure that the
      information required to be disclosed by the Company in the reports that it
      files
      or submits under the Exchange Act (a) is recorded, processed, summarized and
      reported within the time period specified in the Securities and Exchange
      Commission’s rules and forms and (b) is accumulated and communicated to the
      Company’s management, including its principal executive and principal financial
      officers, as appropriate to allow timely decisions regarding required
      disclosure.





There
      were no changes in our internal control over financial reporting that occurred
      during the quarter ended June 30, 2007 that materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





29


**PART
      II—OTHER INFORMATION**





**Item
      1. Legal Proceedings**





In
      the
      third quarter of 2002, an accident on an Insituform CIPP Process project in
      Des
      Moines, Iowa resulted in the death of two workers and the injury of five
      workers. We fully cooperated with Iowa’s state OSHA in the investigation of the
      accident. Iowa OSHA issued a Citation and Notification of Penalty in connection
      with the accident, including several willful citations. After numerous
      administrative and judicial proceedings and appeals, including appeals to the
      Iowa Supreme Court, on June 15, 2007, the Iowa District Court entered a final
      order in the amount of $733,750 against us. We paid the assessed penalties
      on
      June 27, 2007.





We
      are
      involved in certain other actions incidental to the conduct of our business
      and
      affairs. Management, after consultation with legal counsel, does not believe
      that the outcome of any such other litigation will have a material adverse
      effect on our consolidated financial condition, results of operations or cash
      flows.





**Item
      1A. Risk Factors**





Since
      the
      filing of our Annual Report on Form 10-K for the year ended December 31, 2006,
      we have announced our decision to exit the tunneling business in an effort
      to
      improve our overall financial performance and to align better our operations
      with our long-term strategic initiatives. In connection with this decision,
      we
      intend to complete all of our current tunneling projects and to seek a buyer
      or
      buyers for the business or its related assets.





In
      our
      2006 Annual Report, we had included as a risk factor in Part I, Item 1A that
      continued under-performance by our tunneling segment could result in goodwill
      and fixed asset impairment. As a result of the announced exit and disposal
      activities, on March 29, 2007 we announced that we anticipated incurring a
      pre-tax charge of up to approximately $21 million, of which approximately $8
      million was expected to relate to cash charges relating to property, equipment
      and vehicle lease terminations and buyouts, employee termination benefits and
      retention incentives and other ancillary expenses, approximately $9 million
      was
      expected to relate to impairment of goodwill and other intangible assets, and
      approximately $4 million was expected to relate to impairment charges for fixed
      assets and equipment. As of the date of this report, the estimates have not
      changed.





Our
      above
      risk factor has materially changed in that the goodwill and fixed asset
      impairment has now been incurred. We believe that there are other risk factors
      associated with the exiting of the tunneling business, the completion of
      existing tunneling projects, the sale of the fixed assets used in the tunneling
      segment and the redeployment of the net proceeds resulting from the exiting
      of
      the tunneling business and the sale of the tunneling assets:





**Our
      current estimates as to the aggregate fair market value of the fixed assets
      of
      the tunneling segment may not be accurate.**





We
      have
      made an estimate as to the aggregate fair market value of the fixed assets
      of
      the tunneling business that could be realizable upon sale and compared this
      value to the book value of the assets on our consolidated balance sheet in
      order
      to determine the estimate of the impairment charge for the fixed assets. This
      estimate may not be accurate as to the net proceeds that we may actually obtain
      in a sale. If the net proceeds are less than our current estimate, we may incur
      further impairment charges related to the disposition of the fixed assets of
      the
      tunneling segment.


30





**Our
      current estimates of the cash expenses required to exit the tunneling business
      may not be accurate.**





We
      have
      made a current estimate of the cash charges that we anticipate incurring in
      connection with property, equipment and vehicle lease terminations and buyouts,
      employee termination benefits and retention incentives and other ancillary
      costs
      associated with the exiting of the tunneling business. This estimate may not
      be
      accurate as to the total costs that we may actually incur in the exiting of
      the
      tunneling segment. If the estimate is too low, we may incur further cash charges
      related to the exiting of the tunneling business.





**Our
      current projections on the timing for completion of our existing tunneling
      projects may not be accurate.**





We
      have
      made certain projections with respect to the timing for completion of our
      current tunneling projects. These projections may not be accurate as to the
      time
      that it will take for us to complete these tunneling projects. If some or all
      of
      the tunneling projects take longer than we have projected, these delays may
      increase costs and decrease the net profits we expect to realize on these
      projects, may lower the amounts realizable on the fixed assets used in the
      tunneling segment and may increase cash charges in the exiting of the tunneling
      business. This may, in turn, affect the amount of additional financial resources
      that we may redeploy into our rehabilitation and Tite Liner® segments, as well
      as the timing of the redeployment of these resources.





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





Information
      concerning this item was previously reported in our Quarterly Report on Form
      10-Q for the quarter ended March 31,


2007,
      which information is incorporated herein by reference.





**Item
      5. Other Information**





On
      July
      25, 2007, our Board of Directors amended our Amended and Restated By-Laws (the
      “By-Laws”), by amending and restating Section 3.02 of Article III in its
      entirety to read as follows:





“The
      Board shall consist of no less than six (6) directors and no more than fifteen
      (15) directors. The exact number of directors within the minimum and maximum
      limitations specified in the preceding sentence shall be fixed from time to
      time
      pursuant to a resolution adopted by a majority of all directors then
      serving.





Each
      director of the Corporation shall hold office until such director’s successor
      shall have been duly elected and qualified, or until the director shall have
      resigned or been removed from office in the manner hereinafter provided under
      this Article III. Notwithstanding the foregoing, the term of office of each
      director shall expire at the next annual meeting of stockholders or special
      meeting of stockholders called for the election of all of the directors, unless
      such director is re-elected by the stockholders.”





A
      copy of
      our By-Laws, as amended through July 25, 2007, is attached hereto as Exhibit
      3.3
      and incorporated herein by reference.





**Item
      6. Exhibits**





The
      exhibits required to be filed as part of this Quarterly Report on Form 10-Q
      are
      listed on the Index to Exhibits attached hereto.





31


**SIGNATURE**








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







INSITUFORM
                TECHNOLOGIES, INC.July
                31, 2007
            /s/
                David A. MartinDavid
                A. MartinVice
                President and ControllerPrincipal
                Financial and Accounting Officer














32


**INDEX
      TO EXHIBITS**





These
                exhibits are numbered in accordance with the Exhibit Table of Item
                601 of
                Regulation S-K.3.1
            Restated
                Certificate of Incorporation of the Company, as amended through April
                27,
                2005 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly
                Report on Form 10-Q for the quarter ended March 31,
                2007).3.2
            Certificate
                of Designation, Preferences and Rights of Series A Junior Participating
                Preferred Stock (incorporated by reference to Exhibit 3.1 to the
                Company’s
                Annual Report on Form 10-K for the year ended December 31,
                2001).3.3
            Amended
                and Restated By-Laws of the Company, as amended through July 25,
                2007,
                filed herewith.31.1
            Certification
                of Thomas S. Rooney, Jr. pursuant to Section 302 of the Sarbanes-Oxley
                Act
                of 2002, filed herewith.31.2
            Certification
                of David A. Martin pursuant to Section 302 of the Sarbanes-Oxley
                Act of
                2002, filed herewith.32.1
            Certification
                of Thomas S. Rooney, Jr. pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
                herewith.32.2
            Certification
                of David A. Martin pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant
                to Section 906 of the Sarbanes-Oxley Act of 2002, filed
                herewith.





33