**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
              March
                  31, 2007
 Commission
                  file number
              0-10786
 Insituform
                  Technologies, Inc.(Exact
                  name of registrant as specified in its
                  charter)
 
 
 Delaware
              
              13-3032158(State
                  or other jurisdiction ofincorporation
                  or organization)
              
              (I.R.S.
                  Employer Identification No.)
  
 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 (as defined 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 April 25, 2007Class
                  A Common Stock, $.01 par value
              
              27,276,998
  1
  **INDEX**
 
 Page
                  No.Part
                  I
              Financial
                  Information:Item
                  1.
              Financial
                  Statements (unaudited):Consolidated
                  Statements of Operations for the Three Months
                  Ended March 31, 2007 and 2006
              3Consolidated
                  Balance Sheets as of March 31, 2007 and December
                  31, 2006
              4Consolidated
                  Statements of Cash Flows for the Three Months
                  Ended March 31, 2007 and 2006
              5Notes
                  to Consolidated Financial Statements as of March 31,
                  2007
              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
              29Part
                  II
              Other
                  Information:Item
                  1.
              Legal
                  Proceedings
              30Item 1A.
              Risk
                    Factors
              30Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              31Item
                  6.
              Exhibits
              32Signatures
              33Index
                  to Exhibits
              34
  2
 *Index*
  **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
                  March 31,****2007**
              
              **2006****Revenues**
              
              $
              130,948
              
              $
              143,564**Cost
                  of revenues**
              
              
              110,378
              
              
              114,899**Gross
                  profit**
              
              
              20,570
              
              
              28,665**Operating
                  expenses**
              
              
              25,228
              
              
              22,887**Costs
                  of closure of tunneling business**
              
              
              16,843
              
              
              ─**Operating
                  (loss) income**
              
              
              (21,501
              )
              
              5,778**Other
                  (expense) income:**Interest
                  expense
              
              
              (1,493
              )
              
              (1,809
              )Interest
                  income
              
              
              949
              
              
              518Other
              
              
              741
              
              
              133**Total
                  other income (expense)**
              
              
              197
              
              
              (1,158
              )**(Loss)
                  income before (tax benefit) taxes on income**
              
              
              (21,304
              )
              
              4,620**(Tax
                  benefit) taxes on income**
              
              
              (6,382
              )
              
              1,594**(Loss)
                  income before minority interest and equity in
                  earnings**
              
              
              (14,922
              )
              
              3,026**Minority
                  interests**
              
              
              (48
              )
              
              (27
              )**Equity
                  in (losses) earnings of affiliated companies**
              
              
              (306
              )
              
              35**Net
                  (loss) income**
              
              $
              (15,276
              )
              $
              3,034**Basic
                  (loss) earnings per share**
              
              $
              (0.56
              )
              $
              0.11**Diluted
                  (loss) earnings per share**
              
              $
              (0.56
              )
              $
              0.11
  See
        accompanying notes to consolidated financial statements.
  3
 *Index*
  **INSITUFORM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(Unaudited)**
 **(in
        thousands, except share amounts)**
 ****
 **March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006****Assets****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              79,676
              
              $
              96,393Restricted
                  cash
              
              
              1,288
              
              
              934Receivables,
                  net
              
              
              85,090
              
              
              90,678Retainage
              
              
              33,247
              
              
              37,193Costs
                  and estimated earnings in excess of billings
              
              
              48,896
              
              
              41,512Inventories
              
              
              18,108
              
              
              17,665Prepaid
                  expenses and other assets
              
              
              29,388
              
              
              25,989**Total
                  current assets**
              
              
              295,693
              
              
              310,364**Property,
                  plant and equipment**,
                  less accumulated depreciation
              
              
              90,354
              
              
              90,453**Other
                  assets**Goodwill
              
              
              122,620
              
              
              131,540Other
                  assets
              
              
              19,137
              
              
              17,712**Total
                  other assets**
              
              
              141,757
              
              
              149,252**Total
                  Assets**
              
              $
              527,804
              
              $
              550,069**Liabilities
                  and Stockholders’ Equity****Current
                  liabilities**Current
                  maturities of long-term debt and notes payable
              
              $
              5,376
              
              $
              16,814Accounts
                  payable and accrued expenses
              
              
              105,631
              
              
              107,320Billings
                  in excess of costs and estimated earnings
              
              
              14,059
              
              
              12,371**Total
                  current liabilities**
              
              
              125,066
              
              
              136,505**Long-term
                  debt**,
                  less current maturities
              
              
              65,043
              
              
              65,046**Other
                  liabilities**
              
              
              8,394
              
              
              7,726**Total
                  liabilities**
              
              
              198,503
              
              
              209,277**Minority
                  interests**
              
              
              2,235
              
              
              2,181**Commitments
                  and contingencies (Note 9)**
              
              
              -
              
              
              -**Stockholders’
                  equity**Preferred
                  stock, undesignated, $.10 par - shares authorized 2,000,000; none
                  outstanding
              
              
              -
              
              
              -Common
                  stock, $.01 par - shares authorized 60,000,000; shares issued 27,276,998
                  and 29,597,044; shares outstanding 27,276,998 and 27,239,580
              
              
              273
              
              
              296Additional
                  paid-in capital
              
              
              100,577
              
              
              149,802Retained
                  earnings
              
              
              221,157
              
              
              236,763Treasury
                  stock - at cost, shares outstanding 0 and 2,357,464
              
              
              -
              
              
              (51,596
              )Accumulated
                  other comprehensive income
              
              
              5,059
              
              
              3,346**Total
                  stockholders’ equity**
              
              
              327,066
              
              
              338,611**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              527,804
              
              $
              550,069
  See
        accompanying notes to consolidated financial statements.
  4
 *Index*
  **INSITUFORM
TECHNOLOGIES,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOW** **S**
 **(Unaudited)**
 **(in
        thousands)**
  **For
                  the Three Months**
                **Ended
                  March 31,****2007**
              
              **2006****Cash
                  flows from operating activities:****Net
                  (loss) income**
              
              $
              (15,276
              )
              $
              3,034**Adjustments
                  to reconcile to net cash (used in) provided by operating
                  activities:**Depreciation
              
              
              4,997
              
              
              5,059Amortization
              
              
              217
              
              
              307Deferred
                  income taxes
              
              
              (5,698
              )
              
              (575
              )Equity-based
                  compensation expense
              
              
              1,664
              
              
              1,420Non-cash
                  charges associated with closure of tunneling business
              
              
              11,955
              
              
              ─Tax
                  benefits related to stock option exercises
              
              
              (45
              )
              
              (625
              )Other
              
              
              (310
              )
              
              2,277Change
                  in restricted cash related to operating activities
              
              
              (354
              )
              
              (925
              )**Changes
                  in operating assets and liabilities:**Receivables
                  net, retainage and costs and estimated earnings in excess of
                  billings
              
              
              2,557
              
              
              (6,030
              )Inventories
              
              
              (391
              )
              
              (3,451
              )Prepaid
                  expenses and other assets
              
              
              (1,978
              )
              
              832Accounts
                  payable and accrued expenses
              
              
              (768
              )
              
              951**Net
                  cash (used in) provided by operating activities**
              
              
              (3,430
              )
              
              2,274**Cash
                  flows from investing activities:**Capital
                  expenditures
              
              
              (4,546
              )
              
              (3,383
              )Proceeds
                  from sale of fixed assets
              
              
              179
              
              
              250Liquidation
                  of life insurance cash surrender value
              
              
              ─
              
              
              1,423**Net
                  cash used in investing activities**
              
              
              (4,367
              )
              
              (1,710
              )**Cash
                  flows from financing activities:**Proceeds
                  from issuance of common stock
              
              
              637
              
              
              3,012Additional
                  tax benefit from stock option exercises recorded in additional
                  paid-in
                  capital
              
              
              45
              
              
              625Principal
                  payments on long-term debt
              
              
              (15,713
              )
              
              (15,726
              )Principal
                  payments on notes payable
              
              
              (727
              )
              
              (1,606
              )Proceeds
                  on line of credit
              
              
              5,000
              
              
              ─Deferred
                  financing charges paid
              
              
              ─
              
              
              (103
              )**Net
                  cash used in financing activities**
              
              
              (10,758
              )
              
              (13,798
              )Effects
                  of exchange rate changes on cash
              
              
              1,838
              
              
              313**Net
                  decrease in cash and cash equivalents for the
                  period**
              
              
              (16,717
              )
              
              (12,921
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              96,393
              
              
              77,069**Cash
                  and cash equivalents, end of period**
              
              $
              79,676
              
              $
              64,148**Supplemental
                  disclosures of cash flow information:****Cash
                  paid for:**Interest
              
              $
              698
              
              $
              1,418Income
                  taxes, net
              
              
              1,800
              
              
              1,796
  See
        accompanying notes to consolidated financial statements.
  5
 *Index*
 
 **INSITUFORM
        TECHNOLOGIES, INC. AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **March
        31, 2007**
 
 
 **1.**
              **GENERAL**
 
 In
        the
        opinion of the Company’s management, the accompanying consolidated financial
        statements reflect all adjustments (consisting of only normal recurring
        adjustments) necessary to present fairly the Company’s unaudited consolidated
        balance sheets as of March 31, 2007 and December 31, 2006 and the unaudited
        consolidated statements of operations and cash flows for the three months
        ended March 31, 2007 and 2006. The 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 consolidated financial statements included herein should be read in
        conjunction with the financial statements and the footnotes included in the
        Company’s 2006 Annual Report on Form 10-K.
 
 The
        results of operations for the three months ended March 31, 2007 are not
        necessarily indicative of the results to be expected for the full
        year.
 
 **2.**
              **EQUITY-BASED
                  COMPENSATION**
 
 At
        March
        31, 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 March 31, 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 quarter of 2007, no
        restricted shares were granted. The following table summarizes information
        about
        restricted stock activity during the quarter ended March 31,
        2007:
 
 **Shares**
              
              **Weighted**
                **Average**
                **Grant
                  Date**
                **Fair
                  Value**Outstanding
                  at December 31, 2006
              
              
              131,500
              
              $
              17.73Granted
              
              
              -Vested
              
              
              -Forfeited
              
              
              -Outstanding
                  at March 31, 2007
              
              
              131,500
              
              $
              17.73
 6
 *Index*
  Expense
        associated with grants of restricted stock shares and the effect of related
        forfeitures is presented below (in thousands):
  **Three
                  Months**
                **Ended
                  March 31,****2007**
              
              **2006**Restricted
                  stock share expense
              
              $
              194
              
              $
              211Forfeitures
              
              
              -
              
              
              -Restricted
                  stock share expense
              
              
              194
              
              
              211Tax
                  benefit
              
              
              (75
              )
              
              (82
              )Net
                  expense
              
              **$**
              **119**
              
              **$**
              **129**
 
 Unrecognized
        pretax expense of $0.9 million related to restricted stock share awards is
        expected to be recognized over the weighted average remaining service period
        of
        1.2 years for awards outstanding at March 31, 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 quarter ended March 31, 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 March 31, 2007
              
              
              **50,830**
              
              **$**
              **25.60**
 
 Expense
        associated with awards of restricted stock units and the effect of related
        forfeitures are presented below (in thousands):
  **Three
                  Months Ended****March
                  31,****2007**
              
              **2006**Restricted
                  stock unit expense
              
              $
              108
              
              $
              -Forfeitures
              
              
              -
              
              
              -Restricted
                  stock unit expense
              
              
              108
              
              
              -Tax
                  benefit
              
              
              (
                  42
              )
              
              -Net
                  expense
              
              **$**
              **66**
              
              $
              -
 
 Unrecognized
        pretax expense of $1.2 million related to restricted stock unit awards is
        expected to be recognized over the weighted average remaining service period
        of
        1.1 years for awards outstanding at March 31, 2007.
  7
 *Index*
 
 Deferred
        Stock Units
 
 Deferred
        stock units are generally 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. In the first quarter of 2007 and 2006, there were no
        deferred stock units awarded. The following table summarizes information
        about
        deferred stock unit activity during the quarter ended March 31,
        2007:
 
 **Weighted****Average****Deferred**
              
              **Award Date****Stock
                  Units**
              
              **Fair
                  Value**Outstanding
                  at December 31, 2006
              
              
              93,807
              
              $
              18.53Awarded
              
              
              -
              
              
              -Shares
                  distributed
              
              
              -
              
              
              -Forfeited/Expired
              
              
              -
              
              
              -Outstanding
                  at March 31, 2007
              
              
              **93,807**
              
              **$**
              **18.53**
 
 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 quarter of 2007
        follows:
 
 **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
              
              
              29,400
              
              
              0.6
              
              $
              8.75
              
              $
              353,976
              
              
              29,400
              
              $
              8.75
              
              $
              353,976$10.01
                  - $20.00
              
              
              718,208
              
              
              4.8
              
              
              16.52
              
              
              3,069,901
              
              
              436,483
              
              
              16.05
              
              
              2,069,863$20.00
                  and above
              
              
              840,089
              
              
              5.3
              
              
              25.45
              
              
              23,920
              
              
              532,802
              
              
              25.58
              
              
              17,940**Total
                  Outstanding**
              
              
              **1,587,697**
              
              
              **5.0**
              
              $
              21.10
              
              **$**
              **3,447,797**
              
              
              **998,685**
              
              $
              20.92
              
              **$**
              **2,441,779**
 
 **Weighted****Weighted**
              
              **Average****Average**
              
              **Remaining**
              
              **Aggregate****Exercise**
              
              **Contractual**
              
              **Intrinsic****Shares**
              
              **Price**
              
              **Term
                  (Yrs)**
              
              **Value**Outstanding
                  at December 31, 2006
              
              
              1,298,392
              
              $
              19.85Granted
              
              
              338,455
              
              
              25.60Exercised
              
              
              (37,418
              )
              
              17.04Forfeited/Expired
              
              
              (11,732
              )
              
              22.67**Outstanding
                  at March 31, 2007**
              
              
              **1,587,697**
              
              **$**
              **21.10**
              
              
              **5.0**
              
              **$**
              **3,447,797****Exercisable
                  at March 31, 2007**
              
              
              **998,685**
              
              **$**
              **20.92**
              
              
              **4.4**
              
              **$**
              **2,441,779**
 
 The
        intrinsic values above are based on the Company’s closing stock price of $20.79
        on March 30, 2007. The weighted-average grant-date fair value of options
        granted
        during the first quarter of 2007 was $10.97. There were 316,000 stock options
        granted in the first quarter of 2006. In the first quarter of 2007, the Company
        collected $0.6 million for option exercises that had a total intrinsic value
        of
        $0.3 million. In the first quarter of 2006, the Company collected $3.0 million
        for option exercises that had a total intrinsic value of $1.8 million. In
        the
        first quarter of 2007 and 2006,
  8
 *Index*
  the
        Company recorded a tax benefit from stock option exercises of $0.05 million
        and
        $0.6 million, respectively, in additional paid in capital on the consolidated
        balance sheet and as a cash flow from financing activities on the consolidated
        statement of cash flow for the three months ended March 31, 2007 and
        2006. In the first quarter of 2007 and 2006, the Company recorded pretax
        expense of $1.4 million ($0.9 million after-tax) and $1.2 million ($0.7 million
        after-tax), respectively, related to stock option awards. Unrecognized pretax
        expense of $3.5 million related to stock options is expected to be recognized
        over the weighted average remaining service period of 1.8 years for awards
        outstanding at March 31, 2007.
  For 
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.
 The
        fair value of stock options awarded during the first
        quarter 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.
 2007Volatility
                
                
                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.
 2006Volatility
                
                
                41.7
                %Expected
                    term (years)
                
                
                4.8Dividend
                    yield
                
                
                0.0
                %Risk-free
                    rate
                
                
                4.3
                %
 **3.**
              **COMPREHENSIVE
                  (LOSS) INCOME**
 
 For
        the
        quarters ended March 31, 2007 and 2006, comprehensive (loss) income was $(13.6)
        million and $3.5 million, respectively. The Company’s adjustment to net (loss)
        income to calculate comprehensive (loss) income consisted solely of cumulative
        foreign currency translation adjustments of $1.7 million and $0.5 million
        for
        the quarters ended March 31, 2007 and 2006, respectively.
 
 **4.**
              **SHARE
                  INFORMATION**
 
 (Loss)
        earnings per share have been calculated using the following share
        information:
 
 **Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006**Weighted
                  average number of common shares used for basic EPS
              
              
              27,254,380
              
              
              26,918,383Effect
                  of dilutive stock options, restricted stock, restricted stock units
                  and
                  deferred stock units (Note
                  2)
              
              
              ─
              
              
              428,263Weighted
                  average number of common shares and dilutive potential common stock
                  used
                  in dilutive EPS
              
              
              27,254,380
              
              
              27,346,646
 
 The
        effect of stock options, restricted stock, restricted stock units and deferred
        stock units of 419,088 was not considered in the calculation of loss per
        share
        in the first quarter of 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
 9
 *Index*
  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.
 **5.**
              **INCOME
                  TAXES**
 
 On
        July
        13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in an
        entity’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes” and prescribes a recognition threshold and
        measurement attributes for financial statement disclosure of tax positions
        taken
        or expected to be taken on a tax return. Under FIN 48, the impact of an
        uncertain income tax position on the income tax return must be recognized
        at the
        largest amount that is more-likely-than-not to be sustained upon audit by
        the
        relevant taxing authority. An uncertain income tax position will not be
        recognized if it has less than a 50% likelihood of being sustained.
        Additionally, FIN 48 provides guidance on de-recognition, classification,
        interest and penalties, accounting in interim periods, disclosure and
        transition. FIN 48 was effective for fiscal years beginning after December
        15,
        2006.
 
 The
        Company adopted the provisions of FIN 48 on January 1, 2007. 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 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 quarter
        of
        2007, approximately $0.05 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 which 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 and accepting
        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 twelve months and is seeking a buyer
        or
        buyers for the business and/or related significant 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
        quarter
        of 2007, the Company recorded a
  10
 *Index*
  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.
 The
        Company also incurred impairment charges for goodwill and other intangible
        assets of $9.0 million during the first quarter 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 during the first and second quarters
        of 2007. In the first quarter of 2007, the Company recorded charges totaling
        $3.0 million (pre-tax). These charges relate to assets that, at March 31,
        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 were determined using data from recent sales of
        similar assets and other market information. As of March 31, 2007, the fair
        value of the remaining fixed assets exceeded the carrying value. These assets
        are currently being utilized on existing projects.
  Each
        of
        the above charges has been recorded in the consolidated statement
        of operations as “Costs of closure of tunneling business” as a component of
        operating income.
 
 On
        March
        26, 2007, the Company was notified of an award of a $65 million tunneling
        project in Milwaukee, Wisconsin, which the Company had bid in January 2007.
        Given the decision to close the tunneling operation, the Company has
        assigned the project to another contractor who acquired the project
        from the Company at the Company’s bid price. The Company will have no future
        obligations to complete the project.
 
 **7.**
              **SEGMENT
                  REPORTING**
 
 The
        Company has three principal operating segments: rehabilitation; tunneling;
        and
        Tite Liner®, the Company’s corrosion and abrasion segment (“Tite Liner”). 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.
  11
 *Index*
 Financial
        information by segment was as follows (in thousands):
 
 **Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006**Revenues:Rehabilitation
              
              $
              103,321
              
              $
              111,658Tunneling
              
              
              15,966
              
              
              19,384Tite
                  Liner®
              
              
              11,661
              
              
              12,522Total
                  revenues
              
              $
              130,948
              
              $
              143,564Gross
                  profit (loss):Rehabilitation
              
              $
              15,417
              
              $
              25,334Tunneling
              
              
              187
              
              
              (616
              )Tite
                  Liner®
              
              
              4,966
              
              
              3,947Total
                  gross profit
              
              $
              20,570
              
              $
              28,665Operating
                  (loss) income:Rehabilitation
              
              $
              (6,120
              )
              $
              6,460Tunneling
              
              
              (18,736
              )(1)
              
              (3,029
              )Tite
                  Liner®
              
              
              3,355
              
              
              2,347Total
                  operating (loss) income
              
              $
              (21,501
              )(1)
              $
              5,778
 
 
 (1)
              Includes
                  $16.8 million of charges associated with the closure of the tunneling
                  business.
  12
 *Index*
  The
        following table summarizes revenues, gross profit and operating (loss) income
        by
        geographic region (in thousands):
 
 **Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006**Revenues:United
                  States
              
              $
              96,981
              
              $
              113,331Canada
              
              
              10,831
              
              
              9,073Europe
              
              
              20,448
              
              
              17,085Other
                  foreign
              
              
              2,688
              
              
              4,075Total
                  Revenues
              
              $
              130,948
              
              $
              143,564Gross
                  Profit:United
                  States
              
              $
              12,095
              
              $
              20,992Canada
              
              
              3,517
              
              
              2,993Europe
              
              
              3,684
              
              
              3,657Other
                  foreign
              
              
              1,274
              
              
              1,023Total
                  Gross Profit
              
              $
              20,570
              
              $
              28,665Operating
                  (loss) income:United
                  States
              
              $
              (22,294
              )(1)
              $
              4,235Canada
              
              
              1,524
              
              
              1,617Europe
              
              
              (1,722
              )
              
              (703
              )Other
                  foreign
              
              
              991
              
              
              629Total
                  Operating (Loss) Income
              
              $
              (21,501
              )(1)
              $
              5,778
  
 (1)
              Includes
                  $16.8 million of charges associated with the closure of the tunneling
                  business.
  13
 *Index*
  **8.**
              **ACQUIRED
                  INTANGIBLE ASSETS**
 
 Acquired
        intangible assets include license agreements, customer relationships, patents
        and trademarks, and non-compete agreements. Intangible assets at March 31,
        2007
        and December 31, 2006 were as follows (in thousands):
 
 **As
                  of March 31, 2007****Gross
                  Carrying Amount**
              
              **Accumulated
                  Amortization**
              
              **Net
                  Carrying Amount**Amortized
                  intangible assets:License
                  agreements
              
              $
              3,894
              
              $
              (1,853
              )
              $
              2,041Customer
                  relationships
              
              
              1,797
              
              
              (421
              )
              
              1,376Patents
                  and trademarks
              
              
              16,126
              
              
              (13,365
              )
              
              2,761Non-compete
                  agreements
              
              
              313
              
              
              (313
              )
              
              ─Total
              
              $
              22,130
              
              $
              (15,952
              )
              $
              6,178
 
 **As
                  of December 31, 2006****Gross
                  Carrying Amount**
              
              **Accumulated
                  Amortization**
              
              **Net
                  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 three months ended March 31, 2007 and 2006 and estimated
        amortization expense for the next five years are as follows (in
        thousands):
 
 **Quarter
                  Ended March 31,****2007**
              
              **2006**Aggregate
                  amortization expense
              
              $
              217
              
              $
              307Estimated
                  amortization expense:For
                  year ending December 31, 2007
              
              $
              733For
                  year ending December 31, 2008
              
              
              578For
                  year ending December 31, 2009
              
              
              283For
                  year ending December 31, 2010
              
              
              283For
                  year ending December 31, 2011
              
              
              283
 
 **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. Iowa OSHA proposed penalties of $808,250. The Company
        challenged Iowa OSHA’s findings, and in the fourth quarter of 2003, an
        administrative law judge reduced the penalties to $158,000. In the second
        quarter of 2004, the Iowa Employment Appeal Board reinstated many of the
        original penalties, ordering total penalties in the amount of $733,750. The
        Company appealed the decision of the Employment Appeal Board to the Iowa
        District Court for Polk County, which, in the first quarter of 2005, reduced
        the
        penalties back to $158,000. The Company appealed the decision of the Iowa
        District Court and, on February 8, 2006, the Company’s appeal was heard by the
        Iowa Court of Appeals. On March 17, 2006, the Court of Appeals issued its
        opinion, vacating all citations issued under the general industry standards
        (all
        citations except two serious citations) and reducing total penalties against
        the
        Company to $4,500. Thereafter, the Employment Appeal Board filed a petition
        for
        further review to the Iowa Supreme Court, and the Company filed a resistance
        to
        the petition. On September 29, 2006, the Iowa Supreme Court granted the
        Employment Appeal Board’s petition for further review, and set the case for
        consideration during the week of December 4, 2006. On February 16, 2007,
        the
        Iowa Supreme Court issued its ruling, reversing the prior ruling of the Iowa
        Court of Appeals and
  14
 *Index*
  reinstating
        all citations issued under the general industry standards, including several
        willful citations, and reinstating penalties in the amount of $733,750.
        Thereafter, the Company filed a Motion for Reconsideration with the Iowa
        Supreme
        Court, which motion was denied on March 29, 2007. The case will now be remanded
        back to the District Court for entry of judgment consistent with the Iowa
        Supreme Court’s opinion. The
        Company currently is reviewing its options regarding further judicial review
        of
        this matter. During the first quarter of 2007, the Company recorded $0.5
        million
        related to this matter. The penalties assessed were fully reserved.
 
 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 claims, and also filed
        a
        counter-claim 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, where the matter is now pending.
        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 March 31, 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 continued use
        of Company-patented technology in Denmark, Sweden and Finland following
        termination of the license agreements, (ii) seek damages based upon Per
        Aarsleff’s use of Company trade secrets in connection with the operation of its
        Danish manufacturing facility and (iii) 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 royalties 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).
        At March 31, 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) based upon royalty reports prepared and submitted
        by Per Aarsleff.
  15
 *Index*
  The
        Company believes that these receivables are fully collectible at this time.
        At
        March 31, 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. 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 $2.4 million
        with respect to the 2005 remediation work, which costs were accrued for in
        the
        second quarter of 2005.
 
 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
        ($6.4 million in actual damages and $1.4 million in pre-judgment interest).
        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 now 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
 *Index*
 
 The
        total
        claim receivable was $7.8 million at March 31, 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
              
              
              -
              
              
              526Interest
                  recorded in 2006 and 2007
              
              
              -
              
              
              949
              
              
              949**Claim
                  receivable balance, March 31, 2007**
              
              **$**
              **6,398**
              
              **$**
              **1,389**
              
              **$**
              **7,787**
 
 *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 determined
        that
        the risk of material loss is remote under these arrangements and has not
        recorded a liability for these risks at March 31, 2007 on its consolidated
        balance sheet.
  17
 *Index*
  **10.**
              **FINANCINGS**
 
 Credit
        Facility
 
 On
        March
        28, 2007, the Company amended its $35 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 quarter of 2006.
 
 Senior
        Notes
 
 On
        March
        28, 2007, the Company amended its $65 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
        $34,200,000. In connection with the amendment, the Company paid the
        noteholders an amendment fee of 0.05% of the outstanding principal balance
        of
        each series 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
        March
        31, 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.
  18
 *Index*
  **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,
        the Company 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 include among others, our belief with
        respect to estimated and anticipated costs to complete ongoing projects,
        our
        belief that our documentation will substantiate contract claim conditions,
        our
        expectation with respect to the completion dates of ongoing projects and
        the
        amount of backlog we will perform, our belief of the amounts we may recover
        for
        pending claims, our belief with respect to anticipated levels of operating
        expenses, our belief that we have adequate resources and liquidity to fund
        future cash requirements and debt repayments, our expectation with respect
        to the anticipated growth of our businesses and our belief with respect to
        the
        strength of our trademark and degree of market penetration. Our actual results
        may vary materially from those anticipated, estimated or projected due to
        a
        number of factors, such as 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 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 76.0% of our revenues in the first quarter of 2007.
 
 Revenues
        are generated principally in the United States, Canada, the United Kingdom,
        the
        Netherlands, France, Belgium, Spain, Switzerland, Chile, Mexico and Poland
        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
        74.1% of total revenue in the first quarter of 2007. See Note 7 to the
        consolidated financial statements contained in this report for additional
        segment information and disclosures.
 
  19
 *Index*
  **RESULTS
        OF OPERATIONS** - *Three
        Months Ended March 31, 2007 and 2006*
 
 Key
        financial data for the first quarter of 2007 compared to the first quarter
        of
        2006 is as follows (dollars in thousands):
 
 **Quarter
                  Ended March 31, 2007****Segment**
              
              **Revenues**
              
              **Gross
                  Profit**
              
              **Gross
                  Profit Margin**
              
              **Operating
                  Expense****(1)**
              
              **Operating
                  Income (Loss)(1)**
              
              **Operating
                  Income (Loss) Percentage**Rehabilitation
              
              $
              103,321
              
              $
              15,417
              
              
              14.9
              %
              $
              21,537
              
              $
              (6,120
              )
              
              -5.9
              %Tunneling
              
              
              15,966
              
              
              187
              
              
              1.2
              
              
              18,923
              
              
              (18,736
              )
              
              -117.3Tite
                  Liner®
              
              
              11,661
              
              
              4,966
              
              
              42.6
              
              
              1,611
              
              
              3,355
              
              
              28.8TOTAL
              
              $
              130,948
              
              $
              20,570
              
              
              15.7
              %
              $
              42,071
              
              $
              (21,501
              )
              
              -16.4
              %
 
 
 **Quarter
                  Ended March 31, 2006****Segment**
              
              **Revenues**
              
              **Gross
                  Profit (Loss)**
              
              **Gross
                  Profit (Loss) Margin**
              
              **Operating
                  Expense**
              
              **Operating
                  Income (Loss)**
              
              **Operating
                  Income (Loss) Percentage**Rehabilitation
              
              $
              111,658
              
              $
              25,334
              
              
              22.7
              %
              $
              18,874
              
              $
              6,460
              
              
              5.8
              %Tunneling
              
              
              19,384
              
              
              (616
              )
              
              -3.2
              
              
              2,413
              
              
              (3,029
              )
              
              -15.6Tite
                  Liner®
              
              
              12,522
              
              
              3,947
              
              
              31.5
              
              
              1,600
              
              
              2,347
              
              
              18.7TOTAL
              
              $
              143,564
              
              $
              28,665
              
              
              20.0
              %
              $
              22,887
              
              $
              5,778
              
              
              4.0
              %
  
 (1)
              Consolidated
                  and tunneling operating expenses for the quarter ended March 31, 2007
                  include $16.8 million in charges associated with the closure of our
                  tunneling business.
  20
 *Index*
 
 The
        following table summarizes the increases (decreases) in key financial data
        for
        the quarter ended March 31, 2007 as compared with the same period in 2006
        (dollars in thousands):
 
 **Quarter
                  Ended****March
                  31, 2007 vs. 2006****Total**
              
              **Percentage****Increase**
              
              **Increase****(Decrease)**
              
              **(Decrease)****All
                  Segments**Revenues
              
              $
              (12,616
              )
              
              -8.8
              %Gross
                  profit
              
              
              (8,095
              )
              
              -28.2Operating
                  expenses(1)
              
              
              19,184
              
              
              83.8Operating income(1)
              
              
              (27,279
              )
              
              -472.1**Rehabilitation**Revenues
              
              
              (8,337
              )
              
              -7.5Gross
                  profit
              
              
              (9,917
              )
              
              -39.1Operating
                  expenses
              
              
              2,663
              
              
              14.1Operating
                  income
              
              
              (12,580
              )
              
              -194.7**Tunneling**Revenues
              
              
              (3,418
              )
              
              -17.6Gross
                  profit
              
              
              803
              
              
              130.4Operating
                  expenses
              
              
              (333
              )
              
              -13.8Costs
                  of closure oftunneling
                  business
              
              
              16,843
              
              
              N/AOperating
                  income (1)
              
              
              (15,707
              )
              
              -518.5**Tite
                  Liner®**Revenues
              
              
              (861
              )
              
              -6.9Gross
                  profit
              
              
              1,019
              
              
              25.8Operating
                  expenses
              
              
              11
              
              
              0.6Operating
                  income
              
              
              1,008
              
              
              42.9**Interest
                  Expense and Taxes**Interest
                  expense
              
              
              (316
              )
              
              (17.5
              )Taxes
                  on income
              
              
              (7,976
              )
              
              (500.5
              )
 
 (1)
              Consolidated
                  and tunneling operating expenses for the quarter ended March 31,
                  2007
                  include $16.8 million in charges associated with the closure of our
                  tunneling business.
 
 Overview
  Consolidated
          earnings were $18.3 million lower in the first quarter of 2007 compared
          to the
          first quarter of 2006. During the first quarter of 2007, charges of $16.8
          million (pre-tax) related to the tunneling closure were recorded. The combined
          after-tax loss from the tunneling closure charges and operating loss from
          the
          tunneling segment during the first quarter was $13.1 million, or $(0.48)
          per
          diluted share. The after-tax charges recognized in the first quarter of
          2007 for
          the tunneling closure were $11.8 million, or $(0.43) per diluted share,
          and the
          tunneling business’s after-tax operating loss for the first quarter of 2007 was
          $1.3 million or $(0.05) per diluted share. The decision to close this business,
          and the impact of these charges are more fully described in Note 6 to the
          consolidated financial statements contained herein.
 21
 *Index*
 
 Aside
        from the tunneling closure charges, the decrease in consolidated net income
        was principally due to lower revenues in all segments, along with weaker
        gross
        profit margins in our rehabilitation business caused by weakness in the U.S.
        rehabilitation market. This weakness resulted not only in serious
        shortfalls in backlog available, but also in the compression of margins due
        to
        increased competitive pricing pressure. Gross profit margin for our Tite
        Liner®
        business increased to 42.6% in the first quarter of 2007, as compared to
        31.5%
        in the first quarter of 2006, despite slightly lower revenues for the
        quarter. This increase was due to favorable project closeouts experienced
        during the quarter, along with improved operational efficiencies in Canada
        and
        the United States. The tunneling business also experienced lower revenues
        due to
        delayed start-up on new projects. Gross profit margins in tunneling continued
        to
        be weak due to the impact of underutilized equipment expenses.
 
 Consolidated
        operating expenses, excluding the tunneling closure charges, were $2.3
        million higher in the first quarter of 2007 compared to the first quarter
        of
        2006 primarily due to investments we made in ongoing growth initiatives on
        a
        global basis, including increasing the sales force in the United States
        rehabilitation business to stimulate growth, increasing international business
        development efforts, accelerating the growth of Insituform BlueTM, our
        potable water rehabilitation division, and increasing marketing and technology
        development spending. In addition we recorded $0.5 million related to penalties
        assessed by Iowa OSHA in connection with an accident which occurred in 2002
        in
        Des Moines, Iowa. See Note 9 for more information regarding this
        matter.
 
 *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 March 31, 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
  22
 *Index*
  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
          continued use of our patented technology in Denmark, Sweden and Finland
          following the termination of the license agreements and 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. 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 $10.0 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. This 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 alleges that Reynolds, among other things, (i)
        tortiously 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. property of our company 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. This case currently is set
        for
        trial in the second quarter of 2007.
 
 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 March 31, 2007, we had approximately $18.4
        million in tunneling claims, of which approximately $7.5 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 three months
        ended
        March 31, 2007 and 2006, we incurred attorneys’ fees and litigation costs of
        approximately $1.5 million and $1.4 million, respectively, with respect to
        these
        lawsuits and other legal matters. Other than $7.5 million and $7.8 million
        in
        receivables at March 31, 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 7.5% in the first quarter of 2007 compared to the first quarter
        of
        2006 due primarily to lower workable backlog caused by persistent, weak market
        conditions in the United States. In recent quarters, there has been a larger
        percentage of smaller-diameter installation projects in the U.S. marketplace.
        This trend also has contributed to lower revenue. Rehabilitation contract
        backlog was $11.6 million lower at the beginning of the first quarter of
        2007
        compared to the beginning of the first quarter of 2006, and it was $23.5
        million
        lower in the United States at the beginning of the first quarter of 2007
        compared to the beginning of the first quarter of 2006. Increased revenues
        were
        generated year over year in Europe and Canada, where the market conditions
        remain strong.
 
 As
        previously announced, based on our 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 call for spending growth in this
        market
        to be between negative 1% and positive 3%. We also have 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 expanding
        crew capabilities and the sales force to pursue worldwide opportunities,
        and
        proactively challenging the complacency among U.S. infrastructure policy-makers.
        In the meantime, to ensure that we continue to achieve the productivity
        gains that we experienced in 2006, we have
  23
 *Index*
  slightly
          reduced the level of U.S. sewer rehabilitation crew resources to better
          reflect
          current demand. This should enable us to redirect certain resources to
          international operations, Insituform BlueTM and other potential growth
          segments.
 
 Gross
          Profit and Margin
 Rehabilitation
          gross profit decreased by 39.1% in the first quarter of 2007 compared to
          the
          first quarter of 2006, primarily due to the low backlog described above.
          The
          weak market conditions also have resulted in heightened competitive pricing
          pressure that has compressed gross profit margins. The gross profit margin
          percentage decreased by 7.8 margin points to 14.9% in the first quarter
          of 2007
          from 22.7% in the first quarter of 2006. In 2006, gross profit included
          the
          benefit of a $1.2 million claim relating to
          unanticipated job costs incurred in the first quarter of 2006. During the
          first
          quarter of 2007, we recorded a negative adjustment to this claim in the
          amount
          of $0.3 million upon final settlement.
 Operating
        Expenses
 Rehabilitation
        operating expenses increased 14.1% in the first quarter of 2007 compared
        to the
        first quarter of 2006. This increase was due primarily to an increase in
        our
        U.S. sales force in an effort to stimulate growth in the market. In addition,
        we
        incurred increased expenses related to our increased focus on Insituform
        BlueTM,
        increased business development efforts in international markets and increased
        investments in marketing research and technology research and
        development.
 
 Operating
        Loss and Margin
 Decreased
        gross profit margins and increased operating expenses resulted in a sharp
        decrease of 194.7% in operating income for the first quarter of 2007 compared
        to
        the first quarter of 2006. The operating margin, which is operating (loss)
        income as a percentage of revenue, decreased to (5.9)% in the first quarter
        of
        2007 compared to 5.8% in the first quarter 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 quarter
        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.
  **Tite
        Liner® Segment**
 
 Revenues
 Tite
        Liner®
        revenues decreased 6.9% or $0.9 million in the first quarter of 2007 compared
        to
        the first quarter of 2006, due primarily to a reduction in work in South
        America. Contract backlog in the Tite Liner® segment
        was $7.4
        million lower at the beginning of the first quarter of 2007 compared to the
        beginning of the first 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 Latin American operations were $0.4
        million
        and $0.8 million, respectively, higher during the first quarter of 2007 compared
        to the first quarter of 2006, while revenues from South American operations
        were
        $2.1 million lower during the first quarter of 2007 compared to the first
        quarter of 2006.
 
 Gross
        Profit and Margin
 Tite
        Liner®’s gross profit increased by 25.8% in the first quarter of 2007 compared
        to the first quarter of 2006 due primarily to favorable closeouts of
        projects during the quarter. Tite Liner®’s gross profit margin percentages were
        42.6% and 31.5% in the first quarter of 2007 and 2006, respectively. The
        higher
        gross profit margin in the first quarter of 2007 was due principally to improved
        margins worldwide resulting from the aforementioned project closeouts and
        improved operational efficiencies.
 
 Operating
        Expenses
 Operating
        expenses in the Tite Liner® business were basically unchanged in the first
        quarter of 2007 compared to the first quarter of 2006. Operating expenses
        as a
        percentage of revenue had a slight increase to 13.8% in the first quarter
        of
        2007 compared to 12.8% in the first quarter of 2006, primarily as a result
        of
        slightly lower revenues.
 
 Operating
        Income and Margins
 Operating
        income increased by 42.9% in the first quarter of 2007 compared to the first
        quarter of 2006 due to the factors described above. The operating margin
        increased to 28.8% in the first quarter of 2007 compared to 18.7% in the
        first
        quarter of 2006.
 24
 *Index*
 **Tunneling
        Segment**
 
 See
        Note
        6 regarding our decision to close the tunneling business and the impact on
        the
        first quarter of 2007.
 
 Revenues
 Tunneling’s
        revenues were down by 17.6% in the first quarter of 2007 compared to the
        first
        quarter of 2006 due to the slower start of new projects during the period.
        In
        addition, during the first quarter of 2006, there were a number of larger
        projects that were coming to a close. Excluding the Milwaukee project,
        discussed below, there remained approximately $60 million in projects to
        be
        completed as of March 31, 2007. We anticipate that these projects will be
        substantially completed during 2007, with all projects completed by mid-year
        2008.
  On
        March
        26, 2007, we were awarded a $65 million tunneling project in Milwaukee,
        Wisconsin, which had been bid in January 2007. Given the decision to close
        the
        tunneling operation, we have assigned the project to another contractor who
        acquired the project from us at our bid price. We will have no future
        obligations to complete the project.
 
 Gross
        Profit and Margin
 Tunneling
        posted a gross profit in the first quarter of 2007 of $0.2 million compared
        to a
        gross loss of $0.6 million in the first quarter of 2006. During the first
        quarter of 2006, there were a number of problematic, low margin
        projects that were in the final stages of completion, which contributed to
        the gross loss. Underutilized equipment costs (primarily equipment lease
        expenses) were $2.1 million in the first quarter of 2007 as compared to $1.9
        million in the first quarter of 2006.
 
 At
        March
        31, 2007, there were approximately $18.0 million in outstanding claims against
        third parties relating to, among other things, differing site conditions
        and
        defective specifications. Of this amount, $7.5 million had been recorded
        to
        income through March 31, 2007. Claims in the amount of $0.2 million were
        recognized in gross profit in the first quarter of 2007. There were no claims
        recoveries recorded in the first quarter of 2006. In accordance with our
        accounting policies, we record a claim to income when the realization of
        the
        claim is reasonably assured, and we can estimate a recoverable
        amount.
 
 During
        2006, and into 2007, we continued our increased efforts regarding
        tunneling claims and aggressive pursuit of all outstanding claims, either
        through discussions and/or negotiations with our clients, alternative dispute
        resolution proceedings or, if necessary, litigation.
 
 Operating
        Expenses
 Operating
        expenses, excluding tunneling closure charges, decreased 13.8% in the first
        quarter of 2007 compared to the first quarter of 2006, due to continued
        reductions in administrative staffing and related costs to adjust to a lower
        operating base. Operating expenses as a percentage of revenue were 13.0%
        in the
        first quarter of 2007 compared to 12.4% in the first quarter of 2006, due
        primarily to the drop in revenue in the first quarter of 2007.
 
 Tunneling
        Closure Charges
 In
        the
        first quarter of 2007, we recorded $16.8 million (pre-tax) of charges associated
        with the closure of the tunneling business, which was announced on March
        29,
        2007. See Note 6 for a discussion regarding these charges. We anticipate
        that
        further charges will be recorded in 2007 as the business progresses toward
        liquidation/sale and assets are sold or disposed.
 
 Operating
        Loss and Margin
 Tunneling’s
          operating loss increased by $15.7 million in the first quarter of 2007
          compared
          to the first quarter of 2006 due primarily to the charges recorded in the
          first
          quarter of 2007 related to the closure of the tunneling business. Tunneling
          closure charges were $16.8 million during the first quarter of 2007. Tunneling’s
          operating loss without these charges was $1.9 million, or $1.1 million
          less than
          last year’s first quarter, as projects were more profitable in 2007 and
          operating expenses were lowered. A tabular presentation of the costs of
          closure
          and the effect on the tunneling segment’s operating loss is set forth below (in
          thousands):
 
 **Quarter
                  Ended**
              ****
              **Quarter
                  Ended**
              ********
              ****
              **March
                  31, 2007**
              ****
              **March
                  31, 2006**Operating
                  loss, as reported
              
              
              ($18,736
              )
              
              ($
                  3,029
              )Costs
                  of closure of tunneling business
              
              
              16,843
              
              
              ─Operating
                    loss, less tunneling closure costs
              
              
              ($
                  1,893
              )
              
              ($
                  3,029
              )
  25
 *Index*
  INTEREST
        AND OTHER INCOME (EXPENSE)
 
 Interest
        Expense
 Interest
        expense declined approximately $0.3 million in the first quarter of 2007,
        compared to the same period in 2006 due to the following factors (in
        thousands):
 
 **Three
                  Months Ended**
                **March
                  31, 2007 vs. 2006****Total**
                **Increase**
                **(Decrease)**Debt
                  principal amortization - Series A Notes
              
              $
              (349
              )Interest
                  on short-term borrowings and other
              
              
              33**Total
                  decrease in interest expense**
              
              **$**
              **(316**
              **)**
 
 Interest
        Income
 Interest
        income was $0.9 million in the first quarter of 2007 compared to $0.5 million
        in
        the first quarter of 2006. Interest income in the first quarter of 2007 includes
        $0.1 million related to pre-judgment interest on an insurance claim receivable
        from our excess insurance coverage carrier. In addition to the insurance
        claim,
        interest income increased due to higher interest rates on deposits due to
        better
        market conditions.
 
 Other
        Income
 Other
        income was $0.7 million in the first quarter of 2007 compared to $0.1 million
        in
        the first quarter of 2006. The principal drivers of the increase in other
        income
        were related to foreign currency transaction gains from the repatriation
        of
        foreign cash, along with gains on disposals of fixed assets.
 
 TAXES
        ON INCOME
 
 (Tax
        benefit) taxes on (loss) income decreased in the first quarter of 2007 compared
        to the first quarter of 2006 due primarily to decreased taxable income in
        the
        quarter. Our effective tax rate for the first quarter of 2007 was 30.0% compared
        to 34.5% in the first quarter of 2006. This decrease was due primarily to
        lower
        income in the United States where tax rates generally are higher than other
        tax
        jurisdictions in which we operate.
 
 **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**
              
              **March 31,**
                  **2007**
              
              **December 31,**
                  **2006**
              
              **September 30,**
                  **2006**
              
              **June 30,**
                  **2006**
              
              **March 31,**
                  **2006***(in
                  millions)*Rehabilitation
              
              $
              187.2
              
              $
              201.7
              
              $
              201.2
              
              $
              186.8
              
              $
              216.2Tunneling
              
              
              60.6
              
              
              75.7
              
              
              80.7
              
              
              70.1
              
              
              50.2Tite
                  Liner®
              
              
              14.5
              
              
              12.8
              
              
              13.2
              
              
              15.6
              
              
              20.1Total
              
              $
              262.3
              
              $
              290.2
              
              $
              295.1
              
              $
              272.5
              
              $
              286.5
 
 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 the Company’s decision to close the tunneling operation, discussed
        above, backlog in the tunneling segment will decline throughout the remainder
        of
        2007 as current projects are completed and new projects are not being bid
        or accepted. We currently anticipate that all projects will be completed by
        mid-2008, with the majority of the work to be completed in
        2007.
  26
 *Index*
  **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 **Cash
        and Equivalents**
 
 **March
                  31, 2007**
              
              **December
                  31, 2006***(in
                  thousands)*Cash
                  and cash equivalents
              
              $
              79,676
              
              $
              96,393Cash
                  restricted - in escrow
              
              
              1,288
              
              
              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. In 2007, we anticipate developing a
        plan to create a new capital structure that is aligned with our long-term
        growth
        opportunities. Information regarding our cash flows for the three months
        ended
        March 31, 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 $3.4 million in the first quarter of 2007 compared to $2.3
        million in the first quarter of 2006. Changes in operating assets and
        liabilities used $0.6 million in the first quarter of 2007 compared to $7.7
        million in the same period last year. Compared to December 31, 2006, net
        accounts receivable, including retainage and costs and estimated earnings
        in
        excess of billings (unbilled receivables), decreased by $2.6 million,
        inventories increased by $0.4 million and accounts payable and accrued expenses
        decreased by $0.8 million. Depreciation was slightly lower in the first quarter
        of 2007 compared to the first quarter of 2006 as a result of a lower level
        of
        fixed assets in 2007. During the first quarter of 2007, pre-tax charges related
        to the tunneling closure were recorded totaling $16.8 million, of which $12.0
        million 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 quarter of 2007, cash used by investing activities included $4.5 million
        in capital expenditures partially offset by $0.2 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, $1.4 million was invested in
        the
        remodeling of an existing facility to be the new headquarters in Chesterfield,
        Missouri. In the first quarter of 2006, $3.4 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 quarter of 2007, cash used in financing activities primarily included
        our
        regularly scheduled Senior Note amortization payment of $15.7 million.
 
 During
        the first quarter of 2007, we repaid $0.7 million on notes payable as compared
        to $1.6 million in the first quarter of 2006. During the first quarter of
        2007,
        we received $0.6 million from the exercise of stock options as compared to
        $3.0
        million in the first quarter of 2006.
 
 In
        March
        2007, we borrowed an aggregate of $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 the end of the first
        quarter
        of 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
 *Index*
  **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 March 31, 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)(3)**
              
              **Total**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **Thereafter**Long-term
                  debt
              
              $
              65,056
              
              
              12
              
              
              15
              
              
              16
              
              
              13
              
              
              -
              
              $
              65,000Interest
                  on long-term debt
              
              
              26,579
              
              
              3,193
              
              
              4,254
              
              
              4,253
              
              
              4,251
              
              
              4,251
              
              
              6,377Line
                  of credit facility(2)
              
              
              5,000
              
              
              5,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Operating
                  leases
              
              
              34,618
              
              
              10,153
              
              
              10,790
              
              
              7,992
              
              
              2,855
              
              
              1,235
              
              
              1,593Total
                  contractual cash obligations
              
              $
              131,253
              
              $
              18,358
              
              $
              15,059
              
              $
              12,261
              
              $
              7,119
              
              $
              5,486
              
              $
              72,970
 
 (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 “Market Risk - Commodity Risk” under Item 3 of this report for further
                  discussion. (3)
              As
                  of March 31, 2007, $5.0 million was borrowed on the $35.0 million
                  credit
                  facility with an interest rate of 8.25%. The available balance
                  was $14.1
                  million, and the commitment fee was .175%. The remaining $15.9
                  million was
                  used for non-interest bearing letters of credit, $14.5 million
                  of which
                  were collateral for insurance, $1.0 million for work performance
                  and $0.4
                  million for import of raw
                  materials.
  **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 $131.3 million at March 31, 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 foreign 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
        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.
  28
 *Index*
  Interest
        Rate Risk
 
 The
        fair
        value of our cash and short-term investment portfolio at March 31, 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% 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
        March 31, 2007. 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 March 31, 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 March 31, 2007, a
        substantial portion of our cash and cash equivalents were denominated in
        foreign
        currencies, and a hypothetical 1% 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. The contract has an initial
        term from March 29, 2005 until December 31, 2007, and shall renew for successive
        12-month periods until the contract is terminated by either party upon 180-days’
prior written notice to the other party with an effective termination date
        of
        the end of the contract term.
 
 **ITEM
                  4.**
              **CONTROLS
                  AND PROCEDURES**
 
 Our
        company’s management, with the participation of the chief executive officer and
        controller (our principal financial officer), has conducted an evaluation
        of the
        effectiveness of our disclosure controls and procedures (as defined in Exchange
        Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2007. Based on this
        evaluation, the chief executive officer and controller have concluded that
        our
        disclosure controls were effective at March 31, 2007.
 
 We
        maintain internal controls and procedures designed to ensure that we are
        able to
        collect the information subject to required disclosure in reports we file
        with
        the United States Securities and Exchange Commission, and to process, summarize
        and disclose this information within the time specified by the rules set
        forth
        by the Securities and Exchange Commission.
 
 There
        were no changes in our internal control over financial reporting that occurred
        during the quarter ended March 31, 2007 that materially affected, or are
        reasonably likely to affect, our internal control over financial
        reporting.
  29
 *Index*
  **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. Iowa OSHA proposed
        penalties of $808,250. We challenged Iowa OSHA’s findings, and in the fourth
        quarter of 2003, an administrative law judge reduced the penalties to $158,000.
        In the second quarter of 2004, the Iowa Employment Appeal Board reinstated
        many
        of the original penalties, ordering total penalties in the amount of $733,750.
        We appealed the decision of the Employment Appeal Board to the Iowa District
        Court for Polk County, which, in the first quarter of 2005, reduced the
        penalties back to $158,000. We appealed the decision of the Iowa District
        Court
        and, on February 8, 2006, our appeal was heard by the Iowa Court of Appeals.
        On
        March 17, 2006, the Court of Appeals issued its opinion, vacating all citations
        issued under the general industry standards (all citations except two serious
        citations) and reducing total penalties to $4,500. Thereafter, the Employment
        Appeal Board filed a petition for further review with the Iowa Supreme Court,
        and we filed a resistance to the petition. On September 29, 2006, the Iowa
        Supreme Court granted the Employment Appeal Board’s petition for further review,
        and set the case for consideration during the week of December 4, 2006. On
        February 16, 2007, the Iowa Supreme Court issued its ruling, reversing the
        prior
        ruling of the Iowa Court of Appeals and reinstating all citations issued
        under
        the general industry standards, including several willful citations, and
        reinstating penalties in the amount of $733,750. Thereafter, we filed a Motion
        for Reconsideration with the Iowa Supreme Court, which motion was denied
        on
        March 29, 2007. The case will now be remanded back to the District Court
        for
        entry of judgment consistent with the Iowa Supreme Court’s opinion. We currently
        are reviewing our options regarding further judicial review of this
        matter.
 
 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 better align 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 may result in goodwill
      and
      fixed asset impairment. As a result of the announced exit and disposal
      activities, we announced that we anticipate incurring a pre-tax charge of up
      to
      approximately $21 million, of which approximately $8 million is 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 is expected to relate
      to
      impairment of goodwill and other intangible assets, and approximately $4 million
      is expected to relate to impairment charges for fixed assets and
      equipment.




Our above risk factor has materially changed in that the
      goodwill and fixed asset impairment has now been incurred. We belive 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 will 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
 *Index*




**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 which
      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 revenues 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**
 
 At
        our
        Annual Meeting of Stockholders held on Wednesday, April 25, 2007, the following
        matters were voted upon:
 
 1.
              Election
                  of eight directors, each to serve a one-year term or until his
                  or her
                  successor has been elected and
                  qualified:
 
 **Name**
              
              **For**
              
              **Withheld**Stephen
                  P. Cortinovis
              
              21,015,148
              
              101,130Stephanie
                  A. Cuskley
              
              21,013,898
              
              102,380John
                  P. Dubinsky
              
              19,213,233
              
              1,903,045Juanita
                  H. Hinshaw
              
              20,435,800
              
              680,478Alfred
                  T. McNeill
              
              21,014,248
              
              102,030Thomas
                  S. Rooney, Jr.
              
              21,013,816
              
              102,462Sheldon
                  Weinig
              
              20,778,780
              
              337,498Alfred
                  L. Woods
              
              21,014,447
              
              101,831
 
 2.
              Approval
                  of the Insituform Technologies, Inc. Employee Stock Purchase
                  Plan.
 
 **For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  Non-Votes**16,174,069
              
              101,894
              
              22,643
              
              4,817,672
 
 3.
              Ratification
                  of the appointment of PricewaterhouseCoopers LLP as independent
                  auditors
                  for the fiscal year ending December 31,
                  2007:
 
 **For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  Non-Votes**21,034,254
              
              64,596
              
              17,428
              
              0
  31
 *Index*
 
 **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.
  32
 *Index*
  **SIGNATURES**
 
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 
 INSITUFORM
                  TECHNOLOGIES, INC.May
                  1, 2007
              
              /s/
                  David A. MartinDavid
                  A. MartinVice
                  President and ControllerPrincipal
                  Financial and Accounting Officer
  33
 *Index*
  **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, filed herewith.
  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, 2006
                    (incorporated by reference to Exhibit 3.1 to the current report on
                    Form 8-K dated and filed July 27, 2006).
 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.






34