UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q








(Mark
      One)[X]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended March 28, 2009OR[  
      ]
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES   EXCHANGE ACT OF
      1934For the
      transition period fromto





Commission File Number 001-33987





HERITAGE-CRYSTAL CLEAN,
INC.


(Exact
name of registrant as specified in its charter)





Delaware
            
            26-0351454State
      or other jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
            
            Identification
      No.)





2175
Point Boulevard


Suite
375


Elgin,
IL 60123


(Address
of principal executive offices) (Zip Code)





Registrant’s
telephone number, including area code (847)
836-5670





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
[   ] No [   ]





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





Large
      accelerated filer
            [  
      ]
            
            Accelerated
      Filer   [   ]Non-accelerated
      filer
            [X]
            
            Smaller
      reporting company   [   ]





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


Yes
[   ] No [X]





Number of
shares outstanding of registrant’s class of common stock as of April 24, 2009:
10,691,008


1


Table
of Contents





PART
      I - FINANCIAL
      INFORMATIONITEM
      1. FINANCIAL STATEMENTS
                      3ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS
                      15ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
                      21ITEM
      4. CONTROL AND PROCEDURES
                      21PART
      II - OTHER
      INFORMATIONITEM
      6. EXHIBITS
                      22SIGNATURES
                      23













2




PART
I - FINANCIAL INFORMATION




ITEM
1.   FINANCIAL STATEMENTS


















3


Heritage-Crystal
Clean, Inc.


Consolidated
Balance Sheets


(In
Thousands, Except Share and Par Value Amounts)


(Unaudited)





March
      28, 2009
                                                                            
                                                                            
                                                                            January
      3, 2009ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                                                            
                                                                            $
                                                                            2,231
                                                                            
                                                                            
                                                                            $
                                                                            327Receivables:Trade,
      net of allowance for doubtful accounts of $493and
      $616 at March 28, 2009 and January 3, 2009, respectively
                                                                            
                                                                            
                                                                            13,118
                                                                            
                                                                            
                                                                            
                                                                            14,040Trade
      - affiliates
                                                                            
                                                                            
                                                                            346
                                                                            
                                                                            
                                                                            
                                                                            331Other
                                                                            
                                                                            
                                                                            42
                                                                            
                                                                            
                                                                            
                                                                            245Total
      receivables
                                                                            
                                                                            
                                                                            13,506
                                                                            
                                                                            
                                                                            
                                                                            14,616Income
      tax refund
                                                                            
                                                                            
                                                                            480
                                                                            
                                                                            
                                                                            
                                                                            1,381Inventory,
      net
                                                                            
                                                                            
                                                                            9,565
                                                                            
                                                                            
                                                                            
                                                                            10,609Deferred
      tax assets
                                                                            
                                                                            
                                                                            991
                                                                            
                                                                            
                                                                            
                                                                            942Prepaid
      income taxes
                                                                            
                                                                            
                                                                            974
                                                                            
                                                                            
                                                                            
                                                                            —Prepaid
      and other current assets
                                                                            
                                                                            
                                                                            1,641
                                                                            
                                                                            
                                                                            
                                                                            1,386Total
      Current Assets
                                                                            
                                                                            
                                                                            29,388
                                                                            
                                                                            
                                                                            
                                                                            29,261Property,
      plant and equipment:Leasehold
      improvements
                                                                            
                                                                            
                                                                            758
                                                                            
                                                                            
                                                                            
                                                                            758In-service
      equipment
                                                                            
                                                                            
                                                                            25,382
                                                                            
                                                                            
                                                                            
                                                                            24,634Machinery,
      vehicles, and equipment
                                                                            
                                                                            
                                                                            11,618
                                                                            
                                                                            
                                                                            
                                                                            11,492Construction
      in progress
                                                                            
                                                                            
                                                                            723
                                                                            
                                                                            
                                                                            
                                                                            42738,481
                                                                            
                                                                            
                                                                            
                                                                            37,311Less:
      accumulated depreciation
                                                                            
                                                                            
                                                                            (17,216
                                                                            )
                                                                            
                                                                            
                                                                            (16,433
                                                                            )Net
      property, plant and equipment
                                                                            
                                                                            
                                                                            21,265
                                                                            
                                                                            
                                                                            
                                                                            20,878Software
      and intangible assets, net of accumulated amortization of$1,616
      and $1,524 at March 28, 2009 and January 3, 2009,
    respectively
                                                                            
                                                                            
                                                                            1,822
                                                                            
                                                                            
                                                                            
                                                                            1,877Total
      Assets
                                                                            
                                                                            $
                                                                            52,475
                                                                            
                                                                            
                                                                            $
                                                                            52,016LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                                                                            
                                                                            $
                                                                            5,969
                                                                            
                                                                            
                                                                            $
                                                                            5,227Accounts
      payable - affiliates
                                                                            
                                                                            
                                                                            256
                                                                            
                                                                            
                                                                            
                                                                            534Accrued
      salaries, wages, and benefits
                                                                            
                                                                            
                                                                            1,622
                                                                            
                                                                            
                                                                            
                                                                            1,920Taxes
      payable
                                                                            
                                                                            
                                                                            891
                                                                            
                                                                            
                                                                            
                                                                            978Accrued
      workers compensation
                                                                            
                                                                            
                                                                            645
                                                                            
                                                                            
                                                                            
                                                                            526Other
      accrued expenses
                                                                            
                                                                            
                                                                            752
                                                                            
                                                                            
                                                                            
                                                                            876Total
      Current Liabilities
                                                                            
                                                                            
                                                                            10,135
                                                                            
                                                                            
                                                                            
                                                                            10,061Note
      payable - bank
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            20Deferred
      tax liabilities
                                                                            
                                                                            
                                                                            529
                                                                            
                                                                            
                                                                            
                                                                            379Total
      Liabilities
                                                                            
                                                                            
                                                                            10,664
                                                                            
                                                                            
                                                                            
                                                                            10,460Commitments
      and contingenciesSTOCKHOLDERS'
      EQUITY:Common
      stock - 15,000,000 shares authorized at $0.01 par value,10,685,006
      and 10,680,609 shares issued and outstanding
                                                                              at
      March 28, 2009 and January 3, 2009, respectively
                                                                            
                                                                            
                                                                            107
                                                                            
                                                                            
                                                                            
                                                                            107Additional
      paid-in capital
                                                                            
                                                                            
                                                                            42,798
                                                                            
                                                                            
                                                                            
                                                                            42,643Accumulated
      deficit
                                                                            
                                                                            
                                                                            (1,094
                                                                            )
                                                                            
                                                                            
                                                                            (1,194
                                                                            )Total
      Stockholders' Equity
                                                                            
                                                                            
                                                                            41,811
                                                                            
                                                                            
                                                                            
                                                                            41,556Total
      Liabilities and Stockholders' Equity
                                                                            
                                                                            $
                                                                            52,475
                                                                            
                                                                            
                                                                            $
                                                                            52,016


4


Heritage-Crystal
Clean, Inc.


Consolidated
Statements of Operations


(In
Thousands, Except per Share Amounts)


(Unaudited)





First
      Quarter Ended,March
      28, 2009
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      March
      22, 2008Sales
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      23,756
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      22,997Cost
      of sales
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      7,497
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      6,285Gross
      profit
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      16,259
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      16,712Operating
      costs
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      12,239
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      11,516Selling,
      general, and administrative expenses
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      3,852
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      6,631Operating
      income (loss)
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      168
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      (1,435
                                                                                                                                                      )Interest
      expense - net
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      —
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      353Income
      (loss) before income taxes
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      168
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      (1,788
                                                                                                                                                      )Provision
      for income taxes
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      68
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      980Net
      income (loss)
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      100
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      (2,768
                                                                                                                                                      )Preferred
      return
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      —
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      339Net
      income (loss) available to common stockholders
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      100
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      (3,107
                                                                                                                                                      )Net
      income (loss) per share available to common stockholders:
      basic
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.01
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      (0.41
                                                                                                                                                      )Net
      income (loss) per share available to common stockholders:
      diluted
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.01
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      (0.41
                                                                                                                                                      )Number
      of weighted average common shares outstanding: basic
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      10,685
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      7,620Number
      of weighted average common shares outstanding: diluted
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      10,754
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      7,620




5


Heritage-Crystal
Clean, Inc.


Consolidated
Statement of Stockholders’ Equity


(In
Thousands, Except Share Amounts)


(Unaudited)




ParValue
                                                                                              
                                                                                              
                                                                                              Paid-in
                                                                                              
                                                                                              
                                                                                              AccumulatedShares
                                                                                              
                                                                                              
                                                                                              Common
                                                                                              
                                                                                              
                                                                                              Capital
                                                                                              
                                                                                              
                                                                                              Deficit
                                                                                              
                                                                                              
                                                                                              TotalBalance,
      January 3, 2009
                                                                                              
                                                                                              
                                                                                              10,680,609
                                                                                              
                                                                                              
                                                                                              $
                                                                                              107
                                                                                              
                                                                                              
                                                                                              $
                                                                                              42,643
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (1,194
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              41,556Net
      income
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              100
                                                                                              
                                                                                              
                                                                                              
                                                                                              100Issuance
      of common stock (ESPP)
                                                                                              
                                                                                              
                                                                                              4,397
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              54
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              54Share-based
      compensation
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              101
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              101Balance,
      March 28, 2009
                                                                                              
                                                                                              
                                                                                              10,685,006
                                                                                              
                                                                                              
                                                                                              $
                                                                                              107
                                                                                              
                                                                                              
                                                                                              $
                                                                                              42,798
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (1,094
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              41,811


6


Heritage-Crystal
Clean, Inc.


Consolidated
Statements of Cash Flows


(In
Thousands)


(Unaudited)





First
      Quarter Ended,March
      28, 2009
                                                                              
                                                                              
                                                                              March
      22, 2008Cash
      flows from Operating Activities:Net
      income (loss)
                                                                              
                                                                              $
                                                                              100
                                                                              
                                                                              
                                                                              $
                                                                              (2,768
                                                                              )Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                                                              
                                                                              
                                                                              877
                                                                              
                                                                              
                                                                              
                                                                              776Bad debt provision
                                                                              
                                                                              
                                                                              196
                                                                              
                                                                              
                                                                              
                                                                              180Share-based compensation
                                                                              
                                                                              
                                                                              101
                                                                              
                                                                              
                                                                              
                                                                              3,191Deferred rent
                                                                              
                                                                              
                                                                              29
                                                                              
                                                                              
                                                                              
                                                                              —Deferred tax expense
                                                                              
                                                                              
                                                                              100
                                                                              
                                                                              
                                                                              
                                                                              916Changes
      in operating assets and liabilities:Decrease
      (increase) in accounts receivable
                                                                              
                                                                              
                                                                              913
                                                                              
                                                                              
                                                                              
                                                                              (868
                                                                              )Decrease
      (increase) in income tax refunds
                                                                              
                                                                              
                                                                              901
                                                                              
                                                                              
                                                                              
                                                                              —Decrease
      (increase) in inventory
                                                                              
                                                                              
                                                                              1,044
                                                                              
                                                                              
                                                                              
                                                                              (1,559
                                                                              )Decrease
      (increase) in prepaid and other current assets
                                                                              
                                                                              
                                                                              (1,230
                                                                              )
                                                                              
                                                                              
                                                                              (76
                                                                              )Increase
      (decrease) in accounts payable
                                                                              
                                                                              
                                                                              529
                                                                              
                                                                              
                                                                              
                                                                              (507
                                                                              )Increase
      (decrease) in accrued expenses
                                                                              
                                                                              
                                                                              (418
                                                                              )
                                                                              
                                                                              
                                                                              (467
                                                                              )Cash
      provided by (used in) operating activities
                                                                              
                                                                              
                                                                              3,142
                                                                              
                                                                              
                                                                              
                                                                              (1,182
                                                                              )Cash
      flows from Investing Activities:Capital expenditures
                                                                              
                                                                              
                                                                              (1,234
                                                                              )
                                                                              
                                                                              
                                                                              (1,314
                                                                              )Software and intangible asset costs
                                                                              
                                                                              
                                                                              (38
                                                                              )
                                                                              
                                                                              
                                                                              (90
                                                                              )Cash
      used in investing activities
                                                                              
                                                                              
                                                                              (1,272
                                                                              )
                                                                              
                                                                              
                                                                              (1,404
                                                                              )Cash
      flows from Financing Activities:Proceeds from issuance of common stock, net of offering
    costs
                                                                              
                                                                              
                                                                              54
                                                                              
                                                                              
                                                                              
                                                                              35,076Proceeds from note payable - bank
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              16,665Repayments of note payable - bank
                                                                              
                                                                              
                                                                              (20
                                                                              )
                                                                              
                                                                              
                                                                              (37,955
                                                                              )Distributions to preferred members
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (11,400
                                                                              )Cash
      provided by financing activities
                                                                              
                                                                              
                                                                              34
                                                                              
                                                                              
                                                                              
                                                                              2,386Net
      increase (decrease) in cash and cash equivalents
                                                                              
                                                                              
                                                                              1,904
                                                                              
                                                                              
                                                                              
                                                                              (200
                                                                              )Cash and cash equivalents, beginning of period
                                                                              
                                                                              
                                                                              327
                                                                              
                                                                              
                                                                              
                                                                              479Cash
      and cash equivalents, end of period
                                                                              
                                                                              $
                                                                              2,231
                                                                              
                                                                              
                                                                              $
                                                                              279Supplemental
      disclosure of cash flow information:Cash paid for interest
                                                                              
                                                                              $
                                                                              —
                                                                              
                                                                              
                                                                              $
                                                                              416Income taxes paid
                                                                              
                                                                              
                                                                              41
                                                                              
                                                                              
                                                                              
                                                                              —Supplemental
      disclosure of noncash information:Payables for construction in process
                                                                              
                                                                              
                                                                              84
                                                                              
                                                                              
                                                                              
                                                                              19Payables for offering costs
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              959


7


HERITAGE-CRYSTAL
CLEAN, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





March
28, 2009


(Unaudited)





(1)   
ORGANIZATION AND NATURE OF OPERATIONS





Heritage-Crystal
Clean, Inc., a Delaware corporation, and its subsidiary (the “Company”),
provides parts cleaning, hazardous and non-hazardous waste services to small and
mid-sized customers in both the manufacturing and automotive service
sectors.  Our service programs include parts cleaning, containerized
waste management, used oil collection, and vacuum truck services. Currently, the
Company’s locations are in the United States and no international business is
conducted.





On March
12, 2008, the Company raised net proceeds of $33.2 million in an initial public
offering and a direct placement (the “offerings”). Concurrently, the Company
paid preferred members an accrued return through March 11, 2008 of $10.9 million
as part of a reorganization, in which, prior to the consummation of the
offerings, the members of Heritage-Crystal Clean, LLC and the former
stockholders of BRS-HCC Investment Co., Inc. became stockholders of
Heritage-Crystal Clean, Inc. (the “reorganization”).





Prior to
the completion of the reorganization, the Company filed an amendment to its
certificate of incorporation with the Delaware Secretary of State, increasing
its authorized capital to 15,000,000 shares of common stock at a par value
of $0.01 per share and 500,000 shares of undesignated preferred stock.
None of the undesignated preferred stock is currently outstanding.





(2)   
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles
of Consolidation and Basis of Presentation





The
Company conducts its primary business operations through Heritage-Crystal Clean,
LLC, its wholly owned subsidiary, and all intercompany balances have been
eliminated in consolidation.





The
unaudited interim financial statements included herein have been prepared by the
Company in accordance with U.S. generally accepted accounting principles
(“GAAP”) for interim financial information and in accordance with Rule 10-01 of
Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. Operating results for interim periods are not
necessarily indicative of results that may be expected for the year as a whole.
In the opinion of the Company’s management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. These financial statements and notes thereto should  be
read in conjunction with the Company’s audited financial statements for the
fiscal year ended January 3, 2009 included in the Company’s Annual Report on
Form 10-K for fiscal year 2008 filed with the Unites States Securities and
Exchange Commission on March 30, 2009.





The
Company’s fiscal year ends on the Saturday closest to December 31. The most
recent fiscal year ended on January 3, 2009. Our convention with respect to
reporting periodic financial data is such that each of our first three fiscal
quarters consist of twelve weeks while our last fiscal quarter consists of
sixteen or seventeen weeks. Interim results are presented for the twelve week
periods ended March 28, 2009 and March 22, 2008 each referred to as “first
quarter ended” or “first fiscal quarter of 2009” and “first fiscal quarter of
2008”, respectively.





The
Company presents its consolidated financial statements as one reportable
segment.  The determination of a single reportable segment was made
under SFAS 131, Disclosures
about Segments of an Enterprise and Related Information as the Company's
business operations have similar economic characteristics and offer the same
services to the same type customers.


8


Use
of Estimates





The
preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires the use of certain estimates by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Significant items subject to such estimates and assumptions are the
allowance for doubtful accounts and valuation of inventory at lower of cost or
market. Actual results could differ from those estimates.





Stock-Based
Compensation




The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton option-pricing model and a single option award approach.
This fair value is then amortized on a straight-line basis over the requisite
service periods of the awards, which is generally the vesting period. The
following assumptions are used in the Black-Scholes-Merton option pricing
model:





·
            Expected
      Term —The Company’s expected term represents the period that the Company’s
      stock-based awards are expected to be
  outstanding;




·
            Expected
      Volatility —Due to the Company’s limited trading history, the average
      volatility estimate used was determined by using a composite group of peer
      companies;




·
            Expected
      Dividend —The Black-Scholes-Merton valuation model calls for a single
      expected dividend yield as an input. The Company currently pays no
      dividends and does not expect to pay dividends in the foreseeable
      future;




·
            Risk-Free
      Interest Rate —The Company bases the risk-free interest rate on the
      implied yield currently available on United States Treasury zero-coupon
      issues with an equivalent remaining
term.





The
Company recognized compensation expense based on estimated grant date fair
value. See note 7 for more details.





The
Company values restricted stock as of the closing stock price on the grant date,
and then amortizes the expense on a straight-line basis in accordance with FASB
Statement No. 123(R), Share-Based Payment over the
remaining vesting period of the awards.





Fair
Value of Financial Instruments





The
Company has adopted FAS 157, which defines fair value as
the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants at the
measurement date. FAS 157 establishes a three-level fair value hierarchy
that prioritizes the inputs used to measure fair value. This hierarchy requires
entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are
as follows:





Level 1 –
            Quoted
      prices in active markets for identical assets or liabilities.Level 2 –
            Observable
      inputs other than quoted prices included in Level 1, such as quoted
      prices for similar assets and liabilities in active markets; quoted prices
      for identical or similar assets and liabilities in markets that are not
      active; or other inputs that are observable or can be corroborated by
      observable market data.Level 3 –
            Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or liabilities. This includes
      certain pricing models, discounted cash flow methodologies and similar
      techniques that use significant unobservable
  inputs.




9


All
financial assets and liabilities are measured at fair value on a recurring basis
(at least annually) based on quoted prices in active markets. As of the
beginning of fiscal year 2009, FAS 157 is applicable for non-financial assets
and liabilities.





(3)  
 INVENTORY





The net
carrying value of inventory consisted of the following (in
thousands):





March
      28, 2009
                                  
                                  
                                  January
      3, 2009Machines
                                  
                                  $
                                  2,351
                                  
                                  
                                  $
                                  2,531Solvents
                                  
                                  
                                  4,866
                                  
                                  
                                  
                                  5,725Drums
                                  
                                  
                                  1,220
                                  
                                  
                                  
                                  1,233Accessories
                                  
                                  
                                  1,128
                                  
                                  
                                  
                                  1,120Total
      inventory, net
                                  
                                  $
                                  9,565
                                  
                                  
                                  $
                                  10,609


Inventory
consists primarily of new and used solvents, including used oil, new and
refurbished parts cleaning machines, accessories, and repair parts. Inventories
are valued at the lower of first-in, first-out (FIFO) cost or market, net of any
reserves for excess, obsolete or unsalable inventory. The excess inventory
reserve netted in inventory at the end of March 28, 2009 and January 3, 2009 was
$0.8 million and $0.9 million, respectively. The Company continually monitors
its inventory levels at each of its distribution locations and evaluates
inventories for excess or slow-moving items. If circumstances indicate the cost
of inventories exceed their recoverable value, inventories are reduced to net
realizable value.





(4)
 NOTE
PAYABLE





The
Company has a bank credit facility that provides for borrowings of up to $25.0
million. The maturity date of the credit facility is December 31, 2010. As
of March 28, 2009, the Company did not have any amounts outstanding under the
credit facility and at January 3, 2009, had $20,000 outstanding under the credit
facility. Under the terms of the credit facility, interest is payable monthly at
the prime rate, unless the total leverage ratio is greater than or equal to 2.75
to 1. The weighted average effective interest rate for amounts outstanding was
3.25% and 6.58% at March 28, 2009 and January 3, 2009, respectively. Amounts
borrowed under the credit facility are secured by a security interest in
substantially all of the Company’s tangible and intangible assets. As of March
28, 2009, the Company was in compliance with all covenants under the credit
facility. As of March 28, 2009 and January 3, 2009,  $25.0 million and
approximately $24.9 million were available for borrowing under the bank credit
facility, respectively.





(5)    COMMITMENTS
AND CONTINGENCIES





The
Company may be subject to investigations, claims or lawsuits as a result of
operating its business, including matters governed by environmental laws and
regulations.  The Company believes that it carries appropriate levels
of insurance given its history, and when claims are asserted, the Company
evaluates the probable exposure and accrues for insurance
deductibles.





(6)    INCOME
TAXES




The
income tax expense for the first fiscal quarter of 2009 was based on the
estimated effective tax rate of 40.5% for the year. The effective tax rate
decreased in 2009 as compared to the same period in 2008 primarily related to
the one-time change in tax status and the establishment of beginning balances in
the Company’s deferred tax assets and liabilities in accordance with SFAS No.
109, Accounting for Income
Taxes.





The
Company has not provided any valuation allowance as it believes the realization
of its deferred tax assets is more likely than not based on the expectation of
future taxable income.





10


(7)    SHARE-BASED
COMPENSATION





The
aggregate number of shares of common stock which may be issued under the
Company’s Omnibus Incentive Plan of 2008 is 1,902,077 plus any common stock that
becomes available for issuance pursuant to the reusage provision of the Plan. As
of March 28, 2009, 1,003,351 shares are available for issuance under the
Plan.




Stock
Option Awards





A summary
of stock option activity under this Plan is as follows:




Weighted
      Average
                                                                                                                    
                                                                                                                    
                                                                                                                    AggregateNumber
      of
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    Remaining
                                                                                                                    
                                                                                                                    
                                                                                                                    Intrinsic
      ValueOptions
                                                                                                                    
                                                                                                                    
                                                                                                                    Weighted
      Average
                                                                                                                    
                                                                                                                    
                                                                                                                    Contractual
      Term
                                                                                                                    
                                                                                                                    
                                                                                                                    as
      of 03/28/09Stock
      Options
                                                                                                                    
                                                                                                                    Outstanding
                                                                                                                    
                                                                                                                    
                                                                                                                    Exercise
      Price
                                                                                                                    
                                                                                                                    
                                                                                                                    (in
      years)
                                                                                                                    
                                                                                                                    
                                                                                                                    (in
      thousands)Outstanding
      at January 3, 2009
                                                                                                                    
                                                                                                                    
                                                                                                                    732,045
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    11.50
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    9.20
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    73Granted
                                                                                                                    
                                                                                                                    
                                                                                                                    157,609
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    7.33Exercised
                                                                                                                    
                                                                                                                    
                                                                                                                    —Options
      outstanding at March 28, 2009
                                                                                                                    
                                                                                                                    
                                                                                                                    889,654
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    10.76
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    9.15
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    —Unvested
      stock options
                                                                                                                    
                                                                                                                    
                                                                                                                    157,609
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    7.33
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    9.99
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    —Vested
      stock options
                                                                                                                    
                                                                                                                    
                                                                                                                    732,045
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    11.50
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    8.97
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    —Options
      exercisable at March 28, 2009
                                                                                                                    
                                                                                                                    
                                                                                                                    732,045
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    11.50
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    8.97
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    —





The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton option-pricing model. This fair value is then amortized on
a straight-line basis over the requisite service periods of the awards, which is
generally the vesting period. The fair values of stock options granted during
the first fiscal quarter of 2009 and 2008 were $3.24 and $3.90 per option,
respectively which were calculated using the following
assumptions:




First
      Quarter Ended,March
      28, 2009
              
              
              March
      22, 2008Expected
      volatility
              41.6%
              
              
              33.2%Risk-free
      interest rate
              2.4%
              
              
              2.8%Dividend
      yield
              —
              
              
              —Expected
      life
              6.25
              years
              
              5
              yearsContractual
      life
              10
              years
              
              10
              years





As a
result of the vested and exercisable stock options listed above, the Company
incurred $2.9 million ($1.7 million net of tax) of non-cash share-based
compensation expense in the first fiscal quarter of 2008. These options became
fully vested on their grant date at the time of our initial public offering. The
stock options issued on March 25, 2009, have a graded vesting schedule over four
years and vest 25% per year beginning on the first anniversary following the
grant date. At March 28, 2009, there was approximately $0.5 million of
unrecognized compensation expense related to these awards which will be recorded
through 2013.


11


Performance
Restricted Stock Awards





In
February 2007, the Company granted to certain key employees in our oil and
vacuum business 120 common units that subsequently converted to 60,000
restricted shares in connection with our initial public offering in March 2008.
These restricted shares are subject to forfeiture if certain performance goals
are not achieved by fiscal year end 2011. As of March 28, 2009, the Company
believes that the performance criteria will be met and has recorded compensation
expense of $0.3 million in both first quarters ended March 28, 2009 and March
22, 2008, respectively. At March 28, 2009, there was approximately $0.4 million
of unrecognized compensation expense related to these awards which will be
recorded through 2011.





Restricted
Stock Compensation/Awards





The
Company granted in May 2008, 9,072 restricted shares to its Board of Directors
in which the shares become fully vested after one year of service from their
grant date. The fair value of each restricted stock grant is based on the
closing price of the Company's stock on the date of grant and the expense is
amortized over its vesting period. At March 28, 2009, there was less than $0.1
million of unrecognized compensation expense related to these awards which will
be recorded through the second quarter of fiscal 2009.





Employee
Stock Purchase Plan





As of
March 28, 2009, the Company had a remaining reserve of 90,384 shares of
common stock available for purchase under the Employee Stock Purchase Plan of
2008 “Plan”. Employees purchased 4,397 shares of the Company’s common stock in
the first fiscal quarter of 2009 and the weighted average per share fair values
of the purchase rights granted under the Plan during the first fiscal quarter of
2009 was $12.35 per share.


12


(8)    EARNINGS
PER SHARE





Basic net
income per common share is computed by dividing net income available for common
shareholders by the weighted average number of common shares outstanding for the
period in accordance with FASB Statement No. 128, Earnings per Share. Diluted
net income per common share is computed by dividing the sum of net income
available for common shareholders by the sum of the weighted average number of
common shares outstanding and any dilutive potential common equivalents for the
period.





The
following table reconciles the number of common shares outstanding for the first
quarters ended March 28, 2009 and March 22, 2008, respectively to the number of
weighted average basic common shares outstanding and the number of weighted
average diluted common shares outstanding for the purposes of calculating basic
and diluted earnings per common share. The table also provides the number of
shares of common stock potentially issuable and the number of potentially
issuable shares excluded from the diluted earnings per share computation for
each period (in thousands, except per share data):





First
      Quarters Ended,March
      28, 2009
                                              
                                              
                                              March
      22, 2008Net
      income (loss) available to common stockholders
                                              
                                              $
                                              100
                                              
                                              
                                              $
                                              (3,107
                                              )Number
      of common shares outstanding at quarter end
                                              
                                              
                                              10,685
                                              
                                              
                                              
                                              10,675Effect
      of using weighted average common shares outstanding
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (3,055
                                              )Weighted
      average basic common shares outstanding
                                              
                                              
                                              10,685
                                              
                                              
                                              
                                              7,620Dilutive
      shares for share-based compensation plans
                                              
                                              
                                              69
                                              
                                              
                                              
                                              —Weighted
      average diluted common shares outstanding
                                              
                                              
                                              10,754
                                              
                                              
                                              
                                              7,620Potentially
      issuable shares
                                              
                                              
                                              959
                                              
                                              
                                              
                                              792Number
      of anti-dilutive potentially issuable shares excluded from diluted common
      shares outstanding
                                              
                                              
                                              890
                                              
                                              
                                              
                                              792Net
      income (loss) per share available to common stockholders:
      basic
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              (0.41
                                              )Net
      income (loss) per share available to common stockholders:
      diluted
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              (0.41
                                              )


For the
first fiscal quarter of 2009, the Company has excluded the effects of all stock
options as their inclusion would have had an anti-dilutive effect on earnings
per share. For the first fiscal quarter of 2008, the Company has excluded the
effects of stock options and restricted performance stock awards as their
inclusion would have had an anti-dilutive effect on loss per
share.


13


(9)    PRO
FORMA ADJUSTMENTS





For
comparison purposes, the Company has presented pro forma net loss, which
reflects income taxes assuming the Company had been a corporation since the time
of our formation and assuming tax rates equal to the rates that would have been
in effect had the Company been required to report tax expense in such years. A
one-time charge to earnings of $2.2 million was recorded in the first fiscal
quarter of 2008 reflecting the net deferred tax assets and deferred tax
liabilities at the time of the reorganization of the LLC to a ‘C’
corporation.





The
following table reconciles the components of net loss and pro forma net loss
available to common stockholders both for basic and diluted income loss per
common share (in thousands, except per share data):




First
      Quarter EndedMarch
      22, 2008Net
      loss available to common stockholders
                                                  
                                                  $
                                                  (3,107
                                                  )Net
      loss per share available to common stockholders: basic
                                                  
                                                  $
                                                  (0.41
                                                  )Net
      loss per share available to common stockholders: diluted
                                                  
                                                  $
                                                  (0.41
                                                  )Pro
      forma data:Net
      loss
                                                  
                                                  $
                                                  (2,768
                                                  )Pro
      forma provision for income taxes
                                                  
                                                  
                                                  497Return
      on preferred and mandatorily redeemable capital units
                                                  
                                                  
                                                  372Pro
      forma net loss available to common stockholders
                                                  
                                                  $
                                                  (3,637
                                                  )Pro
      forma net loss per share: basic
                                                  
                                                  $
                                                  (0.48
                                                  )Pro
      forma net loss per share: diluted
                                                  
                                                  $
                                                  (0.48
                                                  )Number
      of weighted average common shares outstanding: basic
                                                  
                                                  
                                                  7,620Dilutive
      shares for share-based compensation plans
                                                  
                                                  
                                                  —Number
      of weighted average common shares outstanding: diluted
                                                  
                                                  
                                                  7,620




14


ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS







Disclosure
Regarding Forward-Looking Statements





You should read the following
discussion in conjunction with our consolidated financial statements and related
notes in our Annual Report on Form 10-K filed with the SEC on March 30, 2009.
In addition to
historical information, this discussion contains forward-looking statements that involve risks,
uncertainties and assumptions that could cause actual results to differ materially from
our expectations. Factors that could cause such differences include those described
in “Risk Factors” and elsewhere in our Annual Report on Form 10-K for
fiscal 2008 filed with the SEC on March 30, 2009.  We undertake no
obligation to update any of the forward-looking statement.  Certain
tabular information may not foot due to rounding. Our fiscal year ends on the Saturday
closest to December 31. First quarters ended March 28, 2009 and March 22, 2008
represent the 12-week periods ended March 28, 2009 and March 22, 2008,
respectively. In addition to historical information, this quarterly
report contains forward-looking statements and are based on current management
expectations that involve substantial risks and uncertainties, which could cause
actual results to differ materially from the results expressed in, or implied
by, these forward-looking statements. These statements can be identified by the
fact that they do not relate strictly to historical or current facts. They use
words such as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “project,” “should,” “will be,” “will continue,” “will
likely result,” “would” and other words and terms of similar meaning in
conjunction with a discussion of future or estimated operating or financial
performance. You should read statements that contain these words carefully,
because they discuss our future expectations, contain projections of our future
results of operations or of our financial position or state other
“forward-looking” information. Forward-looking statements speak only as of the
date of this quarterly report. Except as required under federal securities laws
and the rules and regulations of the SEC, we do not have any intention, and do
not undertake, to update any forward-looking statements to reflect events or
circumstances arising after the date of this quarterly report, whether as a
result of new information, future events or otherwise. As a result of these
risks and uncertainties, readers are cautioned not to place undue reliance on
the forward-looking statements included in this quarterly report or that may be
made elsewhere from time to time by, or on behalf of, us. All forward-looking
statements attributable to us are expressly qualified by these cautionary
statements.





Overview





We are a
leading provider of industrial and hazardous waste services to small and
mid-sized customers who are engaged in vehicle maintenance or manufacturing
activities. We offer a broad range of services desired by these customers
including parts cleaning solvent management, and the removal and management of a
variety of regulated wastes. We operate from a network of 58 branch facilities
providing service to customers in 38 states.





Critical
Accounting Policies





Critical
accounting policies are those that both are important to the accurate portrayal
of a company’s financial condition and results, and require subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.





In order
to prepare financial statements that conform to accounting principles generally
accepted in the United States, commonly referred to as GAAP, we make estimates
and assumptions that affect the amounts reported in our financial statements and
accompanying notes. Certain estimates are particularly sensitive due to their
significance to the financial statements and the possibility that future events
may be significantly different from our expectations.





Management
believes that there have been no significant changes during the first fiscal
quarter of 2009 to the items that we disclosed as our critical accounting
policies and estimates in the section entitled Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report
on Form 10-K for the fiscal year ended January 3, 2009 filed with the United
States Securities and Exchange Commission on March 30, 2009.





15


New
Accounting Pronouncements





We have
adopted FAS 157, which defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement date. FAS 157
establishes a three-level fair value hierarchy that prioritizes the inputs used
to measure fair value. This hierarchy requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs. The three levels
of inputs used to measure fair value are as follows:





Level 1 –
            Quoted
      prices in active markets for identical assets or liabilities.Level 2 –
            Observable
      inputs other than quoted prices included in Level 1, such as quoted
      prices for similar assets and liabilities in active markets; quoted prices
      for identical or similar assets and liabilities in markets that are not
      active; or other inputs that are observable or can be corroborated by
      observable market data.Level 3 –
            Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or liabilities. This includes
      certain pricing models, discounted cash flow methodologies and similar
      techniques that use significant unobservable
  inputs.




All
financial assets and liabilities are measured at fair value on a recurring basis
(at least annually). As of the beginning of fiscal year 2009, FAS 157 is
applicable for non-financial assets and liabilities.




In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations
(Statement 141R) and FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial
Statements — an amendment to ARB No. 51 (Statement 160).
Statements 141R and 160 require most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in a business combination to be
recorded at “full fair value” and require noncontrolling interests (previously
referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with noncontrolling interest
holders. Both Statements were adopted on January 4, 2009. The adoption of SFAS
141R and 160 did not have a material impact on results of
operations.





In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS No. 162). SFAS No. 162 is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with GAAP. The FASB believes that the GAAP
hierarchy should be directed to entities because it is the entity (not its
auditor) that is responsible for selecting accounting principles for financial
statements that are presented in conformity with GAAP. SFAS 162 is
effective 60 days following the SEC’s approval of the PCAOB’s amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. We do not expect the adoption of SFAS 162 to
have a material effect on our consolidated financial statements.





In April
2008, the FASB issued FASB Staff Position FAS 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS 142-3”) which amends the list of factors
an entity should consider in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FAS No. 142,
Goodwill and Other Intangible
Assets (“FAS No. 142”). FSP FAS 142-3 applies to intangible assets
that are acquired individually or with a group of assets and intangible assets
acquired in both business combinations and asset acquisitions. FSP
FAS 142-3 removes the provision under FAS No. 142 that requires an entity
to consider whether the renewal or extension can be accomplished without
substantial cost or material modifications of the existing terms and conditions
associated with the asset. Instead, FSP FAS 142-3 requires that an entity
consider its own experience in renewing similar arrangements. An entity would
consider market participant assumptions regarding renewal if no such relevant
experience exists. FSP FAS 142-3 is effective for us beginning January 1,
2009. We have adopted FSP FAS 142-3 and the impact has been immaterial to our
consolidated financial statements.




16


RESULTS
OF OPERATIONS





First
      Quarter Ended,March
      28, 2009
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          March
      22, 2008
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          %Sales
                                                                                                                                                                                          
                                                                                                                                                                                          $
                                                                                                                                                                                          23,756
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          100.0
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          $
                                                                                                                                                                                          22,997
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          100.0
                                                                                                                                                                                          %Cost
      of sales
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          7,497
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          31.6
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          6,285
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          27.3
                                                                                                                                                                                          %Gross
      profit
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          16,259
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          68.4
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          16,712
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          72.7
                                                                                                                                                                                          %Operating
      costs
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          12,239
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          51.5
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          11,516
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          50.1
                                                                                                                                                                                          %Selling,
      general, and administrative expenses
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          3,852
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          16.2
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          6,631
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          28.8
                                                                                                                                                                                          %Operating
      income (loss)
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          168
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          0.7
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          (1,435
                                                                                                                                                                                          )
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          (6.2
                                                                                                                                                                                          )%Interest
      expense – net
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          —
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          0.0
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          353
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          1.5
                                                                                                                                                                                          %Income
      (loss) before income taxes
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          168
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          0.7
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          (1,788
                                                                                                                                                                                          )
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          (7.8
                                                                                                                                                                                          )%Provision for
      income taxes
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          68
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          0.3
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          980
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          4.3
                                                                                                                                                                                          %Net
      income (loss)
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          100
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          0.4
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          (2,768
                                                                                                                                                                                          )
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          (12.0
                                                                                                                                                                                          )%Preferred
      return
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          —
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          0.0
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          339
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          1.5
                                                                                                                                                                                          %Net
      income (loss) available to common stockholders
                                                                                                                                                                                          
                                                                                                                                                                                          $
                                                                                                                                                                                          100
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          0.4
                                                                                                                                                                                          %
                                                                                                                                                                                          
                                                                                                                                                                                          $
                                                                                                                                                                                          (3,107
                                                                                                                                                                                          )
                                                                                                                                                                                          
                                                                                                                                                                                          
                                                                                                                                                                                          (13.5
                                                                                                                                                                                          )%





First
quarter ended March 28, 2009 (“first fiscal quarter of 2009”) compared to first
quarter ended March 22, 2008 (“first fiscal quarter of 2008”)





Sales





For the
first fiscal quarter of 2009, sales increased $0.8 million, or 3.5%, to $23.8
million from $23.0 million for the first fiscal quarter of 2008. This is less
than the sales growth we reported in prior quarters, and reflects the impact on
our business of the start of the recession. We have yet to see a clear sign of
recovery or bottoming of this revenue trend and it is possible that in future
quarters of 2009, we could report modest revenue declines versus year-ago
quarters.





At the
end of the first fiscal quarter of 2009, we were operating 58 branch locations
compared with 54 at the end of the first fiscal quarter of 2008. There were
54 branches that were in operation during both the first fiscal quarter of
2009 and fiscal 2008, which experienced same-branch sales growth of
$0.4 million, or 1.6%. Excluding the 4 branches in this group that gave up
customers to new branch openings, the remaining 50 branches experienced
same-branch sales growth of 3.4%.





Fuel
surcharge revenues that we invoice our customers were the same in the first
fiscal quarter of 2009 as compared to the first fiscal quarter of
2008.





Cost
of sales





For the
first fiscal quarter of 2009, total cost of sales increased $1.2 million, or
19.1%, to $7.5 million from $6.3 million for the first fiscal quarter of 2008.
We recorded costs of approximately $0.9 million during the first fiscal quarter
of 2009 that related to declining crude oil prices.  These increased
costs reflect additional revaluation of our solvent held at our locations for
use in our service programs which must be valued at the lower of cost or
market.




17


Operating
costs





For the
first fiscal quarter of 2009, operating costs increased $0.7 million, or 6.1%,
to $12.2 million from $11.5 million for the first fiscal quarter of 2008.
Operating costs, including branch labor and collection truck costs, increased as
a percentage of sales as additional branches were established. Diesel fuel and
transportation costs decreased both in total as well as a percent of sales as
energy prices decreased in the first fiscal quarter of 2009 compared to the
first fiscal quarter of 2008.





Selling,
general & administrative expenses





For the
first fiscal quarter of 2009, selling, general and administrative expenses
decreased $2.7 million, or 40.1%, to $3.9 million from $6.6 million for the
first fiscal quarter of 2008. The decline was due to $3.2 million of expense for
employee stock options which were granted at the time of our initial public
offering and vested immediately along with the vesting of certain Key Employee
Membership Interest Trust “KEMIT” units in the first fiscal quarter of
2008.





Interest
expense - net





For the
first fiscal quarter of 2009, interest expense decreased by $0.4 million, or
100.0%, from $0.4 million in the first fiscal quarter of 2008. The decrease was
due to our reduction in total debt outstanding substantially due to our initial
public offering in March 2008.





Provision
for income taxes





In
connection with our initial public offering, we changed our parent company legal
structure from a limited liability company to a ‘C’ corporation. As a limited
liability company, we were not subject to federal or state corporate income
taxes and as such had not incurred any historical taxes. For comparison
purposes, we have presented pro forma net income, which reflects income taxes
assuming we had been a corporation since the time of our formation and assuming
tax rates equal to the rates that would have been in effect had we been required
to report tax expense in such years. A one-time charge to earnings of $2.2
million was recorded in the first quarter of fiscal 2008 reflecting the net
deferred tax assets and deferred tax liabilities at the time of the
reorganization of the LLC to a ‘C’ corporation.


18


FINANCIAL
CONDITION





Liquidity
and Capital Resources





Cash
and Cash Equivalents





As of
March 28, 2009 and January 3, 2009, cash and cash equivalents were
$2.2 million and $0.3 million, respectively. Our primary sources of
liquidity are cash flows from operations and funds available to borrow under our
bank credit facility.





Our
secured bank credit facility provides for borrowings of up to $25.0 million. On
March 3, 2008, we amended the credit facility to extend the maturity date of the
credit facility to December 31, 2010. Under the terms of the credit
facility, interest is payable monthly at the prime rate, unless the total
leverage ratio is greater than or equal to 2.75 to 1. The weighted average
effective interest rate for amounts outstanding was 3.25% and 6.58% at March 28,
2009 and January 3, 2009, respectively. Amounts borrowed under the credit
facility are secured by a security interest in substantially all of our tangible
and intangible assets. As of March 28, 2009, we were in compliance with all
covenants under the credit facility.  As of March 28, 2009 and January
3, 2009, $25.0 million and approximately $24.9 million were available for
borrowing under the bank credit facility, respectively.




We
believe that our existing cash, cash equivalents and available borrowings will
be sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. We cannot assure you that this
will be the case or that our assumptions regarding sales and expenses underlying
this belief will be accurate, especially given the current recession. Because
some of our services generally lag trends in the general economy, we do not
believe that our sales results reflect the complete impact of the U.S. recession
on our business, and expect that our sales could be adversely impacted by the
recession in fiscal 2009, which in turn could adversely impact our liquidity.
 If in the future, we require more liquidity than is available to us under
our credit facility, we may need to raise additional funds through debt or
equity offerings. Adequate funds may not be available when needed or may not be
available on terms favorable to us, especially given the current tightening of
the financial credit markets.  If additional funds are raised by issuing
equity securities, dilution to existing stockholders may result. If we raise
additional funds by obtaining loans from third parties, the terms of those
financing arrangements may include negative covenants or other restrictions on
our business that could impair our operational flexibility, and would also
require us to fund additional interest expense. If funding is insufficient at
any time in the future, we may be unable to develop or enhance our products or
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our business,
financial condition and results of operations.




First
      Quarter Ended,(Dollars
      in thousands)March
      28, 2009
                                      
                                      
                                      March
      22, 2008Net
      cash provided by (used in):Operating
      activities
                                      
                                      $
                                      3,142
                                      
                                      
                                      $
                                      (1,182
                                      )Investing
      activities
                                      
                                      
                                      (1,272
                                      )
                                      
                                      
                                      (1,404
                                      )Financing
      activities
                                      
                                      
                                      34
                                      
                                      
                                      
                                      2,386Net
      increase (decrease) in cash and cash equivalents
                                      
                                      $
                                      1,904
                                      
                                      
                                      $
                                      (200
                                      )




19


•
            Share-based
      compensation — The significant decline in share-based
      compensation positively affected the comparison of our cash flows from
      operations by approximately $3.1 million compared to the first fiscal
      quarter of 2008. This was due to the issuance of employee stock options
      granted at the time of our initial public offering in the first fiscal
      quarter of 2008 which vested immediately and also related to the vesting
      of certain Key Employee Membership Interest Trust “KEMIT”
      units.•
            Inventory —The
      significant decline in inventory positively affected cash flows from
      operations by $2.6 million compared to the first fiscal quarter of 2008.
      The change reflects the declining value of our inventories due to the
      decline in crude oil prices.  Although we show a benefit in cash
      flows from operations from the decline of prices, our gross margins and
      profits for the quarter were negatively impacted.•
            Accounts
      Receivable — The decline of accounts receivable provided an
      improvement of $1.8 million in cash flows from operations compared to the
      first fiscal quarter of 2008. During the first fiscal quarter of 2009 we
      saw a reduction of our accounts receivables as receipts were higher than
      sales for the quarter.





Net Cash Used in Investing
Activities — The most significant items affecting the comparison of our
investing activities for the periods presented are summarized
below:




•
            Capital expenditures —We used $1.3 million during the first fiscal quarter of 2009
      for capital expenditures, compared with $1.4 million in first fiscal
      quarter of 2008. Capital expenditures in 2009 were mostly flat in our core
      business. During the first fiscal quarter of 2009, approximately
      $0.7 million of the capital expenditures were for purchases of parts
      cleaning machines compared to $0.7 million in the first fiscal quarter of
      2008. The remaining $0.6 million in the first fiscal quarter of 2009
      was for other items including office equipment, leasehold improvements,
      software and intangible assets compared to $0.7 million in the first
      fiscal quarter of 2008.




Net Cash Used in Financing
Activities — The most significant items affecting the comparison of our
financing activities for the periods presented are summarized
below:




•
            Proceeds from issuance of
      common stock  — In March 2008, we raised net proceeds of $33.2
      million from an initial public offering and concurrent direct placement.
      These net proceeds include offering costs of $0.9 million paid prior
      to fiscal year end 2007 and include approximately $1.0 million of offering
      costs paid subsequent the initial public offering. The proceeds were used
      to reduce borrowings under our credit facility which included $10.9
      million borrowed in March 2008 used to pay preferred members for an
      accrued return on preferred units as part of the reorganization. In the
      first fiscal quarter of 2009 we had no such
  event.







20


ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





We are
exposed to interest rate risks primarily through borrowings under our bank
credit facility. Interest on these borrowings is based upon variable interest
rates. As we had no debt outstanding for the majority of the first fiscal
quarter of 2009, our weighted average borrowings under our bank credit facility
during the first fiscal quarter of 2009 was negligible. The annual
effective interest rate for the first fiscal quarter of 2009 was 3.25%. We
currently do not hedge against interest rate risk.





ITEM
4. CONTROLS AND PROCEDURES





The
Company's Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation as of the end of the period covered by this report,
that the Company's disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding financial disclosures. There was no change in the Company's internal
control over financial reporting that occurred during the first fiscal quarter
of 2009 that has materially affected or is reasonably likely to materially
affect, the Company's internal control over financial reporting.

















21


PART
II - OTHER INFORMATION




ITEM 6.
EXHIBITS





31.1
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
              
              Certification
      of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002


22


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.









HERITAGE-CRYSTAL
CLEAN, INC.









Date: May 8, 2009
              By:
              /s/
      Gregory RayGregory
      RayChief Financial Officer,
      Vice President, Business Management and
  Secretary