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
      1934





For
the quarterly period ended June 30, 2009.


or




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





For the
transition period from ___________________ to
___________________





Commission
File Number:0-53287





Pure
Earth, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            
            84-1385335(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)





One
      Neshaminy Interplex, Suite 201, Trevose, Pennsylvania
      19053(Address
      of principal executive offices) (Zip
Code)





(215) 639-8755(Registrant’s
      telephone number, including area code)N/A(Former
      name, former address and former fiscal year, if
              changed
      since last report)





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 xNo o





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 oNo o





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


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


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


Yes oNo x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:  17,506,799 shares of Common
Stock, $.001 par value, as of August 10, 2009.







PURE
EARTH, INC.





QUARTERLY
REPORT ON FORM 10-Q


FOR
THE QUARTER ENDED JUNE 30, 2009





TABLE
OF CONTENTS


PART I - FINANCIAL
    INFORMATION
              
              1Item 1.
              Condensed Consolidated Financial
      Statements.
              
              1Item 2.
              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations.
              
              26Item 3.
              Quantitative and Qualitative Disclosures About
      Market Risk.
              
              61Item 4.
              Controls and Procedures.
              
              61PART II - OTHER INFORMATION
              
              61Item 1.
              Legal Proceedings.
              
              61Item 1A.
              Risk Factors.
              
              63Item 2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              
              64Item 3.
              Defaults Upon Senior
    Securities
              
              65Item 4.
              Submission of Matters to a Vote of Security
      Holders
              
              66Item 6.
              Exhibits.
              
              66SIGNATURES
              
              68
  *      *      *




In
this quarterly report, unless the context otherwise requires, the terms “we”
“us,” “our,” and the “Company” refer to Pure Earth, Inc. and our consolidated
subsidiaries taken together as a whole.




Pursuant
to Item 10(f) of Regulation S-K promulgated under the Securities Act of 1933, we
have elected to comply throughout this quarterly report with the scaled
disclosure requirements applicable to “smaller reporting
companies.”  Except as specifically included in the quarterly report,
items not required by the scaled disclosure requirements have been
omitted.




i




PART
I - FINANCIAL INFORMATION




Item
1. Financial
Statements.




PURE
EARTH, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




ASSETS


June
      30, 2009
            
            
            December
      31, 2008(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
            
            $
            663,171
            
            
            $
            900,744Accounts
      receivable, less allowance for doubtful accountsof
      $497,598 and $986,324
            
            
            10,773,030
            
            
            
            11,034,564Restricted
      cash
            
            
            210,816
            
            
            
            813,164Due
      from joint venture
            
            
            524,159
            
            
            
            342,552Inventories
            
            
            854,939
            
            
            
            538,943Prepaid
      expenses
            
            
            412,668
            
            
            
            798,629Other
      current assets
            
            
            1,634,503
            
            
            
            1,069,892Deferred
      income tax asset
            
            
            306,073
            
            
            
            306,073Total
      Current Assets
            
            
            15,379,359
            
            
            
            15,804,561PROPERTY
      AND EQUIPMENTLand
            
            
            1,085,940
            
            
            
            1,085,940Buildings
      and improvements
            
            
            7,125,309
            
            
            
            7,125,309Leasehold
      improvements
            
            
            211,875
            
            
            
            211,875Machinery
      and equipment
            
            
            10,095,410
            
            
            
            8,078,035Trucks
      and automobiles
            
            
            1,922,245
            
            
            
            1,922,246Office
      furniture, fixtures and computer software
            
            
            337,320
            
            
            
            323,16020,778,099
            
            
            
            18,746,565Less:
      accumulated depreciation and amortization
            
            
            (5,707,745
            )
            
            
            (4,435,569
            )Property
      and Equipment, Net
            
            
            15,070,354
            
            
            
            14,310,996OTHER
      ASSETSDeposits
      and other assets
            
            
            1,238,405
            
            
            
            923,335Deferred
      financing costs, net of accumulated amortization of $381,298and
      $199,663
            
            
            641,354
            
            
            
            747,989Goodwill
            
            
            759,694
            
            
            
            759,694Permits
            
            
            2,200,000
            
            
            
            2,200,000Other
      intangible assets, net of accumulated amortization
            
            
            3,021,312
            
            
            
            3,587,210Idle
      machinery
            
            
            5,158,100
            
            
            
            7,176,850Total
      Other Assets
            
            
            13,018,865
            
            
            
            15,395,078TOTAL
      ASSETS
            
            $
            43,468,578
            
            
            $
            45,510,635





The
accompanying notes are an integral part of these condensed consolidated
financial statements.




1


PURE
EARTH, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




LIABILITIES
AND STOCKHOLDERS’ EQUITY


June
      30, 2009
                          
                          
                          December
      31, 2008(Unaudited)CURRENT
      LIABILITIESLine
      of credit
                          
                          $
                          2,364,247
                          
                          
                          $
                          407,822Notes
      payable
                          
                          
                          -
                          
                          
                          
                          25,068Note
      payable – related party
                          
                          
                          333,000
                          
                          
                          
                          333,000Current
      portion of long-term debt
                          
                          
                          1,602,887
                          
                          
                          
                          1,556,494Accounts
      payable
                          
                          
                          6,608,453
                          
                          
                          
                          5,615,708Accrued
      expenses
                          
                          
                          823,037
                          
                          
                          
                          907,428Accrued
      payroll and payroll taxes
                          
                          
                          371,109
                          
                          
                          
                          297,039Other
      current liabilities
                          
                          
                          498,236
                          
                          
                          
                          1,323,452Accrued
      disposal costs
                          
                          
                          48,152
                          
                          
                          
                          262,815Income
      taxes payableTotal
      Current Liabilities
                          
                          
                          12,649,121
                          
                          
                          
                          10,728,826LONG-TERM
      LIABILITIESLong-term
      debt, net of current portion
                          
                          
                          7,608,810
                          
                          
                          
                          8,426,740Mandatorily
      redeemable Series B preferred stock, $.001 par value; authorized 20,000
      shares; issued and outstanding 6,300 and 6,300 shares
                          
                          
                          4,723,897
                          
                          
                          
                          4,447,437Note
      payable -- related party
                          
                          
                          678,348
                          
                          
                          
                          650,296Accrued
      disposal costs
                          
                          
                          167,254
                          
                          
                          
                          78,023Contingent
      consideration
                          
                          
                          2,383,991
                          
                          
                          
                          2,683,991Warrants
      with contingent redemption provisions
                          
                          
                          766,847
                          
                          
                          
                          1,112,164Deferred
      income taxes
                          
                          
                          2,954,438
                          
                          
                          
                          4,047,236Deferred
      income taxes – permits
                          
                          
                          880,000
                          
                          
                          
                          880,000Total Long-Term
      Liabilities
                          
                          
                          20,163,585
                          
                          
                          
                          22,325,887TOTAL
      LIABILITIES
                          
                          
                          32,812,706
                          
                          
                          
                          33,054,713COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYCommon
      stock, $.001 par value; authorized 25,000,000 shares; issued and
      outstanding 17,506,799 and 17,626,799 shares
                          
                          
                          17,507
                          
                          
                          
                          17,627Additional
      paid-in capital
                          
                          
                          13,683,594
                          
                          
                          
                          13,803,474Accumulated
      deficit
                          
                          
                          (3,045,229
                          )
                          
                          
                          (1,365,179
                          )TOTAL
      STOCKHOLDERS’ EQUITY
                          
                          
                          10,655,872
                          
                          
                          
                          12,455,922TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
                          $
                          43,468,578
                          
                          
                          $
                          45,510,635





The
accompanying notes are an integral part of these condensed consolidated
financial statements.




2


.


PURE
EARTH INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS




For
      the Three Months Ended
                June
      30,
            
            
            
            For
      the Six Months Ended
                June
      30,2009
            
            
            
            2008
            
            
            
            2009
            
            
            
            2008(Unaudited
            
            
            
            (Unaudited)
            
            
            
            (Unaudited)
            
            
            
            (Unaudited)REVENUES
            
            $
            11,999,351
            
            
            $
            17,891,087
            
            
            $
            24,066,496
            
            
            $
            32,507,643COST OF
      REVENUES (including depreciation and amortization expense of
      $1,242,987 and $1,272,379 for the sixmonths
      ended June 30, 2009 and 2008 and $668,726 and $644,696 for the three
      months ended June 30, 2009 and 2008)
            
            
            10,481,381
            
            
            
            14,061,359
            
            
            
            20,272,439
            
            
            
            26,420,679GROSS
      PROFIT
            
            
            1,517,970
            
            
            
            3,829,728
            
            
            
            3,794,057
            
            
            
            6,086,964OPERATING
      EXPENSESSalaries
      and related expenses
            
            
            1,410,198
            
            
            
            1,778,757
            
            
            
            2,852,577
            
            
            
            3,026,434Occupancy
      and other office expenses
            
            
            233,233
            
            
            
            273,183
            
            
            
            501,900
            
            
            
            565,153Professional
      fees
            
            
            462,830
            
            
            
            559,305
            
            
            
            1,023,642
            
            
            
            1,065,502Other
      operating expenses
            
            
            594,194
            
            
            
            229,214
            
            
            
            967,553
            
            
            
            731,497Insurance
            
            
            192,966
            
            
            
            356,615
            
            
            
            440,946
            
            
            
            599,190Depreciation
      and amortization
            
            
            162,842
            
            
            
            137,785
            
            
            
            320,292
            
            
            
            254,219Impairment
      of idle machinery
            
            
            —
            
            
            
            412,500
            
            
            
            --
            
            
            
            412,500Gain
      on sale of equipment
            
            
            (11,416
            )
            
            
            (3,403
            )
            
            
            (11,416
            )
            
            
            (256,345
            )TOTAL
      OPERATING EXPENSES
            
            
            3,044,847
            
            
            
            3,743,956
            
            
            
            6,095,494
            
            
            
            6,398,150INCOME
      (LOSS) FROM OPERATIONS
            
            
            (1,526,877
            )
            
            
            85,772
            
            
            
            (2,301,437
            )
            
            
            (311,186
            )OTHER INCOME
      (EXPENSES)Interest
      income
            
            
            —
            
            
            
            48,246
            
            
            
            —
            
            
            
            62,810Interest
      expense
            
            
            (617,747
            )
            
            
            (535,077
            )
            
            
            (1,187,717
            )
            
            
            (866,405
            )Loss
      from equity investment
            
            
            (4,333
            )
            
            
            —
            
            
            
            (107,930
            )
            
            
            —Other
      income
            
            
            840,490
            
            
            
            97,580
            
            
            
            824,236
            
            
            
            112,753TOTAL
      OTHER INCOME (EXPENSES)
            
            
            218,410
            
            
            
            (389,251
            )
            
            
            (471,411
            )
            
            
            (690,842
            )LOSS
      BEFORE INCOME TAXES
            
            
            (1,308,467
            )
            
            
            (303,479
            )
            
            
            (2,772,848
            )
            
            
            (1,002,028
            )BENEFIT
      FROM INCOME TAXES
            
            
            (436,755
            )
            
            
            (126,034
            )
            
            
            (1,092,798
            )
            
            
            (415,842
            )NET
      LOSS
            
            
            (871,712
            )
            
            
            (177,445
            )
            
            
            (1,680,050
            )
            
            
            (586,186
            )Less:
      preferred stock dividends
            
            
            —
            
            
            
            452,845
            
            
            
            —
            
            
            
            477,845NET
      LOSS AVAILABLE FOR  COMMON STOCKHOLDERS
            
            $
            (871,712
            )
            
            $
            (630,290
            )
            
            $
            (1,680,050
            )
            
            $
            (1,064,031
            )NET LOSS PER COMMON
      SHAREBasic
      and Diluted
            
            $
            (0.05
            )
            
            $
            (0.04
            )
            
            $
            (0.10
            )
            
            $
            (0.06
            )WEIGHTED AVERAGE
      SHARES OF COMMON STOCK OUTSTANDINGBasic
      and Diluted
            
            
            17,522,239
            
            
            
            17,233,917
            
            
            
            17,574,230
            
            
            
            17,228,499





The
accompanying notes are an integral part of these condensed consolidated
financial statements




3







PURE
EARTH INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


For
the Six Months Ended June 30, 2009


(Unaudited)




Common
      Stock
            
            
            Additional
              Paid-in
            
            
            Retained
            
            
            Total
              Stockholders'Shares
            
            
            Amount
            
            
            Capital
            
            
            Earnings
            
            
            EquityBALANCE -
      January 1, 2009
            
            
            17,626,799
            
            
            $
            17,627
            
            
            $
            13,803,474
            
            
            $
            (1,365,179
            )
            
            $
            12,455,922Issuance
      of common stock for legal settlement
            
            
            30,000
            
            
            
            30
            
            
            
            29,970
            
            
            
            —
            
            
            
            30,000Issuance
      of common stock to consultants
            
            
            50,000
            
            
            
            50
            
            
            
            49,950
            
            
            
            —
            
            
            
            50,000Retirement
      of common stock
            
            
            (200,000
            )
            
            
            (200
            )
            
            
            (199,800
            )
            
            
            —
            
            
            
            (200,000
            )Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,680,050
            )
            
            
            (1,680,050
            )BALANCE - June
      30, 2009
            
            
            17,506,799
            
            
            $
            17,507
            
            
            $
            13,683,594
            
            
            $
            (3,045,229
            )
            
            $
            10,655,872





The
accompanying notes are an integral part of these condensed consolidated
financial statements.




4




PURE
EARTH INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS




Six
      Months EndedJune
      30,2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)CASH FLOWS FROM OPERATING
      ACTIVITIESNet
      loss
                
                $
                (1,680,050
                )
                
                $
                (586,186
                )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                
                
                1,297,379
                
                
                
                1,287,159Other
      intangible assets amortization
                
                
                265,898
                
                
                
                239,439Deferred
      financing cost amortization
                
                
                181,635
                
                
                
                51,277Interest
      expense for accretion of warrant and debt discount
                
                
                143,602
                
                
                
                74,771Interest
      expense for Series B preferred stock payment-in-kind
                
                
                132,858
                
                
                
                82,089Impairment
      of idle equipment
                
                
                —
                
                
                
                412,500Provision
      for doubtful accounts
                
                
                287,157
                
                
                
                41,647Gain
      on sale of property and equipment
                
                
                (11,416
                )
                
                
                (256,345
                )Change
      in fair value of derivatives and other assets and
      liabilities measured at fair value
                
                
                (5,778
                )
                
                
                —Restricted
      stock grant
                
                
                80,000
                
                
                
                74,000Change
      in fair value of warrants with contingent redemption
      provisions
                
                
                (345,317
                )
                
                
                —Deferred
      income taxes
                
                
                (1,092,798
                )
                
                
                (165,000
                )Changes
      in operating assets and liabilitiesAccounts
      receivable
                
                
                (1,025,623
                )
                
                
                661,558Inventories
                
                
                (315,996
                )
                
                
                (12,107
                )Prepaid
      expenses and other current assets
                
                
                821,350
                
                
                
                275,188Deposits
      and other assets
                
                
                (315,071
                )
                
                
                190,271Restricted
      cash
                
                
                602,348
                
                
                
                —Accounts
      payable
                
                
                992,745
                
                
                
                435,513Accrued
      expenses and other current liabilities
                
                
                (810,537
                )
                
                
                (1,411,892
                )Accrued
      disposal costs
                
                
                (125,432
                )
                
                
                (1,014,936
                )Due
      from affiliates
                
                
                (181,607
                )
                
                
                —Income
      taxes payable
                
                
                —
                
                
                
                (1,024,603
                )TOTAL
      ADJUSTMENTS
                
                
                575,397
                
                
                
                (59,471
                )NET
      CASH USED IN OPERATING ACTIVITIES
                
                
                (1,104,653
                )
                
                
                (645,657
                )CASH FLOWS FROM INVESTING
      ACTIVITIESAcquisitions
      of businesses and assets
                
                
                —
                
                
                
                (44,803
                )Payments
      for pending acquisitions
                
                
                —
                
                
                
                (448,895
                )Acquisitions
      of property and equipment
                
                
                (51,943
                )
                
                
                (509,737
                )Proceeds
      from sale of equipment
                
                
                25,373
                
                
                
                573,670NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (26,570
                )
                
                
                (429,765
                )CASH FLOWS FROM FINANCING
      ACTIVITIESRepayment
      of (advances for) related party loans
                
                
                28,052
                
                
                
                (57,822
                )Net
      borrowings (repayments) on line of credit
                
                
                1,956,425
                
                
                
                (647,832
                )Repayment
      of notes payable
                
                
                (25,068
                )
                
                
                (515,202
                )Repayment
      of long-term debt
                
                
                (765,759
                )
                
                
                (854,880
                )Proceeds
      from equipment financing
                
                
                —
                
                
                
                200,000Financing
      fees incurred
                
                
                (75,000
                )
                
                
                (506,579
                )Retirement
      of common stock
                
                
                (200,000
                )
                
                
                —Private
      placements of common and preferred stock
                
                
                —
                
                
                
                6,300,000Dividends
      paid on Series A preferred stock
                
                
                (25,000
                )
                
                
                (75,000
                )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                893,650
                
                
                
                3,842,685NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                (237,573
                )
                
                
                2,767,263CASH AND CASH
      EQUIVALENTS  - BEGINNING OF PERIOD
                
                
                900,744
                
                
                
                1,885,014CASH AND CASH EQUIVALENTS - END OF
      PERIOD
                
                $
                663,171
                
                
                $
                4,652,277


The
accompanying notes are an integral part of these condensed consolidated
financial statements.




5







Six
      Months EndedJune
      30,2009
              
              
              2008(Unaudited)
              
              
              (Unaudited)SUPPLEMENTARY INFORMATIONCash
      paid during the periods for:Interest
              
              $
              989,066
              
              
              $
              629,935Income
      taxes
              
              $
              11,900
              
              
              $
              941,439Non-cash
      investing and financing activities:Debt
      and other liabilities incurred in acquisition of businesses and asset
      purchases
              
              $
              —
              
              
              $
              3,543,991Acquisitions
      of businesses and assets in exchange for shares of common
      stock
              
              $
              —
              
              
              $
              74,500Property
      and equipment financed with debt
              
              $
              —
              
              
              $
              428,049


The
accompanying notes are an integral part of these condensed consolidated
financial statements.




6





PURE
EARTH, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





NOTE 1 -
Business Operations
and Consolidation




The
accompanying condensed consolidated financial statements include the accounts of
Pure Earth, Inc. (“Pure Earth”) and its wholly owned subsidiaries, Pure Earth
Transportation & Disposal, Inc. (“PE Transportation and Disposal”); Juda
Construction, Ltd. (“Juda”); PEI Disposal Group, Inc. (“PEI Disposal Group”);
Casie Ecology Oil Salvage, Inc. (“Casie”); Rezultz, Incorporated (“Rezultz”);
MidAtlantic Recycling Technologies, Inc. (“MART”); Pure Earth Energy Resources,
Inc. (“PEER”); Pure Earth Environmental, Inc. (“PE Environmental”); Bio Methods
LLC (“BioMethods”); Geo Methods, LLC (“GeoMethods”); Echo Lake Brownfield, LLC
(“Echo Lake”); HFH Acquisition Corp. (“HFH”); Pure Earth Materials, Inc. (“PE
Materials”); Pure Earth Materials (NJ) Inc. (“PE Materials NJ”); and New Nycon,
Inc. (“New Nycon”).  Casie, Rezultz and MART are also collectively
referred to as “Casie Group,” and Pure Earth and its subsidiaries, taken
together as a whole, are collectively referred to as the
“Company”.  All significant intercompany accounts and transactions
have been eliminated.





The
Company’s reportable segments are strategic business units that offer
environmental services within the Company’s continuum of environmental
strategies. With respect to the three and six months ended June 30, 2009 and
2008, the Company had five reportable segments: Transportation and Disposal,
Treatment and Recycling, Environmental Services, Materials and Concrete
Fibers.  The Concrete Fibers segment was formed effective on April 1,
2008 with the acquisition of Nycon, Inc. (Note 3).





NOTE 2 –
Basis of Presentation
and Summary of
Significant Accounting Policies




Basis of
Presentation




These
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission (the “Commission”) for
presenting interim financial information.  Accordingly, they do not
include all the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations.  Certain
prior period amounts have been reclassified to conform to the current
presentation.




These
statements include all adjustments (consisting only of normal recurring
adjustments) which management believes necessary for a fair presentation of the
condensed consolidated financial statements and to make them not misleading. The
interim operating results for the three and six months ended June 30, 2009 and
June 30, 2008 are not necessarily indicative of operating results expected for
the full year.  For further information refer to the Company’s
consolidated financial statements and footnotes thereto as of December 31, 2008
and 2007 and for the years then ended contained in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2008, filed with the
Commission on March 31, 2009.




7





Use of
Estimates





The
preparation of condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the condensed consolidated financial statements and accompanying
notes.  Actual results could differ from those estimates. Critical
accounting policies requiring the use of estimates are allowance for doubtful
accounts, depreciation and amortization, impairment testing for intangible
assets, goodwill and idle machinery, accrued disposal costs, deferred revenue,
inventories, assets and liabilities accounted for at fair value, the valuation
of stock based compensation, the Company’s mandatorily redeemable Series B
preferred stock (the “Series B Preferred Stock”) and warrants to purchase common
stock.





Inventories





Inventories
are valued at the lower of cost or market by the weighted average cost method
and are comprised of crushed rock, recycled oil, and concrete fibers which are
considered finished products.  The value of the inventories as of June
30, 2009 and December 31, 2008 were as follows:





June
      30,
            
            
            December
      31,2009
            
            
            2008(unaudited)Recycled
      oil
            
            $
            284,443
            
            
            $
            248,151Crushed
      rock
            
            
            363,227
            
            
            
            64,500Concrete
      fiber
            
            
            207,269
            
            
            
            226,292Totals
            
            $
            854,939
            
            
            $
            538,943




Earnings Per
Share





Basic
earnings per share (“EPS”) is calculated by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period and excludes any potentially dilutive
securities.   Diluted EPS gives effect to all potentially
dilutive securities outstanding during each period that were outstanding during
the period but does not include such securities if their effect would be
anti-dilutive, in accordance with SFAS No. 128, “Earnings per
Share.”





The
Company’s computation of diluted EPS excludes 20,000 shares of Series A
redeemable convertible preferred stock for the three and six months ended June
30, 2008 (which shares were not outstanding at December 31, 2008) since its
effect was anti-dilutive due to the Company’s net loss.  Additionally,
1,091,818 common stock purchase warrants were excluded from the determination of
diluted EPS for three and six months ended June 30, 2009 and 2008 as their
effect is also anti-dilutive.





Recently Issued Accounting
Pronouncements





Business
Combinations.  In December 2007, the Financial Accounting
Standards Board (“FASB”) issued SFAS No. 141R, “Business Combinations”
(“SFAS 141R”), which replaces SFAS 141, “Business Combinations.” SFAS 141R
establishes principles and requirements for determining how an enterprise
recognizes and measures the fair value of certain assets and liabilities
acquired in a business combination, including noncontrolling interests,
contingent consideration, and certain acquired contingencies. SFAS 141R also
requires acquisition-related transaction expenses and restructuring costs be
expensed as incurred rather than capitalized as a component of the business
combination. SFAS 141R will be applicable prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The adoption of SFAS
141R will have an impact on accounting for any businesses acquired after the
effective date of this pronouncement.





Noncontrolling Interests.In December 2007, the FASB
issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements - An Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary (previously referred to as minority interests). SFAS 160 also
requires that a retained noncontrolling interest upon the deconsolidation of a
subsidiary be initially measured at its fair value. The Company adopted SFAS 160
beginning on January 1, 2009. As a result, the Company is required to report any
noncontrolling interests as a separate component of stockholders’ equity. The
Company is also required to present any net income allocable to noncontrolling
interests and net income attributable to the stockholders of the Company
separately in its consolidated statements of income. SFAS 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. SFAS 160 requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. All
other requirements of SFAS 160 shall be applied prospectively. SFAS 160 will
have an impact on the presentation and disclosure of the noncontrolling
interests of any non wholly-owned businesses acquired in the
future.




8





Derivative Instruments.  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement
No. 133” (“SFAS 161”). SFAS 161 changes the disclosure requirements for
derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  The guidance in SFAS 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
encouraged. The Company has applied the additional disclosure requirements to
its derivative activities for periods beginning on or after January 1,
2009.





Hierarchy of
GAAP.  In May 2008, the FASB issued SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS
162 identifies the sources of accounting principles and the framework for
selecting the accounting principles used in preparing financial statements of
nongovernmental entities that are presented in conformity with GAAP (the
“GAAP Hierarchy”). Currently, the GAAP Hierarchy is provided in the
American Institute of Certified Public Accountants’ U.S. Auditing Standards
(“AU”) Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles” (“AU Section 411”). SFAS 162 is
effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board’s amendments to AU Section 411.  The
adoption of SFAS 162 will not have an impact on the Company’s consolidated
financial position, results of operations, or cash flows.





Intangible
Assets.  In April 2008, the FASB issued FASB Staff Position
(“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible Assets”
(“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS No. 142”) in order to
improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS No. 141(R) and other
generally accepted accounting principles (“GAAP”). FSP FAS 142-3 is
effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008 and is to be applied prospectively to
intangible assets acquired after the effective date. Disclosure requirements are
to be applied to all intangible assets recognized as of, and subsequent to, the
effective date. Early adoption is not permitted.  The adoption of FSP
FAS 142-3 did not have an impact on the Company’s consolidated financial
position, results of operations, or cash flows.





Convertible Debt
Instruments.  In May 2008, the FASB issued FSP Accounting
Principles Board Opinion (“APB”) 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion” (“FSP APB 14-1”). FSP
APB 14-1 requires the issuer of certain convertible debt instruments that may be
settled in cash or other assets upon conversion to separately account for the
liability and equity components of the instrument in a manner that reflects the
issuer’s nonconvertible debt borrowing rate. FSP APB 14-1 is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008 and is to be applied retrospectively to all periods
presented, with certain exceptions. Early adoption is not permitted. The Company
does not currently have any convertible debt outstanding and therefore the
adoption of FSP APB 14-1 did not have any impact on its consolidated financial
statements, however it may impact the accounting for future debt
issuances.




9





Instruments Indexed to
Stock.  In June 2008, the FASB ratified the consensus reached
by the EITF on three issues discussed at its June 12, 2008 meeting
pertaining to EITF 07-5, “Determining Whether an Instrument (or Embedded
Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). The issues
include how an entity should evaluate whether an instrument, or embedded
feature, is indexed to its own stock, how the currency in which the strike price
of an equity-linked financial instrument, or embedded equity-linked feature, is
denominated affects the determination of whether the instrument is indexed to an
entity’s own stock and how the issuer should account for market-based employee
stock option valuation instruments. EITF 07-5 is effective for financial
instruments issued for fiscal years and interim periods beginning after
December 15, 2008 and is applicable to outstanding instruments as of the
beginning of the fiscal year it is initially applied. The cumulative effect, if
any, of the change in accounting principle shall be recognized as an adjustment
to the opening balance of retained earnings. The adoption of EITF 07-5 did not
have an impact on the Company’s consolidated financial statements as it does not
currently have any instruments outstanding with these features, however it may
impact the accounting for the issuance of future warrants or other instruments
indexed to the Company’s common stock.





Conforming Changes to
EITF 98-5.  In June 2008, the FASB ratified the consensus
reached on June 12, 2008 by the EITF on EITF 08-4, “Transition
Guidance for Conforming Changes to EITF Issue No. 98-5, “Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios” (“EITF 08-4”). The conforming changes to
EITF 98-5 resulting from EITF 00-27, “Application of Issue
No. 98-5 to Certain Convertible Instruments” (“EITF 00-27”) and
SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity” are effective for financial
statements issued for fiscal years and interim periods ending after
December 15, 2008. The effect, if any, of applying the conforming changes
shall be presented retrospectively and the cumulative effect of the change in
accounting principle shall be recognized as an adjustment to the opening balance
of retained earnings of the first period presented.  The adoption of
EITF 08-4 did not have any impact on the Company’s consolidated financial
statements as the Company’s application of EITF 00-27 is consistent with
the guidance of this issue.





Share Based
Payments.  On June 16, 2008, the FASB issued FSP Emerging
Issues Task Force ("EITF") No. 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities, which
concluded that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of EPS
pursuant to the two-class method. FSP No. EITF 03-6-1 is effective for fiscal
years beginning after December 15, 2008, and interim periods within those years.
Upon adoption, a company is required to retrospectively adjust its earnings per
share data to conform with the provisions of FSP No. EITF 03-6-1. The adoption
of FSP EITF 03-6-1 did not have any impact on the Company’s consolidated
financial statements as there were no unvested share-based payment awards
outstanding.





Postretirement
Plans.  In December 2008, the FASB issued FSP No. FAS 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP
132(R)-1).  FSP 132(R)-1 provides guidance on a plan sponsor’s
disclosures about plan assets of defined benefit pension and postretirement
plans. Required disclosures include information about categories of plan assets,
fair value measurements of plan assets, and significant concentrations of risk,
as well as investment policies and strategies. FSP 132(R)-1 is effective for
fiscal years ending after December 15, 2009.  The Company does
not currently maintain a defined benefit plan or postretirement plan and
therefore the adoption of FSP132(R)-1 is not expected to have an impact on the
consolidated financial statements.





Impairment.In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments” (FSP 115-2 and 124-2). FSP
115-2 and 124-2 amends the guidance on other-than-temporary impairment for debt
securities and modifies the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. This FSP
is effective for interim and annual periods ending after June 15, 2009. The
Company does not currently have any outstanding debt securities, therefore the
adoption of FSP 115-2 and 124-2 did not have an impact on the consolidated
financial statements.




10





Fair
Value.In February 2008, the FASB issued FSP 157-1,
“Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements For Purposes of
Lease Classification or Measurement Under Statement 13” (“FSP 157-1”) and FSP
157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), which,
respectively, remove leasing transactions from the scope of SFAS 157 and defer
its effective date for one year relative to certain nonfinancial assets and
liabilities. As a result, the application of the definition of fair value and
related disclosures of SFAS 157 (as impacted by FSP 157-1 and FSP 157-2) was
effective for the Company beginning January 1, 2008 on a prospective basis with
respect to fair value measurements of (a) nonfinancial assets and liabilities
that are recognized or disclosed at fair value in the Company’s financial
statements on a recurring basis (at least annually) and (b) all financial assets
and liabilities. This adoption did not have a material impact on the Company’s
consolidated financial position or results of operations.  The
remaining aspects of SFAS 157 for which the effective date was deferred under
FSP 157-2 are currently being evaluated by the Company. Areas impacted by the
deferral relate to nonfinancial assets and liabilities that are measured at fair
value, but are recognized or disclosed at fair value on a nonrecurring basis.
This deferral applies to such items as nonfinancial assets and liabilities
initially measured at fair value in a business combination (but not measured at
fair value in subsequent periods) or nonfinancial long-lived assets groups
measured at fair value for an impairment assessment.  The effects of
these remaining aspects of SFAS 157 have been applied to fair value measurements
prospectively beginning January 1, 2009, and did not have a material impact on
the Company’s consolidated financial position or results of
operations.





In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active” (“FSP
FAS 157-3”), which clarifies the application of SFAS No. 157 in a
market that is not active. The guidance in FSP 157-3 was effective immediately
including prior periods for which financial statements had not been
issued.  The implementation of this standard did not have a material impact
on the Company’s consolidated financial statements.





In April 2009, the FASB
issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (FSP 157-4). FSP 157-4 provides additional
guidance for estimating fair value under Statement of Financial Accounting
Standard No. 157, “Fair Value Measurements” (“SFAS 157”) when there is an
inactive market or the market is not orderly. This FSP is effective for interim
and annual periods ending after June 15, 2009.  The adoption of
FSP 157-4 did not have a material impact on the Company’s condensed consolidated
financial statements.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” (FSP 107-1 and 28-1). This FSP requires
disclosure about fair value of financial instruments in interim periods, as well
as annual financial statements.  FSP 107-1 and 28-1 is effective for
interim periods ending after June 15, 2009.  The Company adopted
FSP 107-1 and 28-1 on June 15, 2009, and has included the additional interim
disclosures as required by this FSP within the notes to the condensed
consolidated financial statements as of June 30, 2009 and for the six months
then ended.  See Note 10 to the condensed consolidated financial
statements for more information.





Subsequent
Events.  In May 2009, the FASB issued SFAS No. 165,
“Subsequent Events,” which establishes general standards of and accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  SFAS
165 was effective for interim and annual periods ending after June 15,
2009.   As required by SFAS 165, Subsequent Events, the Company
has evaluated subsequent events through August 19, 2009, which is the date its
condensed consolidated financial statements were issued.





Transfers of Financial
Assets.  In June 2009, the FASB issued SFAS No. 166,
“Accounting for Transfers of Financial Assets — an amendment of FASB Statement
No. 140,” to improve the reporting for the transfer of financial assets
resulting from 1) practices that have developed since the issuance of SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” that are not consistent with the original
intent and key requirements of that Statement and (2) concerns of financial
statement users that many of the financial assets (and related obligations) that
have been derecognized should continue to be reported in the financial
statements of transferors.  SFAS 166 must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter.
Earlier application is prohibited.   The Company does not
currently engage in the transfer of financial assets and therefore, does not
expect that the adoption of SFAS 166 will have a material impact on the
Company’s consolidated financial statements.




11




Consolidation.  In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)” to amend certain requirements of FASB
Interpretation No. 46 (revised December 2003), “Consolidation of
Variable Interest Entities,” to improve financial reporting by enterprises
involved with variable interest entities and to provide more relevant and
reliable information to users of financial statements.  SFAS 167 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter.  Earlier application is prohibited.  The Company
does not expect that the adoption of SFAS 167 will have a material impact on the
Company’s consolidated financial statements.




Standards
Codification.  In June 2009, the FASB issued SFAS
No. 168, “The FASB Accounting Standards Codification TM and the
Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB
Statement No. 162.” Under SFAS 168, The FASB Accounting Standards
Codification (Codification) will become the source of authoritative U.S.
generally accepted accounting principles (GAAP) recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission under authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. On the effective
date of SFAS 168, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become
non-authoritative. SFAS 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. In the FASB’s
view, the issuance of SFAS 168 and the Codification will not change GAAP, except
as to certain nonpublic nongovernmental entities. The Company does not expect
that the adoption of SFAS 168 will have a material impact on the Company’s
consolidated financial statements.





The FASB,
the EITF and the SEC have issued certain other accounting pronouncements and
regulations that will become effective in subsequent periods; however,
management of the Company does not believe that any of those pronouncements
would have significantly affected the Company’s financial accounting measures or
disclosures had they been in effect during the three and six months ended June
30, 2009 and the year ended December 31, 2008, and it does not believe that any
of those pronouncements will have a significant impact on the Company’s
condensed consolidated financial statements at the time they are
issued.





NOTE 3 -
Nycon Acquisition and
Pro Forma Results





Effective
April 1, 2008, New Nycon, a wholly owned subsidiary of the Company, completed
the purchase of specified assets from Nycon, Inc. (“Nycon”), a concrete
reinforcing fiber company headquartered in Westerly, Rhode
Island.  Prior to this acquisition, Nycon was engaged in the business
of processing, packaging and selling reinforcing fibers used as a component of
concrete materials.  Pursuant to the terms of the purchase agreement,
the Company acquired Nycon’s accounts receivable, equipment and all intangible
assets and intellectual property.    In connection with the
purchase of Nycon and formation of New Nycon, the Company entered into an
exclusive licensing agreement with the holder of a patent covering the process
for making and using reinforcing fiber for concrete materials from post-consumer
carpet waste as a substitute for new fibers.  During the term of the
license agreement, the Company will pay to the licensor an annual royalty fee
equal to 30% of New Nycon’s earnings before taxes, depreciation and
amortization, and the Company also paid the patent holder 15,000 shares of its
common stock, which shares were placed in escrow pending the satisfaction by New
Nycon of certain financial objectives. The license agreement terminates upon the
expiration of the last of the licensor’s patent rights covered by the agreement,
which with respect to the process patent is currently expected to be
2023.  In June of 2009, the Company and the former owner of Nycon
amended the asset purchase agreement thereby reducing the purchase price to
$600,000 and the earn-out rate from 20% to 12.5%.  This amendment
resulted in a pro-rata reduction of the intangible assets and a corresponding
reduction of the contingent consideration.




12





The
unaudited pro forma information presented below assumes that the acquisition of
Nycon was consummated as of January 1, 2008. These pro forma results are not
necessarily indicative of the results of operations that would have resulted had
the acquisitions actually been completed at the beginning of the applicable
periods presented, nor is it necessarily indicative of the results of operations
in future periods.





For
      the Six Months ended June 30, 2008(unaudited)Pro
      FormaCombined
      (a) (b) (c) (d)Revenue
            
            $
            32,773,756Loss
      from operations
            
            $
            (507,507
            )Loss
      before income tax benefit
            
            $
            (1,168,425
            )Net
      loss
            
            $
            (683,528
            )Per
      common share dataNet
      loss from operations – Basic and Diluted
            
            $
            (0.04
            )Weighted
      Average SharesBasic
      and Diluted
            
            
            17,249,521





(a)
            Historical
      information includes the operating results of Pure Earth for the six
      months ended June 30, 2008.


(b)
            Pro
      forma information and the pro forma adjustments include the operating
      results of Nycon for the six months ended June 30, 2008, including the
      operating results and pro forma adjustments from January 1, 2008 through
      the date of acquisition on April 1, 2008.


(c)
            There
      were no pro forma adjustments to be presented for the three months ended
      June 30, 2008 or for the three and six months ended June 30, 2009, as the
      historical information includes the operating results of Nycon for this
      period.


(d)
            The
      pro forma adjustments consist of additional depreciation and amortization
      expense in relation to the step-up in basis of the property and equipment
      and intangible assets of Nycon and the corresponding adjustments to the
      income tax benefit.




NOTE 4 -
Concentrations of
Credit Risk





Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade
accounts receivable.  The Company maintains cash and cash equivalent
balances at several financial institutions throughout its operating area of
which, at times, may exceed deposit insurance limits and expose the Company to
credit risk. As part of its cash management process, the Company periodically
reviews the relative credit standing of these financial
institutions.




13





Credit
risk with respects to accounts receivable was concentrated with three customers
at June 30, 2009.   These customers accounted for approximately
$3,126,854 (29%) of the accounts receivable at June 30, 2009. The Company
performs ongoing credit evaluations of its customers’ financial condition and if
necessary would require collateral to mitigate its credit risk. Three customers
accounted for $6,064,392 (25%) of the Company’s revenue during the six months
ended June 30, 2009 and $2,259,624 (19%) of its revenue during the three months
ended June 30, 2009.  These revenues were reported as a component of
the Treatment and Recycling and Transportation and Disposal segment
revenues.   One customer accounted for $1,813,915 (19%) and
$4,017,367 (12%) of its revenue during the three and six months ended June 30,
2008, respectively.  These revenues were reported as a component of
the Transportation and Disposal segment revenues.  The deterioration
of the financial condition of one or more of its major customers could adversely
impact the Company’s operations.  The breakdown of revenue between
these customers was as follows:





Three
      Months Ended June 30, 2009
            
            
            Percentage
      of Revenue
            
            
            Three
      Months Ended June 30, 2008
            
            
            Percentage
      of RevenueCustomer
      A
            
            $
            930,944
            
            
            
            8
            %
            
            
            -
            
            
            
            -Customer
      B
            
            
            400,936
            
            
            
            3
            %
            
            
            -
            
            
            
            -Customer
      C
            
            
            927,744
            
            
            
            8
            %
            
            
            -
            
            
            
            -Customer
      D
            
            
            —
            
            
            
            —
            
            
            $
            1,813,915
            
            
            
            19
            %Total
            
            $
            2,259,624
            
            
            
            19
            %
            
            $
            1,813,915
            
            
            
            19
            %








Six
      Months Ended June 30, 2009
            
            
            Percentage
      of Revenue
            
            
            Six
      Months Ended June 30, 2008
            
            
            Percentage
      of RevenueCustomer
      A
            
            $
            1,176,557
            
            
            
            5
            %
            
            
            -
            
            
            
            -Customer
      B
            
            
            1,929,100
            
            
            
            8
            %
            
            
            -
            
            
            
            -Customer
      C
            
            
            2,958,735
            
            
            
            12
            %
            
            
            -
            
            
            
            -Customer
      D
            
            
            —
            
            
            
            —
            
            
            $
            4,017,367
            
            
            
            12
            %Total
            
            $
            6,064,392
            
            
            
            25
            %
            
            $
            4,017,367
            
            
            
            12
            %





NOTE 5 -
Intangible
Assets





Below is
a summary of intangible assets at June 30, 2009 and December 31,
2008:





Balance
      as of June 30, 2009 (Unaudited)
            
            
            Balance
      as of December 31, 2008Cost
            
            
            Accumulated
              Amortization
            
            
            Net
            
            
            Cost
            
            
            Accumulated
              Amortization
            
            
            NetFinite
      Lives:Customer
      lists
            
            $
            2,000,002
            
            
            $
            (608,227
            )
            
            $
            1,391,775
            
            
            $
            2,117,552
            
            
            $
            (490,683
            )
            
            $
            1,626,869Other
      intangibleassets
            
            
            2,090,551
            
            
            
            (461,014
            )
            
            
            1,629,537
            
            
            
            2,273,001
            
            
            
            (312,660
            )
            
            
            1,960,3414,090,553
            
            
            
            (1,069,241
            )
            
            
            3,021,312
            
            
            
            4,390,553
            
            
            
            (803,343
            )
            
            
            3,587,210Indefinite
      Lives:Permits
            
            
            2,200,000
            
            
            
            —
            
            
            
            2,200,000
            
            
            
            2,200,000
            
            
            
            —
            
            
            
            2,200,000Total
            
            $
            6,290,553
            
            
            $
            (1,069,241
            )
            
            $
            5,221,312
            
            
            $
            6,590,553
            
            
            $
            (803,343
            )
            
            $
            5,787,210








Amortization
expense of intangible assets was $265,899 and $239,439 for the six months ended
June 30, 2009 and 2008, respectively, and $132,950 and $153,897 for the three
months ended June 30, 2009 and 2008.





Expected
future amortization expense for amortizable intangible assets with finite lives
is as follows for periods subsequent to June 30, 2009:





Twelve
      months ending June 30,2010
            
            $
            499,2932011
            
            
            499,2932012
            
            
            499,2932013
            
            
            381,7792014
            
            
            295,544Thereafter
            
            
            846,110$
            3,021,312




14




NOTE 6 –
Idle
Machinery





Included
in the acquisition of Casie Group on March 30, 2007, was equipment having a fair
value of $8,450,000, which had not been placed into use at that
time.  During the three and six months ended June 30, 2008, the
Company recorded approximately $0.4 million of impairment charges relating to
this idle machinery as a result of the overall softening of the overall
economy.  Effective April 30, 2009, the Company placed into service
approximately $2.0 million of this equipment that was previously classified as
idle.





NOTE 7 -
Line of
Credit





The
Company has a $7,500,000 line of credit with a bank expiring on October 23,
2009.  The line of credit is used to fund working capital
needs.  The line of credit bears interest at the bank’s prime rate,
subject to a minimum of 5%, plus 5.75% (10.75% at June 30, 2009) and outstanding
borrowings are collateralized by eligible accounts receivable and inventories as
defined in the agreement.  Outstanding borrowings on the line were
$2,364,247 at June 30, 2009 and $407,822 at December 31, 2008.  These
borrowings were collateralized by $6,608,932 and $3,349,812 of eligible trade
accounts receivable as of June 30, 2009 and December 31, 2008,
respectively.  This line of credit is subject to a borrowing base
limitation, outstanding letters of credit and loan reserves.  As of
June 30, 2009, the borrowing base limitation was approximately $5.6 million and
the Company had aggregate required loan reserves and letters of credit of $1.9
million.





On March
13, 2009, the Company completed an amendment of this revolving line of
credit.  Certain provisions of this amendment had been effective under
a prior letter agreement with the lender since October 21, 2008.  The
amendment to the Pure Earth revolving line of credit agreement added Casie Group
and the Company’s other subsidiaries as borrowers, and the accounts receivable
and inventory of these entities have become collateral and, to the extent
eligible, part of the available borrowing base.  As a result, as of
March 13, 2009, $2.2 million of borrowing availability was added to the
revolving line of credit.   The Company incurred costs of
approximately $376,000 in relation to the establishment of this line of credit
and subsequent amendments thereto.  The Company recorded these fees as
deferred financing costs to be amortized over the term of the financing or
expensed immediately upon extinguishment.





Under the
line of credit agreement, the Company is subject to financial covenants
requiring the maintenance of certain financial ratios relating to tangible net
worth and capital expenditures, as well as certain other customary affirmative
and negative non-financial covenants.  These financial covenants were
amended on March 13, 2009, resulting in additional financial covenants,
including maintaining minimum adjusted net income, specified debt service
coverage ratios and minimum availability requirements.  The minimum
adjusted net income and debt service coverage ratio covenants went into effect
beginning with the quarter ending June 30, 2009.  The existing
tangible net worth covenant and the capital expenditures limitation were also
amended.





As of
June 30, 2009, the Company was not in compliance with the minimum adjusted net
income and debt service coverage ratio covenants and as a result, under the
revolving line of credit agreement, events of default were deemed to have
occurred.  On August 18, 2009, the Company entered into an amendment
of this revolving line of credit agreement.  This amendment includes
the following provisions:




·
              The
      existing events of default were waived by the lender, retroactively
      effective as of June 30, 2009.
 
 ·
              The
      maximum line of credit amount was reduced from $7,500,000 to $4,700,000
      and lender-imposed loan reserves and letters of credit totaling $1,890,000
      were removed, including the requirement to maintain minimum availability
      of $500,000.  These changes did not materially impact the
      Company’s borrowing availability which was approximately $1.5 million both
      prior to and subsequent to this
amendment.
  15
 ·
              The
      interest rate under this line of credit was increased to the bank’s prime
      rate, subject to a minimum of 5%, plus 5.75%, or 10.75% as of August 18,
      2009.  This increase will be retroactively applied to June 1,
      2009.
 
 ·
              The
      lender has prohibited the Company from making any cash payments to the
      holder of the Series B Preferred Stock during the remainder of the loan
      term.









The
additional terms and provisions of this amendment were intended to reduce the
lenders maximum potential exposure under this agreement, and did not have a
material impact on the Company’s borrowing availability, which was approximately
$1.5 million, both prior to and subsequent to the execution of this
amendment.  The revolving line of credit is currently set to terminate
on October 23, 2009, therefore the Company is currently in discussions with
several potential new lenders.  The Company believes that a new lender
can be in place prior to the expiration date of the existing revolving line of
credit.





The
lender-imposed prohibition on the cash payment of dividends to the Series B
Preferred stockholder would have constituted an event of noncompliance under the
Series B Preferred Stock investment agreement and related agreements for amounts
due and payable on September 30, 2009.  However, on August 18, 2009,
the Company and the holder of the Series B Preferred Stock agreed that in lieu
of making the coupon payment otherwise due on September 30, 2009, the Company
shall instead pay the holder of the Series B Preferred Stock the coupon payment,
plus 14% interest per year thereon, either:





a)
            in
      one lump sum representing the full coupon payment plus accrued interest on
      November 30, 2009; or


b)
            if
      the Company refinances its outstanding revolving line of credit with an
      alternative lender prior to such dates, then any unpaid portion of the
      coupon payment, plus accrued interest, shall be paid on the date such
      refinancing is consummated.




NOTE 8 -
Long-Term Debt and
Notes Payable




At June
30, 2009 and December 31, 2008, long-term debt consisted of the
following:





June
      30, 2009
            
            
            December
      31, 2008(Unaudited)Casie
      Group term loan
            
            $
            7,453,776
            
            
            $
            7,927,349Equipment
      term loan
            
            
            1,360,173
            
            
            
            1,603,204Various
      equipment notes payable
            
            
            40,273
            
            
            
            50,062Casie
      Group notes payable
            
            
            282,475
            
            
            
            327,619Nycon
      assumed liabilities
            
            
            75,000
            
            
            
            75,000Total
            
            
            9,211,697
            
            
            
            9,983,234Less
      current portion
            
            
            (1,602,887
            )
            
            
            (1,556,494
            )Long-term
      portion
            
            $
            7,608,810
            
            
            $
            8,426,740





Future
maturities of long-term debt at June 30, 2009 are as follows:





Twelve
      months ending June 30,2010
            
            $
            1,602,8872011
            
            
            1,796,6372012
            
            
            1,462,6362013
            
            
            1,190,5252014
            
            
            1,250,609Thereafter
            
            
            1,908,403$
            9,211,697




16





NOTE 9 -
Officer Loans and
Related Party Transactions





As of
June 30, 2009, the Company had a note payable to a former owner of Casie Group
in the principal amount of $1,011,348.  The note payable bears
interest at 6.77% per annum and is subject to repayment, including accrued
interest, based upon the following schedule:





Twelve
      Months Ending June 30,2010
            
            
            333,0002011
            
            
            678,348$
            1,011,348





Under the
stock purchase agreement, the Company must repay $333,000 of the principal on
December 31, 2009, with the remainder of principal and all accrued but unpaid
interest due and payable on December 31, 2010, subject to approval by its
lender.  On June 17, 2009, the Company issued a notice of setoff to
the former owner of Casie Group notifying him of the Company’s intent to setoff
post-closing claims in the amount of $1,144,984 against this note payable and
shares of Pure Earth common stock that may otherwise be due to the former owner
as permitted under the stock purchase agreement.  Effective on June
27, 2009, the Company offset the amounts due to the former owner under this note
payable against the post-closing claims.  The former owner of Casie
has denied the validity of these post-closing claims.  The ultimate
outcome of these post-closing claims remains uncertain, and therefore the note
payable will remain outstanding on the Company’s consolidated financial
statements until either a settlement with the former owner is reached or the
Company is legally released from this obligation.




As of
June 30, 2009, the Company had approximately $0.5 million in due from
affiliates, which consists of amounts due from Casie Group to a joint venture,
Advanced Catalyst Recycling LLC (“ACR”), in which it owns a non-controlling 50%
interest.  The $0.5 million reflects the value of goods and services
performed and provided by Casie Group to the joint venture, for which Casie
Group has not yet been compensated.







NOTE 10 –
Fair Value
Measurements





Effective
January 1, 2008, the Company adopted SFAS 157, which establishes a framework for
measuring fair value under GAAP and enhances disclosures about fair value
measurements.  As defined in SFAS 157, fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the principal or most advantageous
market for the asset or liability at the measurement date (exit
price).  SFAS 157 establishes a three-level hierarchy for disclosure
of fair value measurements based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date.  The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in
active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3).  The level in the fair
value hierarchy within which the fair value measurement in its entirety falls is
determined based upon the lowest level input that is significant to the
measurement in its entirety.




The three
levels are defined as follows:




·
            Level
      1 — Inputs to the valuation are unadjusted quoted prices in active markets
      for identical assets or
liabilities.




17




·
            Level
      2 — Inputs to the valuation may include quoted prices for similar assets
      and liabilities in active or inactive markets, and inputs other than
      quoted prices, such as interest rates and yield curves, that are
      observable for the asset or liability for substantially the full term of
      the financial instrument.


·
            Level
      3 — Inputs to the valuation are unobservable and significant to the fair
      value measurement. Level 3 inputs shall be used to measure fair value only
      to the extent that observable inputs are not
  available.





The
Company uses a derivative financial instrument in the form of an interest-rate
swap to manage its exposure to the effects of changes in market interest rates
as they relate to the Susquehanna term loan which has an adjustable rate of
interest based upon the LIBOR.  The Company entered into this
interest-rate swap under which we pay a fixed annual rate of interest of 6.10%
and receive payments from the counterparty based upon the substantially the same
LIBOR terms as the Susquehanna term loan, thereby effectively converting our
adjustable rate payments into a fixed rate instrument.





The
outstanding derivative is recorded on the consolidated balance sheets at its
fair value as a liability at June 30, 2009. Because the Company’s derivative is
not listed on an exchange, the Company values this instrument using a valuation
model with pricing inputs that are observable in the market or that can be
derived principally from or corroborated by observable market
data.  The Company’s methodology also incorporates the impact of both
the Company’s and the counterparty’s credit standing.





In
connection with the Susquehanna refinancing and entering into the interest-rate
swap described above, the Company elected to measure the Susquehanna term loan
at fair value, pursuant to SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115,” which was adopted concurrently with this transaction.  SFAS No.
159 permits entities to measure many financial instruments and certain other
items at fair value. The Company’s election was made specifically for this
liability and was not elected for the Company’s other debt instruments or
liabilities.  The Company’s fair value election for the Susquehanna
term loan is intended to better reflect the underlying economics of the term
loan and its relationship to the corresponding interest-rate swap and allows the
Company to record any change in fair value of this liability as a gain or loss
within the Company’s consolidated statement of operations, along with gains or
losses resulting from changes in fair value of the interest rate
swap.  Because the Company’s Susquehanna term loan is not listed on a
public exchange, the Company values this liability using an internal valuation
model with significant pricing inputs that are not fully observable in the
marketplace.





Assets
and liabilities measured at fair value on a recurring basis or elected to be
measured at fair value under SFAS 157 include the following as of June 30,
2009:





Fair
      Value Measurements Using:
            
            
            Assets
      / LiabilitiesLevel
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            at
      Fair ValueAssets:—
            
            
            
            —
            
            
            
            —
            
            
            
            —Liabilities:Interest-rate
      swaps
            
            
            —
            
            
            $
            268,186
            
            
            
            —
            
            
            $
            268,186Susquehanna
      term loan
            
            
            —
            
            
            
            —
            
            
            
            7,185,589
            
            
            
            7,185,589





During
the three and six months ended June 30, 2009, the Company recorded a net loss of
$16,254 and a net gain of $5,778, respectively as a result of changes in the
fair value its outstanding interest-rate swap and the Susquehanna term
loan.  These gains and losses were recorded as components of other
income within the Condensed Consolidated Statements of Operations.




18




NOTE 11 –
Income
Taxes





For the
three and six months ended June 30, 2009 the Company recognized an income tax
benefit of $436,755 and $1,092,798, respectively based upon effective tax rates
of 33% and 39%.  The Company’s deferred income tax liabilities
decreased by $1.1 million from December 31, 2008 to June 30, 2009 as a result of
the additional net operating losses, which will offset these future income tax
liabilities. The Company recognized an income tax benefit of $126,034 and
$415,842 for the three and six months ended June 30, 2008, respectively, which
was based upon an effective tax rate of approximately 42%.  The
decrease in the Company’s effective tax rate from 42 % for the six months ended
June 30, 2008, to 39% for the six months ended June 30, 2009, is primarily the
result of an estimated pre-tax loss for the 2009 reporting year, as compared to
estimated pre-tax income for the 2008 reporting year.





NOTE 12-
Stockholders’ Equity





Common
Stock





On April
20, 2009, the Company retired 200,000 shares of its outstanding common stock,
which were previously pledged as collateral for reimbursement of the $200,000
payment made by the Company on behalf of the former owners of Juda for the
settlement of the pension liability lawsuit for union
truckers.   Subsequent to the retirement of these shares the
Company has 75,000 shares of its common stock remaining as collateral from the
former owners of Juda which were pledged against any future remaining
liabilities.  See Note 14 to the condensed consolidated financial
statements for more information.





On May
26, 2009, the Company issued 30,000 shares of common stock valued at $1.00 per
share to an individual in exchange for the settlement of outstanding litigation
against the Company.





On May
29, 2009, the Company issued a total of 50,000 shares of common stock valued at
$1.00 per share to two consultants for marketing services received.





Series B Preferred Stock and
Warrants





On March
4, 2008, the Company sold and issued to Fidus Mezzanine Capital, L.P. (“Fidus”),
a Delaware limited partnership, 6,300 shares of its Series B Preferred Stock and
a Warrant to purchase 767,375 shares of the Company’s common stock for an
aggregate purchase price of $6,300,000.  The Company accounts for its
preferred stock based upon the guidance enumerated in SFAS 150 and EITF Topic
D-98.  The Series B Preferred Stock is mandatorily redeemable on March
3, 2013 and therefore is classified as a liability instrument on the date of
issuance.  The Warrants issued in connection with the Series B
Preferred Stock provide the holders with a put option that is exercisable upon
the occurrence of certain specified events and at the discretion of the
holder.  The Company evaluated the Warrants and the put option
pursuant to EITF 00-19 and determined that the Warrants should be classified as
assets or liabilities because they contain redemption rights that are not solely
within the Company’s control as of the date of issuance and at December 31,
2008.  Accordingly, the Company recorded the Warrants at their
estimated fair value of $2,263,223 on the date of issuance.  The
remainder of the $6,300,000 in proceeds received, or $4,036,777, was allocated
to the mandatorily redeemable Series B Preferred Stock.  As of June
30, 2009, the carrying value of the mandatorily redeemable preferred stock was
$4,723,897.




The
Company calculated the fair value of the warrants at the date of issuance and in
subsequent reporting periods, using the Black-Scholes option pricing model with
market based assumptions.  The change in fair value of the Warrants
issued in connection with the Series B Preferred Stock from December 31, 2008 to
June 30, 2009, was a decrease of approximately $345,000 from $1.1 million as of
December 31, 2008 to $0.8 million as of June 30, 2009.  This change in
fair value of the Warrants was reflected as a component of other income within
the statement of operations for the three and six months ended June 30,
2009.




19




NOTE 13 -
Commitments and
Contingencies





Leases


The
Company leases facilities, vehicles, and operating equipment under certain
non-cancelable operating leases that expire beginning in July 2009 through
December 2013.





Minimum
future lease payments are as follows:





Twelve months ending June
    30,2010
            
            $
            1,405,9422011
            
            
            784,4752012
            
            
            460,0302013
            
            
            226,1062014
            
            
            -Thereafter
            
            
            -$
            2,876,553





The
Company incurred rent expense of approximately $751,000 and $693,000 for the six
months ended June 30, 2009 and 2008, respectively, $368,000 and $ $382,000 for
the three months ended June 30, 2009 and 2008, respectively.





Government Regulation, State
and Local Compliance


The
Company is subject to extensive and evolving federal, state and local
environmental, health, safety and transportation laws and
regulation.  These laws and regulations are administered by the
Environmental Protection Agency and various other federal, state and local
environmental, zoning, transportation, land use, health and safety agencies.
Many of these agencies regularly examine our operations to monitor compliance
with these laws and regulations and have the power to enforce compliance, obtain
injunctions or impose civil or criminal penalties in case of
violations.  The Company maintains various licenses and permits with
these agencies that are subject to periodic renewal, and without these licenses
and permits, the Company’s operations would be materially
affected.  In June of 2009, the Casie Group settled outstanding fines
and compliance issues with various state and local authorities for approximately
$228,000 and for which a $624,300 liability was previously recorded as part of
the Casie Group’s opening balance sheet.  The settlement of these
compliance issues and fines resulted in a reduction of the liability of
approximately $396,000, which was recorded as a component of other income for
the three and six months ended June 30, 2009.  As of June 30, 2009,
the Company believes it has substantially remediated all prior deficiencies and
is in good standing with all state and local jurisdictions.





Employment
Agreements


The
Company has entered into employment agreements with several of its key
executives, officers, and employees, as well as consulting agreements with third
parties.  These agreements provide for approximately $1.7 million in
aggregate annual compensation and various additional bonuses based upon specific
criteria payable in both cash and shares of common stock. The term of the
employment agreements vary depending on the individual, the longest of which
expire in June of 2013.  These agreements include employment contracts
with the Company’s chief executive officer and chief financial officer for
five-year terms, which were entered into on June 1, 2008. Effective June 1,
2009, our executive officers and other employees subject to employment
agreements agreed to voluntarily reduce their salaries in an effort to reduce
the Company’s operating expenses. These reductions will be in effect for
90 daysafter
which time the executive officers and the Company will review the Company’s
operating results to determine whether the salary reductions will continue
beyond the 90 day period. All other terms and conditions in the executive
officers’ and other employees’ employment contracts remain in effect. Payments
under certain of these employment agreements are subject to acceleration clauses
and termination provisions in the event of a change in control of the Company or
termination without cause as defined by the agreements.





20




Remaining
minimum future payments to key executives, officers, and employees are as
follows:





Twelve
      Months Ending June 30,2010
            
            
            1,701,6252011
            
            
            1,158,2502012
            
            
            529,1992013
            
            
            555,750$
            3,944,824





NOTE 14 -
Litigation





The
Company is party to various claims and legal proceedings from time-to-time
related to contract disputes and other commercial, employment, tax or regulatory
matters.  Except as disclosed below, the Company is not aware of any
pending legal proceedings that it believes could individually, or in the
aggregate, have a material adverse effect on its consolidated financial
position, results of operations or cash flows.





Subsequent
to the asset purchase of Soil Disposal Group, Inc. (“Soil Disposal”) in November
of 2007, the former employer of the Soil Disposal sales
representatives  and certain of its affiliates (the “Plaintiff”) filed
a complaint against Pure Earth, PEI Disposal Group, Soil Disposal, the Soil
Disposal sales representatives individually, the chief financial officer of Pure
Earth personally, and other named parties (collectively the
“Defendants”).  The complaint alleges, among other things, that the
Defendants breached certain covenants not to compete and a non-solicitation
covenant with respect to customers and employees of the
Plaintiff.  The complaint also claims that Pure Earth interfered with
contractual relations of the Plaintiff and aided and abetted the Soil Disposal
sales representatives’ breach of certain fiduciary duties to the Plaintiff,
unfair competition by the Defendants, and misappropriation of trade secrets and
confidential information.  The Plaintiff also applied for a temporary
restraining order (“TRO”) to prevent the consummation of the transaction and
restrict the subsequent business activities of the Defendants, which was
dismissed.





In
September 2008, the Plaintiff amended its claim and also moved to compel the
Company and the other Defendants to produce additional documents.  The
Defendants opposed these motions and cross-moved for summary judgment dismissing
the case.  On April 15, 2009, the court referred the case to an
alternative dispute resolution program for a 45-day period during which time the
parties will attempt to resolve the case. In the meantime the court, at the
Defendants’ request, ordered a stay of all further discovery.  The
Defendants and the Plaintiff were unable to resolve this litigation during this
time period, and in June 2009, the court ordered that the Defendants comply with
the Plaintiff’s request for discovery and interrogatories.  The
Company and the other Defendants deny liability and are vigorously defending all
claims.





On April
17, 2006, a lawsuit was filed in the state of New Jersey, whereby Whitney
Contracting, Inc. (“Whitney”), a company from whom the Company acquired certain
assets in January 2006, was named as the defendant relating to an alleged breach
of a lease agreement.  Juda and the former owners of Whitney and Juda
were named in the suit as co-defendants.  The plaintiff alleged that
Juda misrepresented Whitney’s credit worthiness and was unjustly enriched by its
use of the leased premises.  The plaintiff had sought damages in
excess of $1 million dollars for unpaid rent and other claims.  In
March 2009, without defendants admitting any liability or wrongdoing or
acknowledging the validity of any of plaintiff’s allegations, the parties
settled this lawsuit for $350,000, of which Juda paid $50,000 and all other
defendants but one paid the remaining $300,000.





On
January 10, 2008, a lawsuit was filed in the state of New Jersey, whereby the
plaintiffs alleged that Pure Earth and certain former employees and current
officers of Pure Earth spread false rumors and defamed the plaintiffs in
connection with carrying out a waste disposal contract.  The
plaintiffs are seeking compensatory damages for costs incurred, lost business,
punitive damages and attorney’s fees.  On March 16, 2009, the Company
agreed to settle this matter for 30,000 shares of Pure Earth common stock and
entered into an agreement with the plaintiff whereby Casie Group will accept a
specified quantity of soils from the plaintiff at a stated price.  The
Company issued the 30,000 shares of Pure Earth common stock to the plaintiff in
settlement of this case on May 28, 2009.




21




In
September of 2007, PE Disposal began transportation and disposal work on a large
construction job in New York City to redevelop several city
blocks.  Beginning in September 2007 and through September 30, 2008,
PE Disposal billed a total of $9.2 million to this customer for which it
received payments totaling $7.3 million, leaving an outstanding receivable
balance of $1.9 million.  In addition, PE Disposal also billed an
additional $0.9 million in September of 2008 relating to this same job through
another one of its major customers, which is also outstanding as of June 30,
2009 and for which PE Disposal has a payment bond in the amount of $0.9 million
in place.  In August of 2008, the Company was notified by the
customers that they were stopping payment due to a dispute over the tonnage of
material removed from the construction site.  PE Disposal promptly
ceased work on the job and filed a mechanics’ lien on the properties in
September of 2008.  In December of 2008, PE Disposal filed three
lawsuits in the Supreme Court for the State of New York, County of New York,
against these customers and other lien holders, alleging that approximately $2.8
million in amounts owed to us for transportation and disposal fees, plus
applicable interest, have not been paid.  PE Disposal sought to
foreclose on a mechanics’ lien and alleged breach of contract, unjust enrichment
and account stated claims.  Certain of the defendants have filed
counterclaims against PE Disposal for breach of contract, fraud and willful lien
exaggeration, and seek at least $2.0 million in damages in each of the three
cases, plus punitive damages and attorneys’ fees in an amount to be proven at
trial.  On May 29, 2009, the Company agreed to a settlement whereby it
will receive a total of $2.0 million in satisfaction of the $2.8 million of
outstanding accounts receivable and dismissal of the
counterclaims.  Of this settlement amount, $1.0 million was to be
received within 15 days of the final settlement and the remaining $1.0 million
is scheduled to be repaid in 18 monthly installments of $55,556 beginning on
September 1, 2009.  On July 1, 2009, the Company received the first
installment of $1.0 million.  The remaining $1.0 million note
receivable is secured by approximately $888,000 in payment bonds held by the
Company in the event of nonpayment by the customers.




Due to
the inherent uncertainties of litigation, and because these actions are at a
preliminary stage, the Company cannot accurately predict the outcome of these
matters at this time.  The Company intends to respond appropriately in
defending against the alleged claims in each of these matters.  The
ultimate resolution of these matters could have a material adverse effect on the
Company’s business, consolidated financial position, results of operations, or
cash flows.





Other Legal
Matters





During
the year ended December 31, 2007, the Company, Juda and the former owners of
Juda were named as co-defendants in a lawsuit relating to the pension liability
of union truckers.  On January 10, 2008, this case was settled in the
US District Court for $650,000, plus 10% annual interest, payable over a two
year period.  All defendants are jointly and severally liable for
payment of the suit amount. The former owners of Juda (the “Indemnitors”) have
agreed to reimburse Pure Earth for any costs and liabilities incurred as a
result of this litigation as well as agreeing to indemnify and hold harmless
Pure Earth from and against any claims, suits, causes of action or losses. The
Company and the former owners of Juda agreed to settle this liability as
follows: i) $250,000 payable upon execution of the settlement agreement, and ii)
two consecutive payments of $200,000 each, plus accrued interest, due on or
before December 10, 2008 and 2009, respectively.  To facilitate this
settlement, Pure Earth posted a $400,000 letter of credit to serve as a credit
enhancement.   Pursuant to a Reimbursement and Indemnity
Agreement with the Indemnitors, Pure Earth has the right to offset any amounts
owed from the Indemnitors against salary compensation or annual bonuses, which
they would otherwise be due from the Company.  Pure Earth also
required that the Indemnitors pledge 150,000 shares of Pure Earth common stock
as collateral for the letter of credit.  The pledged shares were
deposited into an escrow account that is jointly held by Pure Earth and the
Indemnitors.  On December 10, 2008, the Company made the payment of
$200,000 due on that date, on behalf of the former owners of Juda, and at which
time the outstanding letter of credit was reduced to $200,000.  The
Company also required the Indemnitors to post an additional 125,000 shares of
Pure Earth common stock as additional collateral as a result of this
payment.




22




On April
20, 2009, the Company retired 200,000 shares of its outstanding common stock,
which were previously pledged as collateral for reimbursement of the $200,000
payment made by the Company on behalf of the former owners of Juda for the
settlement of the pension liability lawsuit for union truckers, as described
above.   Subsequent to the retirement of these shares the Company
has 75,000 shares of its common stock remaining as collateral from the former
owners of Juda which were pledged against any future remaining
liabilities.





NOTE 15 -
Segment
Reporting





During
the three and six months ended June 30, 2009 and 2008, the Company and
management have organized its operations into five reportable business segments:
Transportation and Disposal, Materials, Environmental Services, Treatment and
Recycling and Concrete Fibers. Prior to the acquisition of Nycon, Inc. effective
April 1, 2008, the Company and management organized its operations into four
reportable business segments: Transportation and Disposal, Materials,
Environmental Services, and Treatment and Recycling.  Certain income
and expenses not allocated to the five reportable segments and intersegment
eliminations are reported under the heading “Corporate and
Other”.  The performance of the segments is evaluated on several
factors, of which the primary financial measure is operating income before
interest, taxes, depreciation, and amortization (“Adjusted
EBITDA”).





Summarized
financial information concerning our reportable segments for the three and six
months ended June 30, 2009 is shown in the following table:





Three
      Months Ended
              June
      30, 2009
            
            Transportation
      and Disposal
            
            
            Materials
            
            
            Environmental
      Services
            
            
            Treatment
      and Recycling
            
            
            Concrete
      Fibers
            
            
            Corporate
      and Other (a), (b)
            
            
            Total
      (d)Third
      Party Revenues
            
            $
            5,883,803
            
            
            $
            820,040
            
            
            $
            111,486
            
            
            $
            4,744,896
            
            
            $
            439,126
            
            
            $
            —
            
            
            $
            11,999,351Intercompany
      Revenues (b)
            
            
            261,885
            
            
            
            51,966
            
            
            1,655
            
            
            
            385,206
            
            
            
            -
            
            
            
            (700,712
            )
            
            
            -Total
      Revenues
            
            
            6,145,688
            
            
            
            872,006
            
            
            
            113,141
            
            
            
            5,130,102
            
            
            
            439,126
            
            
            
            (700,712
            )
            
            
            11,999,351Third
      Party Cost of Revenues
            
            
            4,617,795
            
            
            
            791,114
            
            
            
            103,357
            
            
            
            4,640,462
            
            
            
            328,654
            
            
            
            —
            
            
            
            10,481,381Intercompany
      Cost of Revenues
            
            
            680,824
            
            
            
            —
            
            
            523
            
            
            
            19,365
            
            
            
            —
            
            
            (700,712)
            
            
            
            -Total
      Cost of Revenues
            
            
            5,298,618
            
            
            791,114
            
            
            103,880
            
            
            
            4,659,827
            
            
            
            328,654
            
            
            (700,712)
            
            
            
            10,481,381Gross
      Profit Margin
            
            
            847,070
            
            
            
            80,892
            
            
            
            9,261
            
            
            
            470,275
            
            
            
            110,472
            
            
            
            —
            
            
            
            1,517,970Operating
      Expenses
            
            
            1,046,333
            
            
            161,785
            
            
            
            91,652
            
            
            
            869,392
            
            
            
            199,924
            
            
            
            675,761
            
            
            
            3,044,847Loss
      from Operations
            
            $
            (199,263
            )
            
            $
            (80,893
            )
            
            $
            (82,391
            )
            
            $
            (399,117
            )
            
            $
            (89,452
            )
            
            $
            (675,761
            )
            
            $
            (1,526,877
            )Adjusted
      EBITDA
            
            $
            (29,864
            )
            
            $
            (35,557
            )
            
            $
            (64,403
            )
            
            $
            553,433
            
            
            $
            (40,756
            )
            
            $
            (242,005
            )
            
            $
            140,848Reconciliation
      to Consolidated Statement of Operations:Depreciation
      and Amortization (c)
            
            
            169,398
            
            
            
            45,335
            
            
            
            17,989
            
            
            
            538,503
            
            
            
            48,695
            
            
            
            11,648
            
            
            
            831,568Interest
      Expense
            
            
            -
            
            
            
            -
            
            
            
            925
            
            
            
            129,288
            
            
            
            577
            
            
            
            486,957
            
            
            
            617,746Loss
      before Provision for Income Taxes
            
            
            (199,263
            )
            
            
            (80,893
            )
            
            
            (83,317
            )
            
            _____(114,358)
            
            
            
            (90,028
            )
            
            
            (740,610
            )
            
            
            (1,308,467
            )




23





Six
      Months Ended
              June
      30, 2009
            
            Transportation
      and Disposal
            
            
            Materials
            
            
            Environmental
      Services
            
            
            Treatment
      and Recycling
            
            
            Concrete
      Fibers
            
            
            Corporate
      and Other (f), (g)
            
            
            Total
      (i)Third
      Party Revenues
            
            $
            10,422,802
            
            
            $
            1,425,957
            
            
            $
            359,199
            
            
            $
            11,110,896
            
            
            $
            747,642
            
            
            $
            —
            
            
            $
            24,066,496Intercompany
      Revenues (f)
            
            
            261,885
            
            
            
            256,546
            
            
            
            1,655
            
            
            
            648,500
            
            
            
            —
            
            
            
            (1,168,586
            )
            
            
            —Total
      Revenues
            
            
            10,684,687
            
            
            
            1,682,503
            
            
            
            360,854
            
            
            
            11,759,396
            
            
            
            747,642
            
            
            
            (1,168,586
            )
            
            
            24,066,496Third
      Party Cost of Revenues
            
            
            7,891,208
            
            
            
            1,463,583
            
            
            
            311,384
            
            
            
            10,026,900
            
            
            
            579,364
            
            
            
            —
            
            
            
            20,272,439Intercompany
      Cost of Revenues
            
            
            1,147,565
            
            
            
            —
            
            
            
            1,656
            
            
            
            19,365
            
            
            
            —
            
            
            
            (1,168,586
            )
            
            
            —Total
      Cost of Revenues
            
            
            9,038,773
            
            
            
            1,463,583
            
            
            
            313,040
            
            
            
            9,046,265
            
            
            
            579,364
            
            
            
            (1,168,586
            )
            
            
            20,272,439Gross
      Profit Margin
            
            
            1,645,914
            
            
            
            218,920
            
            
            
            47,814
            
            
            
            2,109,481
            
            
            
            168,278
            
            
            
            —
            
            
            
            3,794,057Operating
      Expenses
            
            
            1,771,685
            
            
            
            2 75,753
            
            
            
            211,215
            
            
            
            1,713,131
            
            
            
            442,560
            
            
            
            1,542,038
            
            
            
            6,095,494Loss
      from Operations
            
            $
            (125,771
            )
            
            $
            (56,833
            )
            
            $
            (163,401
            )
            
            $
            (139,111
            )
            
            $
            (274,282
            )
            
            $
            (1,542,038
            )
            
            $
            (2,301,437
            )Adjusted
      EBITDA
            
            $
            213,024
            
            
            $
            32,165
            
            
            $
            (128,391
            )
            
            $
            1,138,452
            
            
            $
            (180,467
            )
            
            $
            (1,096,635
            )
            
            $
            (21,852
            )Reconciliation
      to Consolidated Statement of Operations:Depreciation
      and Amortization (h)
            
            
            338,796
            
            
            
            88,998
            
            
            
            35,009
            
            
            
            983,364
            
            
            
            93,815
            
            
            
            23,295
            
            
            
            1,563,278Interest
      Expense
            
            
            —
            
            
            
            —
            
            
            
            1,965
            
            
            
            266,878
            
            
            
            1,019
            
            
            
            917,856
            
            
            
            1,187,717Loss
      before Provision for Income Taxes
            
            $
            (125,7721
            
            
            $
            (56,833
            )
            
            $
            (165,365
            )
            
            $
            (111,790
            )
            
            $
            (275,301
            )
            
            $
            (2,037,786
            )
            
            $
            (2,772,847
            )Capital
      Expenditures (e)
            
            $
            -
            
            
            $
            35,326
            
            
            $
            -
            
            
            $
            -
            
            
            $
            14,419
            
            
            $
            -
            
            
            $
            49,486Total
      Assets
            
            $
            9,856,543
            
            
            $
            1,613,265
            
            
            $
            1,619,034
            
            
            $
            26,536,940
            
            
            $
            1,677,377
            
            
            $
            2,165,420
            
            
            $
            43,468,578Goodwill
            
            $
            -
            
            
            $
            -
            
            
            $
            759,694
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            759,694




(a)
            Corporate
      operating results reflect the costs incurred for various support services
      that are not allocated to our five operating segments. These support
      services include, among other things, treasury, legal, information
      technology, tax, insurance, and other administrative
      functions.  It also includes eliminations of intersegment
      revenues and costs of sales.


(b)
            Intercompany
      operating revenues reflect each segment’s total intercompany sales,
      including intercompany sales within a segment and between segments.
      Transactions within and between segments are generally made on a basis
      intended to reflect the market value of the service.


(c)
            Includes
      depreciation and amortization expense classified above as a component of
      cost of sales and operating expenses.


(d)
            The
      “Consolidated Total Assets” above reflects the elimination of $5,153,774
      of the Company’s investment in subsidiaries and intersegment
      receivables.


(e)
            Includes
      non-cash items and assets acquired through acquisition.  Capital
      expenditures are reported in the Company’s operating segments at the time
      they are recorded within the segments’ property, plant and equipment
      balances and, therefore, may include amounts that have been accrued but
      not yet paid.





Summarized
financial information concerning our reportable segments for the three and six
months ended June 30, 2008 is shown in the following tables:





Three
      months ended
              June
      30, 2008
            
            Transportation
      and Disposal
            
            
            Materials
            
            
            Environmental
      Services
            
            
            Treatment
      and Recycling
            
            
            Concrete
      Fibers
            
            
            Corporate
      and Other (a), (b)
            
            
            Total
      (d)Third
      Party Revenues
            
            $
            9,669,386
            
            
            $
            387,930
            
            
            $
            453,333
            
            
            $
            6,728,609
            
            
            $
            651,827
            
            
            $
            —
            
            
            $
            17,891,087Intercompany
      Revenues (b)
            
            27,170
            
            
            312,823
            
            
            —
            
            
            
            560,770
            
            
            
            -
            
            
            (900,763)
            
            
            
            -Total
      Revenues
            
            
            9,696,556
            
            
            
            700,753
            
            
            
            453,333
            
            
            
            7,289,379
            
            
            
            651,827
            
            
            
            (900,763
            )
            
            
            17,891,087Third
      Party Cost of Revenues
            
            
            6,774,515
            
            
            
            950,271
            
            
            
            406,269
            
            
            
            5,369,551
            
            
            
            560,753
            
            
            
            —
            
            
            
            14,061,359Intercompany
      Cost of Revenues
            
            
            854,412
            
            
            
            —
            
            
            (138
            )
            
            
            46,350
            
            
            
            —
            
            
            (900,624)
            
            
            
            -Total
      Cost of Revenues
            
            
            7,628,927
            
            
            950,271
            
            
            406,131
            
            
            
            5,415,901
            
            
            
            560,753
            
            
            (900,624)
            
            
            
            14,061,359Gross
      Profit (Loss) Margin
            
            
            2,067,629
            
            
            
            (249,518
            )
            
            
            47,202
            
            
            
            1,873,478
            
            
            
            91,074
            
            
            
            (139
            )
            
            
            3,829,728Operating
      Expenses
            
            
            876,796
            
            
            159,292
            
            
            
            89,501
            
            
            
            1,431,061
            
            
            
            193,641
            
            
            993,665
            
            
            
            3,743,956Income
      from Operations
            
            
            1,190,834
            
            
            
            (408,810
            )
            
            
            (42,300
            )
            
            
            442,417
            
            
            
            (102,565
            )
            
            
            (993,804
            )
            
            
            85,772Adjusted
      EBITDA
            
            
            1,369,020
            
            
            
            (320,741
            )
            
            
            (24,064
            )
            
            
            984,746
            
            
            
            (40,185
            )
            
            
            (1,002,941
            )
            
            
            965,836Reconciliation
      to Consolidated Statement of Operations:Depreciation,
      Amortization and Impairment  (c)
            
            
            178,186
            
            
            
            88,204
            
            
            
            18,235
            
            
            
            444,749
            
            
            
            62,382
            
            
            
            (9,275
            )
            
            
            782,481Interest
      Expense
            
            
            -
            
            
            
            -
            
            
            
            1,740
            
            
            
            94,068
            
            
            
            2,388
            
            
            
            388,634
            
            
            
            486,830Income
      before provision for income taxes
            
            
            1,190,834
            
            
            (408,945)
            
            
            
            (44,039
            )
            
            445,929
            
            
            
            (104,955
            )
            
            
            (1,382,300
            )
            
            
            (303,479
            )




24


Six
      months ended
              June
      30, 2008
            
            Transportation
      and Disposal
            
            
            Materials
            
            
            Environmental
      Services
            
            
            Treatment
      and Recycling
            
            
            Concrete
      Fibers
            
            
            Corporate
      and Other (a), (b)
            
            
            Total
      (d)Third
      Party Revenues
            
            $
            16,883,409
            
            
            $
            790,579
            
            
            $
            1,260,492
            
            
            $
            12,921,334
            
            
            $
            651,829
            
            
            $
            —
            
            
            $
            32,507,643Intercompany
      Revenues (b)
            
            
            305,242
            
            
            
            801,042
            
            
            
            5,239
            
            
            
            883,106
            
            
            
            -
            
            
            
            (1,994,629
            )
            
            
            -Total
      Revenues
            
            
            17,188,651
            
            
            
            1,591,621
            
            
            
            1,265,731
            
            
            
            13,804,440
            
            
            
            651,829
            
            
            
            (1,994,629
            )
            
            
            32,507,643Third
      Party Cost of Revenues
            
            
            11,364,066
            
            
            
            2,077,926
            
            
            
            1,004,875
            
            
            
            11,413,059
            
            
            
            560,753
            
            
            
            —
            
            
            
            26,420,679Intercompany
      Cost of Revenues
            
            
            1,825,129
            
            
            
            11,159
            
            
            
            104,852
            
            
            
            53,350
            
            
            
            —
            
            
            
            (1,994,490
            )
            
            
            -Total
      Cost of Revenues
            
            
            13,189,196
            
            
            
            2,089,085
            
            
            
            1,109,727
            
            
            
            11,466,409
            
            
            
            560,753
            
            
            
            (1,994,490
            )
            
            
            26,420,679Gross
      Profit (Loss) Margin
            
            
            3,999,456
            
            
            
            (497,464
            )
            
            
            156,004
            
            
            
            2,338,031
            
            
            
            91,076
            
            
            
            (139
            )
            
            
            6,086,964Operating
      Expenses
            
            
            1,439,195
            
            
            
            338,885
            
            
            
            225,125
            
            
            
            2,322,459
            
            
            
            193,641
            
            
            
            1,878,846
            
            
            
            6,398,150Income
      (Loss) from Operations
            
            
            2,560,261
            
            
            
            (836,349
            )
            
            
            (69,121
            )
            
            
            15,572
            
            
            
            (102,565
            )
            
            
            (1,878,984
            )
            
            
            (311,186
            )Adjusted
      EBITDA
            
            
            2,924,794
            
            
            
            (661,263
            )
            
            
            (34,045
            )
            
            
            996,095
            
            
            
            (40,185
            )
            
            
            (1,857,231
            )
            
            
            1,328,165Reconciliation
      to Consolidated Statement of Operations:Depreciation,
      Amortization and Impairment  (c)
            
            
            364,533
            
            
            
            175,221
            
            
            
            35,076
            
            
            
            867,768
            
            
            
            62,382
            
            
            
            21,617
            
            
            
            1,526,598Interest
      Expense
            
            
            -
            
            
            
            -
            
            
            
            3,486
            
            
            
            215,858
            
            
            
            2,388
            
            
            
            581,863
            
            
            
            803,595Income
      before provision for income taxes
            
            
            2,560,261
            
            
            
            (836,484
            )
            
            
            (72,606
            )
            
            
            (87,531
            )
            
            
            (104,955
            )
            
            
            (2,460,712
            )
            
            
            (1,002,028
            )Capital
      Expenditures (e)
            
            $
            847
            
            
            $
            94,649
            
            
            $
            349,123
            
            
            $
            441,804
            
            
            $
            100,000
            
            
            $
            51,360
            
            
            $
            1,037,783Total
      Assets (d)
            
            $
            11,200,675
            
            
            $
            1,263,934
            
            
            $
            1,945,766
            
            
            $
            29,577,766
            
            
            $
            3,921,786
            
            
            $
            5,447,600
            
            
            $
            53,357,528Goodwill
            
            $
            —
            
            
            $
            -
            
            
            $
            759,964
            
            
            $
            —
            
            
            $
            -
            
            
            $
            —
            
            
            $
            759,964








(f)
            Corporate
      operating results reflect the costs incurred for various support services
      that are not allocated to our four operating Groups. These support
      services include, among other things, treasury, legal, information
      technology, tax, insurance, and other administrative
      functions.  It also includes eliminations of intersegment
      revenues and costs of sales.


(g)
            Intercompany
      operating revenues reflect each segment’s total intercompany sales,
      including intercompany sales within a segment and between segments.
      Transactions within and between segments are generally made on a basis
      intended to reflect the market value of the service.


(h)
            Includes
      depreciation and amortization expense classified above as a component of
      cost of sales and operating
expenses.




25






(i)
            The
      “Consolidated Total Assets” above reflects the elimination of $4,962,771
      of the Parent’s investment in subsidiaries and intersegment
      receivables.


(j)
            Includes
      non-cash items and assets acquired through acquisition.  Capital
      expenditures are reported in the Company’s operating segments at the time
      they are recorded within the segments’ property, plant and equipment
      balances and, therefore, may include amounts that have been accrued but
      not yet paid.




For the
three and six months ended June 30, 2009, the Company derived approximately
$48,000 and $168,000 of its revenue (all within the Concrete Fibers segment)
from customers located outside of the United States.  For the three
and six months ended June 30, 2008, the Company derived all of its revenues (all
within the Concrete Fibers segment) from customers located outside of the United
States.  In addition at June 30,
2009 and December 31, 2008, all of the Company’s operations and long-lived
assets were located in the United States.




26




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




The
following discussion and analysis of our results of operations and financial
condition should be read together with our condensed consolidated financial
statements and the notes thereto included elsewhere in this quarterly
report.




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




Statements
included in this quarterly report that do not relate to present or historical
conditions are called “forward-looking statements.”  Such
forward-looking statements involve known and unknown risks and uncertainties and
other factors that could cause actual results or outcomes to differ materially
from those expressed in, or implied by, the forward-looking
statements.  Forward-looking statements may include, without
limitation, statements relating to our plans, strategies, objectives,
expectations and intentions.  Words such as “believes,” “forecasts,”
“intends,” “possible,” “estimates,” “anticipates,” “expects,” “plans,” “should,”
“could,” “will,” and similar expressions are intended to identify
forward-looking statements. Our ability to predict or project future results or
the effect of events on our operating results is inherently uncertain.
Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be
achieved.




Important
factors that could cause actual performance or results to differ materially from
those expressed in or implied by, forward-looking statements include, but are
not limited to:




·
            industry
      competition, conditions, performance and
  consolidation;




·
            our
      ability to grow our business through the formation and acquisition of
      complementary businesses;




·
            our
      ability to integrate the companies, assets and operations we have
      previously acquired;




·
            our
      ability to replace our revolving line of credit by its maturity date on
      October 23, 2009;




·
            legislative
      and regulatory developments;




·
            weather
      conditions, including extremely harsh weather or natural disasters which
      may cause us to temporarily cease some or all of
    operations;




·
            the
      effects of adverse general economic conditions, both within the United
      States and globally; and




·
            other
      factors described in “Item 1A.  Risk Factors” of our Annual
      Report on Form 10-K (File No. 0-53287) for the fiscal year ended December
      31, 2008, as filed with the SEC on March 31, 2009, in this Quarterly
      Report on Form 10-Q, or in our other filings made with the
      SEC.




Forward-looking
statements speak only as of the date the statements are made.  We
assume no obligation to update forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting
forward-looking information except to the extent required by applicable
securities laws. If we update one or more forward-looking statements, no
inference should be drawn that we will make additional updates with respect
thereto or with respect to other forward-looking statements.




27




Overview
and Strategy




We are a
diversified environmental company that specializes in delivering innovative
solutions for the health and well-being of the planet.We
are a provider of integrated environmental transportation, disposal, recycling,
consulting, engineering and related services, enabling the beneficial reuse of
soils and industrial waste streams into approved disposal facilities and
Brownfield sites.




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




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




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




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




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




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




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




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




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




·
            Concrete Fibers–  Concrete Fibers is our newest segment, which was
      created with our acquisition of Nycon effective April 2008.  We
      recycle used carpet fibers into environmentally sustainable, or “green,”
      fiber material.  We also repack and distribute various other
      fibers as additives to concrete
products.




We are
leveraging our integrated environmental, transportation and disposal services to
invest in and reclaim Brownfield properties.  Brownfields are parcels
of real property that generally have been used for industrial or commercial
purposes and whose redevelopment may be complicated by the presence or potential
presence of a hazardous substance, pollutant or contaminant.  Cleaning
up and reinvesting in these properties takes development pressures off
undeveloped and open land, revitalizes an otherwise blighted or potentially
blighted property for productive use, improves and protects the environment,
improves the local tax base and facilitates job growth.  We believe
that our investments in Brownfield properties, together with our environmental
recycling, engineering, consulting and related services, support our primary
mission to act as a steward of the environment.




28




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




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




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




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




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




·
            Environmental Services – We generate
      revenues from fees charged for our environmental consulting and related
      specialty services,including well-drilling and the disposal of medical waste.  We have
      recently acquired our first Brownfield site and plan to take steps to cap
      this property with soils from our Transportation and Disposal
      segment.  We estimate that we will begin generating revenues
      from our Brownfield operations in December of 2009 or the first quarter of
      2010.




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




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




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




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




29




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




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




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




Critical
Accounting Policies and Estimates




In
preparing our condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States, we make estimates
and assumptions that affect the accounting, recognition and disclosure of our
assets, liabilities, stockholders’ equity, revenues and expenses.  We
make these estimates and assumptions because certain information that we use is
dependent upon future events, cannot be calculated with a high degree of
precision from data available or cannot be readily calculated based upon
generally accepted methodologies.  In some cases, these estimates are
particularly difficult and therefore require a significant amount of
judgment.  Actual results could differ from the estimates and
assumptions that we use in the preparation of our consolidated and condensed
consolidated financial statements.  There have not been any
significant changes to our critical accounting policies discussed under “Item
2.  Financial Information –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 December 31, 2008, as filed with the Securities and
Exchange Commission on March 31, 2009.




30


Results
of Operations – Three Months Ended June 30, 2009 Compared to Three Months Ended
June 30, 2008




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




Three
      Months Ended June 30,2009
            
            
            2008(in
      thousands, except share and per share data)
            
            (unaudited)
            
            
            (unaudited)Revenues
            
            $
            11,999
            
            
            $
            17,891Cost
      of revenues
            
            
            10,481
            
            
            
            14,061Gross
      profit
            
            
            1,518
            
            
            
            3,830Operating
      expenses:Salaries and related
      expenses
            
            
            1,410
            
            
            
            1,779Occupancy and other office
      expenses
            
            
            233
            
            
            
            273Professional
    fees
            
            
            463
            
            
            
            559Other operating
      expenses
            
            
            594
            
            
            
            229Insurance
            
            
            193
            
            
            
            357Depreciation and
      amortization
            
            
            163
            
            
            
            138Impairment
      of idle machinery
            
            
            --
            
            
            
            412(Gain) on sale of
      equipment
            
            
            (11
            )
            
            
            (3
            )Total operating
      expenses
            
            
            3,045
            
            
            
            3,744Income
      (loss) from operations
            
            
            (1,527
            )
            
            
            86Interest
      expense, net
            
            
            (618
            )
            
            
            (487
            )Loss
      from equity investment
            
            
            (4
            )
            
            
            --Other
      income
            
            
            840
            
            
            
            98Loss
      before (benefit from) income taxes
            
            
            (1,309
            )
            
            
            (303
            )Benefit
      from income taxes
            
            
            (437
            )
            
            
            (126
            )Net
      loss
            
            
            (872
            )
            
            
            (177
            )Less
      preferred stock dividends
            
            
            --
            
            
            
            (453
            )Loss
      available for common stockholders
            
            $
            (872
            )
            
            $
            (630
            )Loss
      available for common stockholdersper
      share (basic and diluted)
            
            $
            (0.05
            )
            
            $
            (0.04
            )Weighted
      average shares of common stock outstanding during the period (basic and
      diluted)
            
            
            17,522,239
            
            
            
            17,233,917Earnings
      before interest, taxes, depreciation and amortization
    (EBITDA)
            
            $
            141
            
            
            $
            966





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




·
            to
      review and assess the operating performance of our company and our
      reporting segments, as permitted by SFAS No. 131, “Disclosures about
      Segments of an Enterprise and Related
  Information”;




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




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




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




·
            to
      evaluate internally the performance of our
  personnel.




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




31




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




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




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




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




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




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




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




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




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




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




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




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




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




The following table presents a
reconciliation of net loss, which is our most directly comparable GAAP operating
performance measure, to EBITDA for the three months ended June 30, 2009 and June
30, 2008:




32




Three
      Months Ended
                June
      30,2009
            
            
            2008(in
      thousands)
            
            (unaudited)
            
            
            (unaudited)EBITDA
            
            $
            141
            
            
            $
            966Depreciation
      and amortization, including $669 and $644 of depreciation and amortization
      classified as a component of cost of revenues
            
            
            832
            
            
            
            782Interest expense,
      net
            
            
            618
            
            
            
            487Benefit from income
      taxes
            
            
            (437
            )
            
            
            (126
            )Net
      loss
            
            $
            (872
            )
            
            $
            (177
            )




Revenues




The
following table sets forth information regarding our revenues, excluding
intercompany revenues, by segment for the three months ended June 30, 2009 and
2008.




Three
      Months Ended June 30,2009
            
            
            2008(unaudited)(in
      thousands, except percentages)
            
            Amount
            
            
            %
      of Revenues
            
            
            Amount
            
            
            %
      of RevenuesTransportation
      and Disposal
            
            $
            5,884
            
            
            
            49
            %
            
            $
            9,669
            
            
            
            54
            %Treatment
      and Recycling
            
            
            4,745
            
            
            
            40
            %
            
            
            6,729
            
            
            
            38
            %Environmental
      Services
            
            
            111
            
            
            
            1
            %
            
            
            453
            
            
            
            3
            %Materials
            
            
            820
            
            
            
            7
            %
            
            
            388
            
            
            
            2
            %Concrete
      Fibers
            
            
            439
            
            
            
            3
            %
            
            
            652
            
            
            
            4
            %Total
            
            $
            11,999
            
            
            
            100
            %
            
            $
            17,891
            
            
            
            100
            %





Revenues
decreased by $5.9 million, or 33%, from $17.9 million for the three months
ended June 30, 2008 to $12.0 million for the three months ended June
30, 2009.  The revenue decrease in the second quarter of 2009 is
primarily attributable to a $3.8 million decrease in revenues from the
Transportation and Disposal segment and a decrease of $2.0 million in revenues
from the Treatment and Recycling segment.  The Environmental Services
and Concrete Fibers segments decreased by $0.3 million and $0.2 million,
respectively, for the three months ended June 30, 2009.  These
decreases were offset by an increase of $0.4 million in revenue from the
Materials segment.




Revenues
from our Transportation and Disposal segment decreased by $3.8 million, or
39%, for the three months ended June 30, 2009 as compared to the three
months ended June 30, 2008.  Revenues in both periods were driven
largely by the demand for our Transportation and Disposal services in the New
York metropolitan area.  We derived 24% and 43% of our
Transportation and Disposal revenues for the three months ended June 30,
2009 and 2008, from five and four large customers,
respectively.  Revenues from the Transportation and Disposal segment
are highly dependent upon the market for construction and rehabilitation
projects in the New York City metropolitan area, which experienced a significant
downturn during the fourth quarter of 2008 and into 2009 due to uncertain market
and economic conditions.  This resulted in many large construction and
rehabilitation projects being delayed or put on hold, which has resulted in a
decrease in revenues from this segment during the second quarter of 2009 as
compared to the second quarter of 2008.




Revenues
from the Treatment and Recycling segment for the three months ended June 30,
2009, decreased by $2.0 million, or 29%, as compared to the three months ended
June 30, 2008.  The decrease in revenues reflects an increase in
competition within the marketplace for fewer large soil treatment and recycling
jobs.    During the first quarter of 2009, we had two large
customers which contributed approximately $1.3 million in revenues, or 21% of
the segment’s revenues.  We are currently in the process of obtaining
additional permits and modifying existing permits to allow us to increase the
capacity and volume of clean and contaminated soils that can be processed and
treated.  In addition, we continue to explore opportunities in the
market for spent metal catalysts through our joint venture interest in Advanced
Catalyst Recycling, Inc., or ACR.  ACR is a joint venture between a
third party, Advanced Recycling Technology, Inc., or ARTI, and
Casie.  We have entered into this joint venture with ARTI to identify
and enter into recycling opportunities in the market for spent metal catalysts
and to develop and market recycling solutions to the generators of those
catalysts.  Our Treatment and Recycling revenues for the three months
ended June 30, 2009, also include approximately $0.3 million in revenues from PE
Energy for brokering the disposal of various alternative waste
streams.




33




Revenues
from the Environmental Services segment decreased by $0.3 million, or 75%, from
$0.4 million for the three months ended June 30, 2008 to $0.1 million for the
three months ended June 30, 2009.  In 2008, we expanded our consulting
services by offering the brokering of the disposal of waste, which contributed
approximately $0.1 million in revenues for the three months ended June 30, 2008,
which did not recur during the three months ended June 30, 2009.  In
January of 2008, we purchased a Brownfield location in central Connecticut which
will provide a disposal site for excavated soils from the Connecticut and New
England marketplace over the next three to four years.  We anticipate
that this site will begin generating revenues in December of 2009 or the first
quarter of 2010.




Revenues
from the Materials segment also increased by approximately $0.4 million for the
three months ended June 30, 2009 as compared to the three months ended June 30,
2008.  The Materials segment results overall were positively affected
by consolidation of two rock crushing facilities into one facility during the
fourth quarter of 2008.  In October of 2008, we terminated our lease
and operating agreement for the North Bergen rock crushing facility, which has
had a positive impact on our Material segment results as we are no longer
required to first offer the owner of the facility a fixed price for our rock and
aggregate products.  We believe that we will be able to continue to
sell these products at higher prices to other customers, which will result in
higher revenues on a per ton basis.  The loss of production from this
rock crushing facility has been offset and absorbed by increased production at
our Lyndhurst site which can now handle higher quantities of material with the
new $1.8 million of equipment leased in 2008.




Revenues
from the Concrete Fibers segment decreased by approximately $0.2 million, or
33%, for the three months ended June 30, 2009 as compared to the three months
ended June 30, 2008.  We commenced operations in our Concrete Fibers
segment on April 1, 2008 with the acquisition of Nycon, Inc.  We are
currently in the process of implementing a revised sales strategy that will
utilize regional sales managers located in five strategic locations across the
United States in an effort to broaden our customer base, which we believe will
result in additional revenues.  In connection with the Nycon
acquisition, we introduced the Nycon-GTM fiber, an eco-friendly reinforcing fiber
manufactured from post-consumer carpet waste and developed under the patented
process covered by the licensing agreement with the patent holder.  We
believe that Nycon-GTM is the only concrete reinforcing fiber currently on the
market that has minimal or no negative impact on the environment and that
offering this product to the marketplace will allow us to establish or enhance
existing relationships with large concrete manufacturers.




The table
above does not reflect intercompany revenues of approximately $0.7 million and
$0.9 million for the three months ended June 30, 2009 and 2008, respectively,
which revenues were eliminated from our condensed consolidated statements of
operations.  Our intercompany revenues largely reflect our use of
Transportation and Disposal services internally for our Materials processing
activities and the shipment of wastes to our Treatment and Recycling segment
facilities.  We generally reflect these services at their current
market value when rendered.  An important part of the strategic
alignment of our segments is the synergies and cost savings that these segments
can provide to each other, which benefits us as a whole.




Cost
of Revenues




The
following table sets forth information regarding our cost of revenues, excluding
intercompany costs, by segment for the three months ended June 30, 2009 and
2008.




34




Cost
      of Revenues – By SegmentThree
      Months Ended June 30,2009
            
            
            2008(unaudited)
      (in thousands)
            
            Amount
            
            
            %
      of Revenues
            
            
            Amount
            
            
            %
      of RevenuesTransportation
      and Disposal
            
            $
            4,618
            
            
            
            38
            %
            
            $
            6,775
            
            
            
            38
            %Treatment
      and Recycling
            
            
            4,640
            
            
            
            39
            %
            
            
            5,369
            
            
            
            30
            %Environmental
      Services
            
            
            103
            
            
            
            1
            %
            
            
            406
            
            
            
            2
            %Materials
            
            
            791
            
            
            
            7
            %
            
            
            950
            
            
            
            5
            %Concrete
      Fibers
            
            
            329
            
            
            
            3
            %
            
            
            561
            
            
            
            3
            %Total
            
            $
            10,481
            
            
            
            87
            %
            
            $
            14,061
            
            
            
            79
            %




Cost of
revenues decreased by approximately $3.6 million, from $14.1 million for the
three months ended June 30, 2008 to $10.5 million for the three months ended
June 30, 2009.  This decrease results primarily from an decrease in
the total volume of sales from the Transportation and Disposal segment combined
with a decrease in costs within the Treatment and Recycling and Materials
segments from period to period.  Our overall cost of revenues as a
percentage of sales increased from 79% for the three months ended June 30, 2008,
to 87% for the three months ended June 30, 2009, which is reflective of
increased competition in the marketplace for less overall volume of
business.  Our gross profit margin for the Transportation and Disposal
segment and the Treatment and Recycling segment decreased by 8% and 18%,
respectively for the three months ended June 30, 2009 as compared to the three
months ended June 30, 2008.  Our gross margin for the Materials
segment increased by $0.6 million for the three months ended June 30, 2009 as
compared to the corresponding prior year period, as a result of the
consolidation of our operating sites into one facility and increased production
capability and efficiency from the new rock crushing equipment leased in June of
2008.




For the
remainder of 2009, we expect to continue to operate at gross margins ranging
from 12% to 18% on a consolidated basis.  These estimates are based on
our current expectation of costs of labor and transportation
costs.  Our ability to achieve our estimated gross margins in future
periods may be impacted by, among other things, the overall economic conditions,
fuel prices that rise faster than anticipated, increases in disposal costs
arising from a reduction in the disposal facilities’ capacity or additional
restrictions that may be placed on the types or amounts of waste they may be
able to accept, and our ability to successfully implement initiatives to reduce
operating expenses.




Operating
Expenses




Our
operating expenses include:




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




·
            occupancy
      and other office expenses;




·
            professional
      fees;




·
            insurance;




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




·
            impairment
      charges for idle machinery;




·
            gains
      or losses recognized on our sale of certain equipment;
  and




·
            other
      miscellaneous operating expenses.




The
following table summarizes the primary components of our operating expenses for
the three months ended June 30, 2009 and 2008.




35




Three
      Months Ended June 30,
            
            
            Period
      to Period Change(unaudited)
      (in thousands, except percentages)
            
            2009
            
            
            2008
            
            
            Amount
            
            
            PercentageSalaries
      and related expenses
            
            $
            1,410
            
            
            $
            1,779
            
            
            $
            (369
            )
            
            
            (21
            )%Occupancy
      and other office expenses
            
            
            233
            
            
            
            273
            
            
            
            (40
            )
            
            
            (15
            )%Professional
      fees
            
            
            463
            
            
            
            559
            
            
            
            (96
            )
            
            
            (17
            )%Other
      operating expenses
            
            
            594
            
            
            
            229
            
            
            
            365
            
            
            
            159
            %Insurance
            
            
            193
            
            
            
            357
            
            
            
            (164
            )
            
            
            (46
            )%Depreciation
      and amortization
            
            
            163
            
            
            
            138
            
            
            
            25
            
            
            
            8
            %Impairment
      of idle machinery
            
            
            --
            
            
            
            412
            
            
            
            (412
            )
            
            
            100
            %Gain
      on sale of equipment
            
            
            (11
            )
            
            
            (3
            )
            
            
            (8
            )
            
            
            (267
            )%Total
      operating expenses
            
            $
            3,045
            
            
            $
            3,744
            
            
            $
            (699
            )
            
            
            (19
            )%




Salaries
and related expenses represented approximately 46% of our total operating
expenses for the three months ended June 30, 2009 and were driven primarily by
our overall headcount and compensation structure.  Our costs
associated with salaries and related expenses decreased by $0.4 million, or 21%,
which is due to reductions in headcount which took place during the first and
second quarters of 2009 and voluntary reductions in management’s salaries which
went into effect on June 1, 2009.   These decreases are also the
result of lower bonus and commission accruals during the three months ended June
30, 2009 due to lower sales.




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




Occupancy
and other office expenses represent our costs associated with the rental of our
office space and other facilities, temporary labor, dues and subscriptions,
postage and other office expenses.  Rent includes the cost of leasing
our principal executive offices in Trevose, Pennsylvania and additional
properties and facilities in New York, New Jersey, and Connecticut to support
our operations.  Occupancy and other office expenses decreased by
$40,000, or 15%, from the three months ended June 30, 2008 as compared to the
three months ended June 30, 2009, which is primarily attributable to the
consolidation of our Materials segment facilities into one operating location,
consolidation of the Bronx, New York office into the Lyndhurst site, and the
implementation of cost cutting initiatives and lower office expenses at
Corporate and Casie Group.




For the
three months ended June 30, 2009 and 2008, our professional fees consisted
primarily of:




·
            consulting
      fees paid for sales;




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




·
            legal
      costs associated with litigation;




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




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




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




36




Our
professional fees decreased by $96,000, or 17%, for the quarter ended June 30,
2009 as compared to the quarter ended June 30, 2008, which is result of
additional legal and accounting fees incurred in 2008 in relation to the
preparation and filing of our Form 10 with the SEC on June 20,
2008.  For the remainder of 2009, we anticipate that our legal,
auditing, accounting and other professional fees will be consistent with our
2008 costs, as we are now an SEC reporting company.  We will incur additional
accounting and professional fees in order to comply with the Sarbanes-Oxley Act
of 2002, or SOX, including the requirement to implement and maintain internal
control over financial reporting, and to have our auditors issue an audit report
on our assessment of our internal control over financial reporting, which will
be required beginning with our fiscal year ended December 31,
2009.  As we continue to grow, whether through internal growth or by
acquisition, the amount of legal and other professional fees for any future
transaction will increase as a result of our status as an SEC reporting company
subject to SOX.




We
maintain various policies for workers’ compensation, health, disability,
umbrella, pollution, product liability, general commercial liability, title and
director’s and officer’s liability insurance.  Our insurance costs
decreased by approximately $164,000, or 46%, for the three months ended June 30,
2009 as compared to the corresponding period in 2008, primarily as a result of
reduced policy premiums and the timing of insurance refunds realized in
2009.  We renegotiated our insurance coverage company-wide in August
2008, which we expect to decrease our future insurance premiums by approximately
$0.3 million over the remainder of 2009.




Other
operating expenses consist of general and administrative costs such as travel
and entertainment, bank service fees, advertising and other office and
miscellaneous expenses.  Other operating expenses increased by
approximately $0.4 million, or 159%, in the three months ended June 30, 2009 as
compared to the three months ended June 30, 2008.  This increase was
primarily attributable $0.3 million of additional bad debt expense incurred in
the three months ended June 30, 2009 as a result of the settlement of $2.8
million of outstanding receivables.




For the
three months ended June 30, 2008, we incurred approximately $0.4 million in
impairment charges relating to idle machinery held at Casie Group. In July 2008,
we determined that, due to the softening of the overall economy, the value of
the idle machinery had declined by approximately $0.4 million. The impairment
charge was accompanied by a corresponding reversal of approximately $0.2 million
of the deferred tax liability associated with the idle machinery. At June 30,
2009, we had approximately $1.9 million of remaining deferred tax liabilities
recorded in relation to the idle machinery.  In April of 2009, we
placed $2.0 million of this idle machinery into service at Casie
Group.




For the
three months ended June 30, 2008, we had approximately $0.3 million of gain from
the disposal of certain fixed assets at Juda and PE Materials. In January 2008,
we sold vehicles and equipment having a net carrying value of approximately $0.3
million prior to disposition for approximately $0.6 million. This equipment was
no longer needed as a result of the strategic initiative at Juda, whereby we
have begun to outsource its trucking operations instead of using our owned
vehicles.  For the three months ended June 30, 2009, we had
approximately $11,000 of gain primarily from the sale of well drilling equipment
within our Environmental Services segment and the proceeds from an insurance
settlement.




Income
(Loss) from Operations




The
following table sets forth our income (loss) from operations by reportable
segment for the three months ended June 30, 2009 and 2008.




Three
      Months Ended June 30,
            
            
            Period
      to Period Change(unaudited)
      (in thousands, except percentages)
            
            2009
            
            
            2008
            
            
            Amount
            
            
            PercentageTransportation
      and Disposal
            
            $
            (199
            )
            
            $
            1,191
            
            
            $
            (1,390
            )
            
            
            (117
            )%Treatment
      and Recycling
            
            
            (399
            )
            
            
            442
            
            
            
            (841
            )
            
            
            (190
            )%Environmental
      Services
            
            
            (82
            )
            
            
            (42
            )
            
            
            (40
            )
            
            
            95
            %Materials
            
            
            (81
            )
            
            
            (409
            )
            
            
            328
            
            
            
            (80
            )%Concrete
      Fibers
            
            
            (90
            )
            
            
            (102
            )
            
            
            12
            
            
            
            (12
            )%Corporate
      and Other
            
            
            (676
            )
            
            
            (994
            )
            
            
            318
            
            
            
            (32
            )%Total
            
            $
            (1,527
            )
            
            $
            86
            
            
            $
            (1,613
            )
            
            
            1,875
            %





37




The
decrease in income from operations within the Transportation and Disposal
segment is due in large part to a decrease in the overall Transportation and
Disposal revenues of approximately $3.8 million with a decrease in the gross
profit margin from 30% for the three months ended June 30, 2008, to 22% for the
three months ended June 30, 2009.  This decrease in gross profit
margin is due primarily to increased competition for fewer jobs in the
marketplace, resulting in tighter margins.  The decline in revenues
during the three months ended June 30, 2009 is attributable to the decline in
the overall economy and the construction industry in the New York metropolitan
area.




For the
three months ended June 30, 2009, the Treatment and Recycling segment had a loss
from operations of approximately $0.4 million as compared to income from
operations of approximately $0.4 million for the three months ended June 30,
2008.  The decrease in this segment’s operating results is primarily
due to lower volumes of incoming soils for treatment, coupled with gross profit
margins which declined from 20% for the three months ended June 30, 2008 to 2%
for the three months ended 2009.  The decrease in revenues and
tightening of margins is the result of fewer large soil disposal and remediation
jobs in the overall marketplace which creates increased competition and price
compression.  We expect that when the volume of incoming materials
increases, our income from operations and gross profit margins attributable to
the Treatment and Recycling segment will begin to improve.  During the
second quarter of 2009, PE Energy contributed an operating loss of approximately
$0.1 million due in large part to being a startup operation with certain fixed
overhead costs, such as salaries.




Loss from
operations within the Environmental Services segment was approximately $82,000
for the three months ended June 30, 2009 as compared to a loss of approximately
$42,000 for the three months ended June 30, 2008.  The losses from
operations during the three months ended June 30, 2009 and 2008 were primarily
attributable to a lack of new business from our environmental consulting
services and brokerage operations.  We expect to commence operations
at our initial Brownfield property in December of 2009 or the first quarter of
2010, from which we should experience an increase in revenues and income from
operations for the Environmental Services segment.




The
income from operations attributed to the Materials segment increased by
approximately $0.3 million for the three months ended June 30, 2009 as compared
to the three months ended June 30, 2008, from a loss of approximately $0.4
million in 2008 to a loss of $0.1 million in 2009.  The improvement in
our operating results for this segment is due to the consolidation of our rock
crushing facilities from two locations into one and the termination of the North
Bergen lease and operating agreement.   As a result, we are no
longer required to first offer the owner of the North Bergen facility a fixed
price for our rock and aggregate products.  We have been able to sell
these products at higher prices to other customers, which contributed to higher
revenues and better margins on a per ton basis in the second quarter of
2009.




Interest
Income and Expense




Interest
expense, net of interest income earned on our short-term deposits of excess
operating cash, was $0.6 million and approximately $0.5 million for the three
months ended June 30, 2009 and 2008, respectively.  The increase in
interest expense is due to:




·
            approximately
      $15,000 increase in interest expense within the Treatment and Recycling
      segment as a result of the Casie Group term loan refinancing completed in
      November of 2008; and




·
            a
      decrease in interest income of approximately $50,000 as a result of no
      longer maintaining cash reserves in interest bearing
    accounts.




We anticipate that the annual interest
cost associated with our Series B preferred stock will be approximately $1.3
million (including amortization of the deferred financing costs and accretion of
the debt discount).  The interest expense incurred in relation to our
revolving line of credit will fluctuate based upon our working capital
requirements from our operating segments, as well as changes in the prevailing
interest rates.




On October 21, 2008, the interest
rate on our revolving line of credit increased to the bank’s prime rate, subject
to a minimum of 5.00%, plus 2.75%, from the bank’s prime rate, minus 0.25%;
however, we also significantly decreased our outstanding borrowing amounts at
the same time, which lessened the impact of the increase in rates.  On
March 13, 2009, we completed an amendment of this revolving line of credit,
which added Casie Group and our other subsidiaries as borrowers, and the
accounts receivable and inventory of these entities have become collateral and,
to the extent eligible, part of the available borrowing base.  As a
result of the covenant defaults under our revolving line of credit agreement,
the interest rate on our revolving line of credit was increased to the default
interest rate of 10.75% effective June 1, 2009 through the maturity date on
October 23, 2009.  We expect that as a result of this, our average
outstanding borrowings will increase resulting in increased interest
expense.




38




On
November 12, 2008, we refinanced our existing long-term debt and revolving line
of credit at Casie Group into a consolidated $8.0 million, seven-year term loan
with an adjustable rate of interest.  In connection with this
refinancing, we also entered into an interest rate swap agreement, which
effectively converted this adjustable-rate loan into a fixed-rate loan with an
annual interest rate of 6.10%.  See “Item 7.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Debt
Obligations – Long-Term Debt” in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.  We anticipate that our annual interest
expense for 2009 under this term loan will be approximately $0.5
million.




Other
Income




During
the three months ended June 30, 2009, we recognized other income of $0.3
million, primarily as a result of the change in fair value of warrants with
contingent redemption provisions.  This amount represents gains
relating to the warrants issued with our Series B preferred stock which occurred
as a result of the warrants being revalued as of June 30, 2009, as required
under EITF 00-19.  The decrease in the estimated fair value of these
warrants was the result of a decline in the fair value of our common stock
underlying these warrants.




In June
of 2009, the Casie Group settled outstanding fines and compliance issues with
various state and local authorities for approximately $228,000 and for which a
$624,300 liability was previously recorded as part of the opening balance sheet
at the date of acquisition on March 30, 2007.  The settlement of these
compliance issues and fines at a reduced amount resulted in a gain of
approximately $396,000, which was recorded as a component of other income for
the three months ended June 30, 2009.




In
connection with the refinancing of the Casie Group revolving line of credit on
November 12, 2008, we also entered into an interest rate swap agreement, which
essentially converts our adjustable rate term loan to a fixed-rate loan bearing
interest at an annual rate of 6.10%.  We account for this interest
rate swap as a derivative contract pursuant to SFAS No. 133 “Accounting for
Derivative Instruments and Hedging Activities”, and therefore we recorded a fair
value adjustment increase of approximately $155,000 for the three months ended
June 30, 2009.  The fair value adjustment on the interest rate swap
was offset in large part by a mark-to-market adjustment decrease of $177,000 for
the three months ended June 30, 2009 on the Casie Group term loan, for which we
have elected to apply the fair value option under SFAS No. 159.




Other
income for the three months ended June 30, 2008 was approximately $98,000 as a
result of the settlement of a sales and use tax audit which was settled for
approximately $265,000. The Company had previously recorded an accrued liability
of $502,078 as part of the opening balance sheet of Casie Group on March 30,
2007. Pursuant to the Casie Group purchase agreement and related amendments, a
portion of the reduction in this liability from $502,078 to $265,000 is due back
to the former owner in the form of shares of the Company’s common stock.
Accordingly, the Company has recorded a liability of approximately $140,000,
which will be resolved upon issuance of additional shares. The settlement of
this matter resulted in Casie Group and the Company recognizing a gain of
approximately $98,000 for the three months ended June 30, 2008.  As of
June 30, 2009, these shares have not yet been issued due to other outstanding
claims with the former owner of Casie Group.





Benefit
From Income Taxes




For the
three months ended June 30, 2009, we recognized a benefit from income taxes of
approximately $0.4 million, and a benefit from income taxes of $0.1 million for
the three months ended June 30, 2008.  The recognition of these income
tax benefits is the result of pre-tax losses incurred during both
periods.  Our effective tax rates were 33% and 42% for the three
months ended June 30, 2009 and 2008, respectively.  The decrease in
the our effective tax rate is primarily the result of an estimated pre-tax loss
for the 2009 reporting year, as compared to estimated pre-tax income for the
2008 reporting year.  We anticipate that our effective income tax rate for
the full calendar year of 2009 will be approximately 40%.




39




Results
of Operations – Six Months Ended June 30, 2009 Compared to Six Months Ended June
30, 2008




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




Six
      Months Ended June 30,2009
            
            
            2008(in
      thousands, except share and per share data)
            
            (unaudited)
            
            
            (unaudited)Revenues
            
            $
            24,066
            
            
            $
            32,508Cost
      of revenues
            
            
            20,272
            
            
            
            26,421Gross
      profit
            
            
            3,794
            
            
            
            6,087Operating
      expenses:Salaries and related
      expenses
            
            
            2,853
            
            
            
            3,026Occupancy and other office
      expenses
            
            
            502
            
            
            
            565Professional
    fees
            
            
            1,024
            
            
            
            1,066Other operating
      expenses
            
            
            968
            
            
            
            732Insurance
            
            
            441
            
            
            
            599Depreciation and
      amortization
            
            
            320
            
            
            
            254Impairment
      of idle machinery
            
            
            --
            
            
            
            412(Gain) on sale of
      equipment
            
            
            (11
            )
            
            
            (256
            )Total operating
      expenses
            
            
            6,095
            
            
            
            6,398Loss
      from operations
            
            
            (2,301
            )
            
            
            (311
            )Interest
      expense, net
            
            
            (1,188
            )
            
            
            (804
            )Loss
      from equity investment
            
            
            (108
            )
            
            
            --Other
      income
            
            
            824
            
            
            
            113Loss
      before provision for (benefit from) income taxes
            
            
            (2,773
            )
            
            
            (1,002
            )Benefit
      from income taxes
            
            
            (1,093
            )
            
            
            (416
            )Net
      loss
            
            
            (1,680
            )
            
            
            (586
            )Less
      preferred stock dividends
            
            
            --
            
            
            
            (478
            )Loss
      available for common stockholders
            
            $
            (1,680
            )
            
            $
            (1,064
            )Loss
      available for common stockholdersper
      share (basic and diluted)
            
            $
            (0.10
            )
            
            $
            (0.06
            )Weighted
      average shares of common stock outstanding during the period (basic and
      diluted)
            
            
            17,574,230
            
            
            
            17,228,499Earnings
      (loss) before interest, taxes, depreciation and amortization
      (EBITDA)
            
            $
            (22
            )
            
            $
            1,328




For a discussion of our used of EBITDA,
a non-GAAP financial measure, in the table above, see “Results of Operations –
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30,
2008.”  The use of EBITDA as a measure of our operating performance
has limitations and should not be considered in isolation from or as an
alternative to GAAP operating measures such as net income (loss) and income from
operations, or as a measure of profitability.  The following table
sets for the reconciliation of EBITDA to net income (loss), our most directly
comparable operating performance measure presented in accordance with GAAP, for
each of the six months ended June 30, 2009 and 2008.




40




Six
      Months Ended
                June
      30,2009
            
            
            2008(in
      thousands)
            
            (unaudited)
            
            
            (unaudited)EBITDA
            
            $
            (22
            )
            
            $
            1,328Depreciation
      and amortization, including $1,243 and $1,273 of depreciation and
      amortization classified as a component of cost of revenues
            
            
            1,563
            
            
            
            1,526Interest expense,
      net
            
            
            1,188
            
            
            
            804Benefit from income
      taxes
            
            
            (1,093
            )
            
            
            (416
            )Net
      loss
            
            $
            (1,680
            )
            
            $
            (586
            )




Revenues




The
following table sets forth information regarding our revenues, excluding
intercompany revenues, by segment for the six months ended June 30, 2009 and
2008.




Six
      Months Ended June 30,2009
            
            
            2008(unaudited)(in
      thousands, except percentages)
            
            Amount
            
            
            %
      of Revenues
            
            
            Amount
            
            
            %
      of RevenuesTransportation
      and Disposal
            
            $
            10,423
            
            
            
            43
            %
            
            $
            16,883
            
            
            
            52
            %Treatment
      and Recycling
            
            
            11,111
            
            
            
            46
            %
            
            
            12,921
            
            
            
            40
            %Environmental
      Services
            
            
            359
            
            
            
            2
            %
            
            
            1,261
            
            
            
            4
            %Materials
            
            
            1,426
            
            
            
            6
            %
            
            
            791
            
            
            
            2
            %Concrete
      Fibers
            
            
            747
            
            
            
            3
            %
            
            
            652
            
            
            
            2
            %Total
            
            $
            24,066
            
            
            
            100
            %
            
            $
            32,508
            
            
            
            100
            %





Revenues
decreased by $8.4 million, or 26%, from $32.5 million for the six months ended
June 30, 2008 to $24.0 million for the six months ended June 30,
2009.  The revenue decrease in 2009 is primarily attributable to a
$6.5 million decrease in revenues from the Transportation and Disposal segment
and a decrease of $1.8 million in revenues from the Treatment and recycling
segment.  The Environmental Services segment also decreased by $0.9
million for the six months ended June 30, 2009.  These decreases were
offset by an increase of $0.6 million in revenue from the Materials segment and
an increase of $0.1 million from the Concrete Fibers segment for the six months
ended June 30, 2009 as compared to the six months ended June 30,
2008.




Revenues
in both periods were driven largely by the demand for our Transportation and
Disposal services in the New York metropolitan area.  We
derived 31% and 51% of our Transportation and Disposal revenues for the six
months ended June 30, 2009 and 2008 from four large customers,
respectively.  Revenues from the Transportation and Disposal segment
are highly dependent upon the market for construction and rehabilitation
projects in the New York City metropolitan area, which experienced a significant
downturn during the fourth quarter of 2008 and into 2009 due to uncertain market
and economic conditions.  This resulted in many large
construction and rehabilitation projects being delayed or put on hold, which has
resulted in a decrease in revenues from this segment during the six months ended
June 30, 2009 as compared to the same period in the prior year.




Revenues
from the Treatment and Recycling segment for the six months ended June 30, 2009,
decreased by $1.8 million, or 14%, as compared to the six months ended June 30,
2008.  The decrease in revenues reflects the increased competition in
the marketplace for fewer large treatment and recycling jobs as well as lower
overall pricing for our services.  During the first half of 2009, we
had two large customers which contributed approximately $4.9 million in
revenues, or 44% of the segment’s revenues.  We are currently in the
process of obtaining additional permits and modifying existing permits to allow
us to increase the capacity and volume of clean and contaminated soils that can
be processed and treated.  In addition, we continue to explore
opportunities in the market for spent metal catalysts through our joint venture
interest in Advanced Catalyst Recycling, Inc., or ACR.  ACR is a joint
venture between a third party, Advanced Recycling Technology, Inc., or ARTI, and
Casie.  We have entered into this joint venture with ARTI to identify
and enter into recycling opportunities in the market for spent metal catalysts
and to develop and market recycling solutions to the generators of those
catalysts.  Our Treatment and Recycling revenues for the six months
ended June 30, 2009, also include approximately $0.5 million in revenues from PE
Energy for brokering the disposal of various alternative waste
streams.




41




Revenues
from the Environmental Services segment decreased by $0.9 million, or 72%, from
$1.3 million for the six months ended June 30, 2008 to $0.4 million for the six
months ended June 30, 2009.  In 2008, we expanded our consulting
services by offering the brokering of the disposal of waste, which contributed
approximately $0.6 million in revenues for the six months ended June 30, 2008,
which did not recur during the six months ended June 30, 2009.  In
January of 2008, we purchased a Brownfield location in central Connecticut which
will provide a disposal site for excavated soils from the Connecticut and New
England marketplace over the next three to four years.  We anticipate
that this site will begin generating revenues in December 2009 or the first
quarter of 2010.




Revenues
from the Materials segment increased by approximately $0.6 million for the six
months ended June 30, 2009 as compared to the six months ended June 30,
2008.  The Materials segment results overall were positively affected
by consolidation of two rock crushing facilities into one facility during the
fourth quarter of 2008.  In October of 2008, we terminated our lease
and operating agreement for the North Bergen rock crushing facility, which has
had a positive impact on our Material segment results as we are no longer
required to first offer the owner of the facility a fixed price for our rock and
aggregate products.  We believe that we will be able to continue to
sell these products at higher prices to other customers, which will result in
higher revenues on a per ton basis.  The loss of production from this
rock crushing facility has been offset and absorbed by increased production at
our Lyndhurst site which can now handle higher quantities of material with the
new $1.8 million of equipment leased in 2008.




Revenues
from the Concrete Fibers segment increased by approximately $0.1 million, or
15%, for the six months ended June 30, 2009 as compared to the six months ended
June 30, 2008.  We commenced operations in our Concrete Fibers segment
on April 1, 2008 with the acquisition of Nycon, Inc., and therefore the results
for the six months ended June 30, 2008 included the operating results for only
three months as compared to six months in 2009.  We are currently in
the process of implementing a revised sales strategy that will utilize regional
sales managers located in five strategic locations across the United States in
an effort to broaden our customer base, which we believe will result in
additional revenues.  In connection with the Nycon acquisition, we
introduced the Nycon-GTM fiber, an eco-friendly reinforcing fiber manufactured
from post-consumer carpet waste and developed under the patented process covered
by the licensing agreement with the patent holder.  We believe that
Nycon-GTM is the only concrete reinforcing fiber currently on the market that has
minimal or no negative impact on the environment and that offering this product
to the marketplace will allow us to establish or enhance existing relationships
with large concrete manufacturers.




The table
above does not reflect intercompany revenues of approximately $1.2 million and
$2.0 million for the six months ended June 30, 2009 and 2008, respectively,
which revenues were eliminated from our condensed consolidated statements of
operations.  Our intercompany revenues largely reflect our use of
Transportation and Disposal services internally for our Materials processing
activities and the shipment of wastes to our Treatment and Recycling segment
facilities.  We generally reflect these services at their current
market value when rendered.  An important part of the strategic
alignment of our segments is the synergies and cost savings that these segments
can provide to each other, which benefits us as a whole.




Cost
of Revenues




The
following table sets forth information regarding our cost of revenues, excluding
intercompany costs, by segment for the six months ended June 30, 2009 and
2008.




42




Cost
      of Revenues – By SegmentSix
      Months Ended June 30,2009
            
            
            2008(unaudited)
      (in thousands)
            
            Amount
            
            
            %
      of Revenues
            
            
            Amount
            
            
            %
      of RevenuesTransportation
      and Disposal
            
            $
            7,891
            
            
            
            33
            %
            
            $
            11,364
            
            
            
            35
            %Treatment
      and Recycling
            
            
            10,027
            
            
            
            42
            %
            
            
            11,413
            
            
            
            35
            %Environmental
      Services
            
            
            311
            
            
            
            1
            %
            
            
            1,005
            
            
            
            3
            %Materials
            
            
            1,464
            
            
            
            6
            %
            
            
            2,078
            
            
            
            6
            %Concrete
      Fibers
            
            
            579
            
            
            
            3
            %
            
            
            561
            
            
            
            2
            %Total
            
            $
            20,272
            
            
            
            85
            %
            
            $
            26,421
            
            
            
            81
            %




Cost of
revenues decreased by approximately $6.1 million, from $26.4 million for the six
months ended June 30, 2008 to $20.3 million for the six months ended June 30,
2009.  This decrease results primarily from a decrease in the total
volume of sales from the Transportation and Disposal segment combined with a
decrease in costs within the Treatment and Recycling and Materials segments from
period to period.  Our overall cost of revenues as a percentage of
sales increased from 81% for the six months ended June 30, 2008, to 85% for the
six months ended June 30, 2009, which is reflective of increased competition in
the marketplace for less overall volume of business.  Our gross profit
margin for the Transportation and Disposal segment decreased by 9% for the six
months ended June 30, 2009 as compared to the six months ended June 30,
2008.  Our gross margin for the Materials segment (excluding
intercompany transactions) increased by $1.2 million to for the six months ended
June 30, 2009 as compared to the corresponding prior year period, as a result of
the consolidation of our operating sites into one facility and increased
production capability and efficiency from the new rock crushing equipment leased
in June of 2008.




For the
remainder of 2009, we expect to continue to operate at gross margins ranging
from 12% to 18% on a consolidated basis.  These estimates are based on
our current expectation of costs of labor and transportation
costs.  Our ability to achieve our estimated gross margins in future
periods may be impacted by, among other things, the overall economic conditions,
fuel prices that rise faster than anticipated, increases in disposal costs
arising from a reduction in the disposal facilities’ capacity or additional
restrictions that may be placed on the types or amounts of waste they may be
able to accept, and our ability to successfully implement initiatives to reduce
operating expenses.




Operating
Expenses




Our
operating expenses include:




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




·
            occupancy
      and other office expenses;




·
            professional
      fees;




·
            insurance;




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




·
            impairment
      of idle machinery;




·
            gain
      or loss recognized on our sale of certain equipment;
  and




·
            other
      miscellaneous operating expenses.




43




The
following table summarizes the primary components of our operating expenses for
the six months ended June 30, 2009 and 2008.




Six
      Months Ended June 30,
            
            
            Period
      to Period Change(unaudited)
      (in thousands, except percentages)
            
            2009
            
            
            2008
            
            
            Amount
            
            
            PercentageSalaries
      and related expenses
            
            $
            2,852
            
            
            $
            3,026
            
            
            $
            (174
            )
            
            
            (6
            )%Occupancy
      and other office expenses
            
            
            502
            
            
            
            565
            
            
            
            (63
            )
            
            
            (11
            )%Professional
      fees
            
            
            1,024
            
            
            
            1,066
            
            
            
            (42
            )
            
            
            (4
            )%Other
      operating expenses
            
            
            967
            
            
            
            732
            
            
            
            235
            
            
            
            32
            %Insurance
            
            
            441
            
            
            
            599
            
            
            
            (158
            )
            
            
            (26
            )%Depreciation
      and amortization
            
            
            320
            
            
            
            254
            
            
            
            66
            
            
            
            26
            %Impairment
      of idle machinery
            
            
            --
            
            
            
            412
            
            
            
            (412
            )
            
            
            (100
            )%Gain
      on sale of equipment
            
            
            (11
            )
            
            
            (256
            )
            
            
            245
            
            
            
            96
            %Total
      operating expenses
            
            $
            6,095
            
            
            $
            6,398
            
            
            $
            (303
            )
            
            
            (5
            )%




Salaries
and related expenses represented approximately 47% of our total operating
expenses for the six months ended June 30, 2009 and were driven primarily by our
overall headcount and compensation structure.  Our costs associated
with salaries and related expenses decreased by $0.2 million, or 6%, which is
due to reductions in headcount which took place during the first and second
quarters of 2009 and voluntary reductions in management’s salaries which went
into effect on June 1, 2009.   These decreases are also the
result of lower bonus and commission accruals during the six months ended June
30, 2009 as a result of lower sales.




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




Occupancy
and other office expenses represent our costs associated with the rental of our
office space and other facilities, temporary labor, dues and subscriptions,
postage and other office expenses.  Rent includes the cost of leasing
our principal executive offices in Trevose, Pennsylvania and additional
properties and facilities in New York, New Jersey, and Connecticut to support
our operations.  Occupancy and other office expenses decreased by $0.1
million, or 11%, from the six months ended June 30, 2008 as compared to the six
months ended June 30, 2009, which is primarily attributable to the consolidation
of our Materials segment facilities into one operating location, consolidation
of the Bronx, New York office into the Lyndhurst site, and the implementation of
cost cutting initiatives and lower office expenses at Corporate and Casie
Group.




For the
six months ended June 30, 2009 and 2008, our professional fees consisted
primarily of:




·
            consulting
      fees paid for sales;




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




·
            legal
      costs associated with litigation;




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




44




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




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




Our
professional fees decreased by $42,000, or 4%, for the six months ended June 30,
2009 as compared to the six months ended June 30, 2008, which was
the result of additional legal and accounting fees incurred in 2008 in
relation to the preparation and filing of our Form 10 with the SEC on June 20,
2008.  For the remainder of 2009, we anticipate that our legal,
auditing, accounting and other professional fees will be consistent with our
2008 costs, as we are now an SEC reporting company.  We will incur additional
accounting and professional fees in order to comply with the Sarbanes-Oxley Act
of 2002, or SOX, including the requirement to implement and maintain internal
control over financial reporting, and to have our auditors issue an audit report
on our assessment of our internal control over financial reporting, which will
be required beginning with our fiscal year ended December 31,
2009.  As we continue to grow, whether through internal growth or by
acquisition, the amount of legal and other professional fees for any future
transaction will increase as a result of our status as an SEC reporting company
subject to SOX.




We
maintain various policies for workers’ compensation, health, disability,
umbrella, pollution, product liability, general commercial liability, title and
director’s and officer’s liability insurance.  Our insurance costs
decreased by approximately $158,000, or 26%, for the six months ended June 30,
2009 as compared to the corresponding period in 2008, primarily as a result of
reduced policy premiums and the timing of insurance refunds realized in
2009.  We renegotiated our insurance coverage company-wide in August
2008, which we expect to decrease our future insurance premiums by approximately
$0.3 million through the policy expiration date in August of 2009.




Other
operating expenses consist of general and administrative costs such as travel
and entertainment, bank service fees, advertising and other office and
miscellaneous expenses.  Other operating expenses increased by
approximately $0.2 million, or 32%, in the six months ended June 30, 2009 as
compared to the six months ended June 30, 2008.  This increase was
primarily attributable $0.3 million of additional bad debt expense incurred in
the six months ended June 30, 2009 as a result of the settlement of $2.8 million
of outstanding receivables.




Depreciation
and amortization for the six months ended June 30, 2009 was approximately
$320,000 as compared to approximately $254,000 for the six months ended June 30,
2008.  This increase is the result of the Concrete Fibers operations
being present for a full six months in 2009 versus only three months in 2008,
and additional depreciation expense within the Treatment and Recycling segment
as a result of placing $2.0 million of machinery into service in April of 2009,
which was previously classified as idle.




For the
six months ended June 30, 2008, we incurred approximately $0.4 million in
impairment charges relating to idle machinery held at Casie Group. In July 2008,
we determined that, due to the softening of the overall economy, the value of
the idle machinery had declined by approximately $0.4 million. The impairment
charge was accompanied by a corresponding reversal of approximately $0.2 million
of the deferred tax liability associated with the idle machinery. At June 30,
2009, we had approximately $1.9 million of remaining deferred tax liabilities
recorded in relation to the idle machinery.  In April of 2009, we
placed $2.0 million of this idle machinery into service at Casie
Group.




For the
six months ended June 30, 2008, we had approximately $0.3 million of gain from
the disposal of certain fixed assets at Juda and PE Materials. In January 2008,
we sold trucks and equipment having a net carrying value of approximately $0.3
million prior to disposition for approximately $0.6 million. This equipment was
no longer needed as a result of the strategic initiative at Juda, whereby we
have begun to outsource its trucking operations instead of using our owned
vehicles.  For the six months ended June 30, 2009, we had
approximately $11,000 of gain primarily from the sale of well drilling equipment
within our Environmental Services segment and the proceeds from an insurance
settlement.




Loss
from Operations




The
following table sets forth our loss from operations by reportable segment for
the six months ended June 30, 2009 and 2008.




45




Six
      Months Ended June 30,
            
            
            Period
      to Period Change(unaudited)
      (in thousands, except percentages)
            
            2009
            
            
            2008
            
            
            Amount
            
            
            PercentageTransportation
      and Disposal
            
            $
            (126
            )
            
            $
            2,560
            
            
            $
            (2,686
            )
            
            
            (105
            )%Treatment
      and Recycling
            
            
            (139
            )
            
            
            15
            
            
            
            (154
            )
            
            
            *Environmental
      Services
            
            
            (163
            )
            
            
            (69
            )
            
            
            (94
            )
            
            
            (136
            )%Materials
            
            
            (57
            )
            
            
            (836
            )
            
            
            779
            
            
            
            93
            %Concrete
      Fibers
            
            
            (274
            )
            
            
            (103
            )
            
            
            (171
            )
            
            
            (166
            )%Corporate
      and Other
            
            
            (1,542
            )
            
            
            (1,878
            )
            
            
            336
            
            
            
            18
            %Total
            
            $
            (2,301
            )
            
            $
            (311
            )
            
            $
            (1,990
            )
            
            
            *








*       Not
meaningful.




The
decrease in income from operations within the Transportation and Disposal
segment is due in large part to a decrease in the overall Transportation and
Disposal revenues of approximately $6.5 million coupled with a decrease in the
gross profit margin from 33% for the six months ended June 30, 2008, to 24% for
the six months ended June 30, 2009.  This decrease in gross profit
margin is due primarily to increased competition for fewer jobs in the
marketplace, resulting in tighter margins.  The decline in revenues
during the three months ended June 30, 2009 is attributable to the decline in
the overall economy and the construction industry in the New York metropolitan
area.  In addition, we also incurred approximately $0.3 million of bad
debt expense due to the settlement of a large aged accounts receivable during
the six months ended June 30, 2009.




For the
six months ended June 30, 2009, the Treatment and Recycling segment had a loss
from operations of approximately $0.1 million as compared to income from
operations of approximately $15,000 for the six months ended June 30,
2008.  The decrease in this segment’s operating results is primarily
due to lower gross profit margins and revenues, offset by reduced operating
expenses for the six months ended June 30, 2009 as compared to the six months
ended June 30, 2008.  The decrease in operating expenses is the result
of a reduction in overall headcount and management salary reductions which were
implemented in June 2009.  We expect that when the volume of incoming
materials increases, our income from operations and gross profit margins
attributable to the Treatment and Recycling segment will begin to
improve.  During the six months ended June 30, 2009, PE Energy
contributed an operating loss of approximately $0.1 million due in large part to
being a startup operation with certain fixed overhead costs, such as
salaries.




Loss from
operations within the Environmental Services segment was approximately $0.2
million for the six months ended June 30, 2009 as compared to a loss of
approximately $0.1 million for the six months ended June 30,
2008.  The losses from operations during the six months ended June 30,
2009 and 2008 were primarily attributable to a lack of new business from our
environmental consulting services and brokerage operations.  We expect
to commence operations at our initial Brownfield property in December of 2009 or
the first quarter of 2010, from which we should experience an increase in
revenues and income from operations for the Environmental Services
segment.




The loss
from operations attributed to the Materials segment decreased by approximately
$0.8 million for the six months ended June 30, 2009 as compared to the six
months ended June 30, 2008, from a loss of approximately $0.8 million in 2008 to
a loss of $57,000 in 2009.  The improvement in our operating results
for this segment is due to the consolidation of our rock crushing facilities
from two locations into one and the termination of the North Bergen lease and
operating agreement.   As a result, we are no longer required to
first offer the owner of the North Bergen facility a fixed price for our rock
and aggregate products.  We have been able to sell these products at
higher prices to other customers, which contributed to higher revenues and
better margins on a per ton basis in the second quarter of 2009.




Interest
Income and Expense




Interest
expense, net of interest income earned on our short-term deposits of excess
operating cash, was $1.2 million and approximately $0.9 million for the six
months ended June 30, 2009 and 2008, respectively.  The increase in
interest expense is due to:




46




·
            approximately
      $0.2 million of additional interest expense incurred in relation to our
      Series B preferred stock offering and related amortization of deferred
      financing costs;




·
            approximately
      $25,000 increase in interest expense within the Treatment and Recycling
      segment as a result of the Casie Group term loan refinancing completed in
      November of 2008; and




·
            an
      increase of approximately $0.1 million in interest expense relating to our
      revolving line of credit, equipment term loan and insurance financing; and
      a




·
            a
      decrease in interest income of approximately
  $40,000




We anticipate that the annual interest
cost associated with our Series B preferred stock will be approximately $1.3
million (including amortization of the deferred financing costs and accretion of
the debt discount).  The interest expense incurred in relation to our
revolving line of credit will fluctuate based upon our working capital
requirements from our operating segments, as well as changes in the prevailing
interest rates.




On October 21, 2008, the interest
rate on our revolving line of credit increased to the bank’s prime rate, subject
to a minimum of 5.00%, plus 2.75%, from the bank’s prime rate, minus 0.25%;
however, we also significantly decreased our outstanding borrowing amounts at
the same time, which lessened the impact of the increase in rates.  On
March 13, 2009, we completed an amendment of this revolving line of credit,
which added Casie Group and our other subsidiaries as borrowers, and the
accounts receivable and inventory of these entities have become collateral and,
to the extent eligible, part of the available borrowing base.  We
expect that as a result of this, our average outstanding borrowings will
increase resulting in increased interest expense.  As a result of the
covenant defaults under our revolving line of credit agreement, the interest
rate on our revolving line of credit was increased to the default interest rate
of 10.75% effective June 1, 2009 through the maturity date on October 23,
2009.




On
November 12, 2008, we refinanced our existing long-term debt and revolving line
of credit at Casie Group into a consolidated $8.0 million, seven-year term loan
with an adjustable rate of interest.  In connection with this
refinancing, we also entered into an interest rate swap agreement, which
effectively converted this adjustable-rate loan into a fixed-rate loan with an
annual interest rate of 6.10%.  See “Item 7.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Debt
Obligations – Long-Term Debt” in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.  We anticipate that our annual interest
expense for 2009 under this term loan will be approximately $0.5
million.




Other
Income




During
the six months ended June 30, 2009, we recognized other income of $0.4 million
as a result of the change in fair value of warrants with contingent redemption
provisions.  This amount represents gains relating to the warrants
issued with our Series B preferred stock which occurred as a result of the
warrants being revalued as of June 30, 2009, as required under EITF
00-19.  The decrease in the estimated fair value of these warrants was
the result of a decline in the fair value of our common stock underlying these
warrants.




In June
of 2009, the Casie Group settled outstanding fines and compliance issues with
various state and local authorities for approximately $228,000 and for which a
$624,300 liability was previously recorded as part of the opening balance sheet
at the date of acquisition on March 30, 2007.  The settlement of these
compliance issues and fines at a reduced amount resulted in a gain of
approximately $396,000, which was recorded as a component of other income for
the six months ended June 30, 2009.




In
connection with the refinancing of the Casie Group revolving line of credit on
November 12, 2008, we also entered into an interest rate swap agreement, which
essentially converts our adjustable rate term loan to a fixed-rate loan bearing
interest at an annual rate of 6.10%.  We account for this interest
rate swap as a derivative contract pursuant to SFAS No. 133, and therefore we
recorded a fair value adjustment increase of approximately $199,000 for the
three months ended June 30, 2009.  The fair value adjustment on the
interest rate swap was offset in large part by a mark-to-market adjustment
decrease of $193,000 for the three months ended June 30, 2009 on the Casie Group
term loan, for which we have elected to apply the fair value option under SFAS
No. 159.




47




Other
income for the six months ended June 30, 2008 was $112,753. The Company and
Casie Group underwent a sales and use tax audit in the State of New Jersey,
which was settled as of June 30, 2008 for approximately $265,000. The Company
had previously recorded an accrued liability of $502,078 as part of the opening
balance sheet of Casie Group on March 30, 2007. Pursuant to the Casie Group
purchase agreement and related amendments, a portion of the reduction in this
liability from $502,078 to $265,000 is due back to the former owner in the form
of shares of the Company’s common stock. Accordingly, the Company has recorded a
liability of approximately $140,000, which will be resolved upon issuance of
additional shares. The settlement of this matter resulted in Casie Group and the
Company recognizing a gain of approximately $98,000 for the six months ended
June 30, 2008.





Benefit
From Income Taxes




For the
six months ended June 30, 2009, we recognized a benefit from income taxes of
approximately $1.1 million, and a benefit from income taxes of $0.4 million for
the six months ended June 30, 2008.  The recognition of these income
tax benefits is the result of pre-tax losses incurred during both
periods.  Our effective tax rates were 39% and 42% for the six months
ended June 30, 2009 and 2008, respectively.  The increase in our
effective tax rate is primarily the result of an estimated pre-tax loss for the
2009 reporting year, as compared to estimated pre-tax income for the 2008
reporting year.  We anticipate that our effective income tax rate for the
full calendar year of 2009 will be approximately 40%.




Liquidity
and Capital Resources




Cash
and Cash Equivalents




Cash and
cash equivalents consist primarily of cash on deposit and money market
accounts.  We had approximately $0.7 million and $0.9 million of cash
and cash equivalents on hand at June 30, 2009 and December 31, 2008,
respectively.  We require cash for working capital, capital
expenditures, repayment of debt, salaries, commissions and related benefits and
other operating expenses, preferred stock dividends and income
taxes.  In the past, we also have needed cash to pay sellers in
connection with some of our acquisitions and to fund working capital associated
with these acquisitions.  We expect that our working capital needs
will remain consistent with historical levels in the near future, however, these
needs may increase as new lines of business are introduced or new acquisitions
occur.




Summary
of Cash Flows




The
following table summarizes our cash flows for the six months ended June 30, 2009
and 2008:




For
      the Six Months Ended June 30,(in
      thousands)
            
            2009
            
            
            2008Net
      cash used in operating
      activities
            
            $
            (1,105
            )
            
            $
            (646
            )Net
      cash used in investing
      activities
            
            $
            (27
            )
            
            $
            (430
            )Net
      cash provided by financing activities
            
            $
            894
            
            
            $
            3,843




Net
Cash Used in Operating Activities




The most
significant items affecting the comparison of our operating cash flows for the
six months ended June 30, 2009 and 2008 are summarized below:




·
            Decrease in income from
      operations – Our income from operations, excluding depreciation,
      amortization and impairment, decreased by $1.6 million, or 127%, on a
      period-to-period basis, which negatively impacted our cash flows from
      operations for the six months ended June 30,
  2009.




48




·
            Increase  in
      accounts receivable – Sources (uses) of cash from changes in
      accounts receivable were approximately $(1.0) million and $0.7 million for
      the six months ended June 30, 2009 and 2008, respectively.  The
      increase in accounts receivable at June 30, 2009 is the result of the
      aging of receivables within the Transportation and Disposal segment and
      increased sales at the end of the second quarter .  Our average
      days outstanding for our receivables at June 30, 2009 has also increased,
      which is a result of the overall economic environment and current trends
      in the construction industry which we expect will continue in the near
      term.  The decrease in accounts receivable as of June 30, 2008,
      is the result of the timing of collections from two large Transportation
      and Disposal segment projects.




·
            Increase in
      inventories– Uses of cash from changes in inventories were
      approximately $(0.3) million and $12,000 for the six months ended June 30,
      2009 and 2008, respectively.  The increase in inventories during
      the six months ended June 30, 2009 is the result of increased volumes of
      incoming rock products within our Materials segment, in particular during
      the second quarter of 2009.  The decrease for the six months
      ended June 30, 2008 is the result of timing of sales of our crushed rock
      products from the Materials segment and our recycled oil inventory from
      the Treatment and recycling
segment.




·
            Decrease in prepaid expenses
      and other current assets- Sources of cash from changes in prepaid
      expenses and other current assets were approximately $0.8 million for the
      six months ended June 30, 2009, and $0.3 million for the six months ended
      June 30, 2008.  The increase in other current assets in 2009, is
      the result of the reclassification of $1.0 million of notes receivable
      into other current assets from accounts receivable.  This $1.0
      million note receivable is the result of the settlement of a large
      outstanding receivable dispute and is to be repaid over the next 18
      months.  This increase was offset by a decrease in prepaid
      expenses resulting from the amortization of these prepaid
      accounts.  The decrease in prepaid expenses and other current
      assets for the six months ended June 30, 2008, is the result of the
      amortization of the prepaid
expenses.




·
            Decrease in restricted
      cash- Sources of cash from the decrease in restricted cash were
      $0.6 million for the six months ended June 30, 2009.  This
      represents the use of restricted cash for the payment of principal and
      interest payments for the Susquehanna term loan as required by the term
      loan requirements.




·
            Increase in accounts payable–Sources of cash for accounts payable were $1.0 million and $0.4
      million for the six months ending June 30, 2009 and 2008,
      respectively.  The increase in accounts payable during the six
      months ending June 30, 2009 is the result of a large amount of sales
      occurring towards the end of the second quarter of 2009 and the timing of
      payments to our vendors.  The increase in accounts payable
      during the six months ending June 30, 2008, is the result of additional
      payables relating to New Nycon and an increase in accounts payable within
      the Transportation and Disposal segment as a result of increased
      production.




·
            Decrease in accrued expenses
      and other current liabilities– Uses of cash for accrued expenses
      and other current liabilities were $(0.8) million and $(1.4) million for
      the six months ended June 30, 2009 and 2008, respectively.  The
      decrease in accrued expenses and other liabilities during the six months
      ended June 30, 2009, is primarily the result of the settlement of fines
      and penalties at Casie Group and the timing of the payment for corporate
      insurance, and other accrued liabilities including payroll and accruals
      for certain operating expenses for which we were not yet
      invoiced.  The decrease in accrued expenses and other
      liabilities during the six months ended June 30, 2008, is primarily the
      result of the timing of the payment for corporate insurance, settlement of
      the New Jersey sales and use tax audit at Casie Group and a decrease in
      accrued liabilities at Juda as a result of having only one union
      employee.




·
            Decrease in accrued disposal
      costs– During the six months ended June 30, 2009, our accrued
      disposal costs decreased by approximately $0.1 million as a result of the
      timing of incoming and outgoing materials within our Treatment and
      Recycling segment.  During the six months ended June 30, 2008,
      we spent approximately $1.0 million on reducing our accrued disposal
      costs, which resulted from transporting processed material from our
      Treatment and Recycling operations.




49




·
            Decrease in income taxes
      payable–Uses of cash relating to income taxes payable were $(0.2)
      million for the six months ended Juen 30, 2008 as compared to $(1.0)
      million for the six months ended June 30, 2009.  The decrease in
      cash used to pay income taxes was the result of having earned taxable
      income for the year ended December 31, 2007, as compared to being in a net
      loss position for the year ended December 31,
  2008.




Our
overall liquidity and the availability of capital resources has historically
been highly dependent on revenue derived from several large customers within the
Transportation and Disposal segment, which comprised approximately 7% and 27% of
our consolidated revenues for the six months ended June 30, 2009 and 2008,
respectively.  The revenues derived from these customers are a key
component of the operations within the Transportation and Disposal segment, and
therefore are integral to providing liquidity to not only that operating
segment, but also to our overall operations as a whole.  During the
six months ended June 30, 2009, our revenues derived from these large customers
decreased as a result of the overall downturn in the construction industry in
the New York metropolitan area. The continued slowdown or loss of one or more of
these customers could negatively impact our liquidity and ability to provide
adequate capital resources to meet all of our ongoing capital
requirements.  We are currently in the process of attempting to
broaden our capital resources and sources of revenue through the addition of new
customers within the Transportation and Disposal segment in order to minimize
the dependence on our revenues from these significant customers.




We use
EBITDA, a non-GAAP financial measure, as a liquidity measure to assess our
ability to meet our debt service obligations and satisfy our debt covenants,
some of which are based on our EBITDA.  We believe the use of EBITDA
as a liquidity measure and in required financial ratios is a common practice
among asset- and receivables-based lenders.  In providing EBITDA as a
liquidity measure, we believe EBITDA is useful from an economic perspective as a
measurement of our ability to generate cash, exclusive of cash used to service
existing debt, by eliminating the effects of depreciation, financing and tax
rates on our ability to finance our ongoing operations  Furthermore,
because EBITDA is used as a standard measure of liquidity by other similar
companies within our industry, we believe it provides a reasonable method for
investors to compare us to our competitors.  However, the use of
EBITDA as a measure of our liquidity has limitations and should not be
considered in isolation from or as an alternative to GAAP measures, such as net
cash provided by operating activities.  See “ – Results of Operations
– Three Months Ended June 30, 2009 Compared to Three Months Ended June 30,
2008.”




The
following table presents a reconciliation from net cash used in operating
activities, which is the most directly comparable GAAP liquidity measure, to
EBITDA for the six months ended June 30, 2009 and 2008:




Six
      Months Ended
                June
      30,2009
            
            
            2008(in
      thousands)
            
            (unaudited)
            
            
            (unaudited)EBITDA
            
            $
            (22
            )
            
            $
            1,328Adjustments
      to reconcile EBITDA to net cash used in operating
    activities:Interest
      expense,
      net
            
            
            (1,006
            )
            
            
            (753
            )Benefit
      from income
      taxes
            
            
            1093
            
            
            
            416Interest
      expense for accretion of warrant discount and Series B paid-in-kind
      interest
            
            
            276
            
            
            
            157Impairment
      of idle equipment
            
            
            --
            
            
            
            412Provision
      for doubtful
      accounts
            
            
            287
            
            
            
            42(Gain)
      on sale of property and equipment
            
            
            (11
            )
            
            
            (256
            )Change
      in fair value of derivatives and other assets and liabilities measured at
      fair value
            
            
            (350
            )
            
            
            --Restricted
      stock
      grant
            
            
            80
            
            
            
            74Deferred
      income
      taxes
            
            
            (1,093
            )
            
            
            (165
            )Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (1,026
            )
            
            
            662Inventories
            
            
            (316
            )
            
            
            (12
            )Prepaid
      expenses and other current assets
            
            
            821
            
            
            
            275Deposits
      and other
      assets
            
            
            (315
            )
            
            
            190Restricted
      cash
            
            
            602
            
            
            
            --Accounts
      payable
            
            
            993
            
            
            
            436Accrued
      expenses and other current liabilities
            
            
            (811
            )
            
            
            (1,412
            )Accrued
      disposal
      costs
            
            
            (126
            )
            
            
            (1,015
            )Due
      to
      affiliates
            
            
            (181
            )
            
            
            --Income
      taxes
      payable
            
            
            --
            
            
            
            (1,025
            )Total
    adjustments
            
            
            (1,083
            )
            
            
            (1,973
            )Net
      cash used in operating
      activities
            
            $
            (1,105
            )
            
            $
            (646
            )





50




Net
Cash Used in Investing Activities




Our
investing activities for the six months ended June 30, 2009 and 2008 primarily
resulted from our strategy of growing our operations by acquiring complementary
companies in the environmental services sector and the purchase and sale of
property and equipment.  During the six months ended June 30, 2009, we
spent approximately $52,000 on the purchase of property and equipment and we
also received proceeds of approximately $25,000 from the sale of equipment not
in use.




On April
1, 2008, we completed the acquisition of Nycon, Inc. and began the operations of
our Concrete Fibers segment, which used approximately $45,000 in cash. We also
spent $0.4 million in payments for pending acquisitions during the six months
ended June 30, 2008, which relate primarily to the startup of PE Energy and
costs to seek to acquire a second Brownfield site. For the six months ended June
30, 2008, we also received proceeds of $0.6 million from the sale of trucks and
equipment that were previously utilized at Juda within our Transportation and
Disposal segment.




Net
Cash Provided by Financing Activities




The most
significant items affecting the comparison of our cash flows provided by
financing activities for the six months ended June 30, 2009 and 2008 are
summarized below:




·
            Retirement of common
      stock- On April 20, 2009, the Company retired 200,000 shares of its
      outstanding common stock valued at $1.00 per share, which were previously
      pledged as collateral for reimbursement of the $200,000 payment made by
      the Company on behalf of the former owners of Juda for the settlement of
      the pension liability lawsuit for union
  truckers.





·
            Private placements of
      securities – For the six months ended June 30, 2008, we received
      approximately $5.8 million in proceeds, net of financing fees and offering
      expenses of approximately $0.5 million, from the private placement of
      6,300 shares of our Series B preferred stock and a related warrant, at a
      purchase price of $1,000 per share.




·
            Dividends- We paid
      $25,000 and $75,000 in dividends relating to our then outstanding Series A
      preferred stock for the six months ended June 30, 2009 and 2008,
      respectively.




·
            Other indebtedness–
      During the six months ended June 30, 2009, we had net borrowings of
      approximately $2.0 million under our revolving line of credit as compared
      to net repayments of $0.6 million for the six months ended June 30,
      2008.  We also had repayments of approximately $0.8 million and
      $1.4 million of long-term debt and notes payable during the six months
      ended June 30, 2009 and 2008, respectively.  We also incurred
      $0.1 million in financing fees during the six months ended June 30, 2009
      in relation to the amendment of our revolving line of credit and $0.5
      million in financing fees during the six months ended June 30, 2008 in
      relation to the Series B preferred stock offering.  In June of
      2008, we also received an additional $200,000 in financing provided for by
      the lender of an existing term loan following the review of our December
      31, 2007 financial statements.




51





Capital
Resources




We had
working capital of $2.6 million and $5.1 million as of June 30, 2009 and
December 31, 2008, respectively.  Our working capital requirements
during the first six months of 2009 and 2008 have been funded primarily by the
borrowings under our revolving line of credit, the collection of aged accounts
receivable and, with respect to 2008, the refinancing of other long-term debt
and the net proceeds from our securities offerings.  The decrease in
working capital is primarily due to the growth of our accounts payable and
decrease in accounts receivable for the six months ended June 30, 2009 due to
the timing of cash collections on our outstanding receivables as compared to the
timing of payments to our vendors.




Our
capital resources and working capital needs for the remainder of 2009 will be
largely dependent upon our ability to generate new sales and increase our
operating margins, our ability to collect aged accounts receivable existing as
of June 30, 2009, and our ability refinance our existing Pure Earth revolving
line of credit.  Due to the overall economic downturn during the
fourth quarter of 2008, several of our large customer receivable balances have
been outstanding in excess of 120 days.  In particular, we had
approximately $2.8 million in outstanding receivables related to one large
construction project in New York City as of June 30, 2009 and December 31, 2008,
which was the subject of ongoing litigation.  See “Part II, Item 1.
Legal Proceedings – Accounts Receivable Litigation.”  On May 29, 2009
we reached a settlement with these customers whereby we agreed to $2.0 million
in satisfaction of these receivables.  $1.0 million of this settlement
was received on July 1, 2009, and the remaining amount is to be repaid in
eighteen monthly installments of $55,000 beginning on September 1,
2009.  Our capital resources as of June 30, 2009 and December 31, 2008
were also negatively impacted by our operating losses of $1.9 million and $3.5
million, respectively.




As of
June 30, 2009, we were not in compliance with the minimum adjusted net income
and debt service coverage ratio covenants under our revolving line of
credit.  As a result, under the revolving line of credit agreement,
events of default occurred since June 30, 2009 but were waived on August 18,
2009 retroactive to June 30, 2009 by the lender under this line of
credit.  One of the conditions to obtaining this waiver was that we
are prohibited from making cash payments to the holder of our Series B preferred
stock while the line of credit is outstanding.  On August 18, 2009,
our Series B preferred stockholder agreed to prospectively waive this potential
event of noncompliance.  We are actively engaged in the process of
obtaining a new lender to replace the existing revolving line of credit, which
expires on October 23, 2009.




On November 12, 2008, we completed the
refinancing of the existing line of credit and various bank and equipment notes
payable at Casie Group into a consolidated $8.0 million term loan, which
provided for approximately $2.6 million in additional working
capital.  In addition, this refinancing allowed Casie Group and
certain of our other subsidiaries to become borrowers under our revolving line
of credit thereby increasing our available borrowing collateral by approximately
$2.2 million on March 13, 2009 when the collateral was added into the borrowing
base.  The additional borrowing collateral has been used to
provide additional funds to finance our ongoing operations and was essential in
allowing us access to additional funding from Casie Group’s receivables, which
were previously encumbered under other outstanding debt
obligations.




In the
past, as noted above, we have been successful in obtaining funding by issuing
our common and preferred stock, convertible debentures and related
warrants.  We also have funding available through our revolving lines
of credit and other debt facilities.  See “Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Debt Obligations” in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2008.  We have also used our common
stock as currency to complete several of our acquisitions, and we intend to
continue to do so where possible and appropriate in order to preserve our cash
for future operations and to meet our working capital needs.




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




52




We are
also required by the State of New Jersey to maintain escrow accounts in which we
deposit funds in the event of closure and post-closure events involving waste
management facilities within our Treatment and Recycling segment.  The
balance of this escrow account was $276,677 and $273,623 as of June 30, 2009 and
December 31, 2008, respectively.  We do not expect the requirement to
maintain this escrow account to significantly impact our capital
resources.




Based
upon the cash we have on hand, anticipated cash to be received from our
operations and the expected availability of funds under our revolving lines of
credit, we believe that our sources of liquidity will be sufficient to enable us
to meet our cash needs until October 2009, when the Pure Earth
revolving line of credit is currently set to expire. We are currently
seeking to refinance this line of credit with the current lender or a new
lender, however, if we were unable to do so we would need to locate additional
sources of financing. If necessary, we would seek such future financing
from sources of public or private debt or equity.




Our
principal projected cash needs for the remainder of 2009 include the following
components:




·
            approximately
      $0.3 million in cash dividend payments relating to the outstanding Series
      B preferred stock;




·
            approximately
      $1.2 million in principal and interest payments relating to our
      outstanding debt, revolving line of credit, term loans and notes
      payable;




·
            approximately
      $0.4 million of uncommitted but planned capital expenditures within our
      Treatment and Recycling segment for additional equipment and or site
      improvements;




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




·
            general
      operating and administrative expenses of $6.0
  million.




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




We
continually monitor our actual and forecasted cash position, as well as our
liquidity and capital resources, in order to plan for our current cash operating
needs and to fund business activities or new opportunities that may arise as a
result of changing business conditions.  We intend to use our existing
cash and cash flows from operations to continue to grow our business, fund
potential acquisitions and pay existing obligations and any recurring capital
expenditures.  Nonetheless, our liquidity and capital position could
be adversely affected by:




·
            the
      acceleration by our lender of amounts due and payable under our revolving
      line of credit as a result of the event of
  default;




·
            delayed
      payment or non-payment of receivables on certain material
      accounts;




·
            the
      loss of any of our major customers;




·
            our
      inability to comply with any of the covenants or restrictions on our
      indebtedness or the Series B preferred
stock;




·
            the
      enactment of new regulatory or environmental
  laws;




53




·
            our
      inability to grow our business as we anticipate whether internal growth,
      by acquisition, through joint ventures or by forming new
      subsidiaries;




·
            any
      other changes in the cost structure of our underlying business model;
      and




·
            any
      of the other risks and uncertainties described in “Item
      1A.  Risk Factors” of our Annual Report on Form 10-K for the
      fiscal year ended December 31, 2008, filed with the Commission on March
      31, 2009, and of this Quarterly Report on Form
  10-Q.




Also,
there can be no assurance that our existing liquidity and capital resources
(including changes in these resources that may result from the expiration of the
Pure Earth revolving line of credit in October 2009) will be sufficient for our
existing and proposed future operations and business plans.  In such
case, we would need to seek additional debt or equity financings or to arrange
for alternative sources of temporary or permanent financing to meet our
liquidity and capital requirements.  Our ability to obtain new
financing could be adversely impacted by, among other things, negative changes
in our profitability and restricted access to liquidity in the capital markets
resulting from overall economic conditions, especially given the current
difficulties facing the banking, lending and capital markets
sectors.  While we may be able to raise additional debt or equity
capital as the need arises, there can be no assurance that we will be able to do
so at a time when it is needed or at all, or that the net proceeds from any such
transactions will be sufficient to support our operations or on terms that are
favorable or acceptable to us.  Any inability to obtain future capital
could materially and adversely affect our business and growth plans, our results
of operations and our liquidity and financial condition.




Revolving
Line of Credit




The table
below summarizes the credit capacity, maturity and other information regarding
our outstanding revolving line of credit as of June 30, 2009.





Revolving
      Line of Credit
            
            Maximum
      Outstanding
            
            
            Balance
      Outstanding
            
            
            Interest
      Rate
            
            Maturity/
                Termination
      Date(in
      thousands)Pure
      Earth, Inc.
            
            $
            7,500
            (1)
            
            $
            2,364
            
            
            
            10.75
            %
      (2)
            October
      23, 2009







(1)
            Subject
      to reduction for (i) a borrowing base limitation; and (ii) outstanding
      letters of credit; and (iii) other loan reserves.  As of June
      30, 2009, the borrowing base limitation was approximately $5.6 million,
      and we had aggregate required loan reserves and outstanding letters of
      credit of $ 1.9 million.  On August 18, 2009, the maximum line
      of credit amount was subsequently reduced to $4.7 million and the loan
      reserves of $1.9 million were removed subject to the amendment described
      below.




(2)
            As
      of June 30, 2009, this line of credit bore interest at the lender’s prime
      rate, subject to a minimum of 5.0%, plus
5.75%.




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




In
connection with the Casie Group refinancing in November of 2008, we also amended
our $7.5 million revolving line of credit.  This amendment was entered
into on March 13, 2009, but certain provisions had been effective under a prior
letter agreement since October 21, 2008.  The amendment to our
revolving line of credit adds Casie Group and certain of our other subsidiaries
as borrowers, and the accounts receivable and inventory of these entities have
become collateral and, to the extent eligible, part of the available borrowing
base.  As a result, as of March 13, 2009, $2.2 million of borrowing
availability was made available under the revolving line of
credit.  Other provisions of this amendment include the
following:




·
            The
      net proceeds from the Casie Group refinancing, after the repayment of the
      existing Casie Group debt and the establishment of the $0.7 million
      principal and interest payment reserve, were used to repay $1.9 million of
      the outstanding indebtedness under our revolving line of
      credit.




54




·
            The
      rate of interest under our floating rate borrowings was changed to equal
      the greater of 5.0% or the lender’s prime rate, plus 2.75%, and the rate
      of interest to be charged under a LIBOR Advance shall be equal to the
      LIBOR rate, as specified in the credit agreement, plus
    3.00%.




·
            We
      established an additional permanent reserve in the amount of $0.9
      million.




·
            This
      amendment also provides for additional covenants and amendments to
      existing covenants, including financial covenants that require us to have
      or maintain a minimum adjusted net income (beginning with the quarter
      ended June 30, 2009), minimum availability under the revolving line of
      credit, a minimum debt service coverage ratio (beginning with the six
      months ended June 30, 2009), a minimum tangible net worth and a maximum
      amount of unfinanced capital expenditures.The
      Pure Earth revolving line of credit agreement also contains certain
      restrictions and negative and affirmative covenants intended to regulate
      our level of indebtedness, our ability to pay dividends on and make
      distributions with respect to our capital stock, and salaries of our
      employees and consultants.




Under the
line of credit agreement, we are subject to financial covenants requiring the
maintenance of certain financial ratios relating to tangible net worth and
capital expenditures, as well as certain other customary affirmative and
negative non-financial covenants.  These financial covenants were
amended on March 13, 2009, resulting in additional financial covenants,
including maintaining minimum adjusted net income, specified debt service
coverage ratios and minimum availability requirements.  The minimum
adjusted net income and debt service coverage ratio covenants went into effect
beginning with the quarter ending June 30, 2009.  The existing
tangible net worth covenant and the capital expenditures limitation were also
amended.




As of
June 30, 2009, we were not in compliance with the minimum adjusted net income
and debt service coverage ratio covenants and as a result, under the revolving
line of credit agreement, events of default were deemed to have
occurred.  On August 18, 2009, we obtained a waiver of these events of
default and entered into an amendment of this revolving line of credit
agreement.  This amendment includes the following
provisions:




·
            The
      existing events of default were waived by the lender, retroactively
      effective as of June 30, 2009.


·
            The
      maximum line of credit amount was reduced from $7,500,000 to $4,700,000
      and lender-imposed loan reserves and letters of credit totaling $1,890,000
      were removed, including the requirement to maintain minimum availability
      of $500,000.  These changes did not materially impact our
      borrowing availability which was approximately $1.5 million both prior to
      and subsequent to this amendment.


·
            The
      interest rate under this line of credit was increased to the bank’s prime
      rate, subject to a minimum of 5%, plus 5.75%, or 10.75% as of August 18,
      2009.  This increase will be retroactively applied to June 1,
      2009.





·
            The
      lender has prohibited us from making cash payments to the holder of the
      Series B Preferred Stock during the remainder of the loan
      term.





The
additional terms and provisions of this amendment were intended to reduce the
lender’s maximum potential exposure under this agreement, and did not have a
material impact on our borrowing availability, which was approximately $1.5
million, both prior to and subsequent to the execution of this
amendment.  The revolving line of credit is currently set to terminate
on October 23, 2009, therefore we are currently in discussions with several
potential new lenders.  We believe that a new lender can be in place
prior to the expiration of the existing revolving line of credit.




The
lender-imposed limitation on the cash payment of dividends to the Series B
preferred stockholder would have constituted an event of noncompliance under the
investment agreement for the Series B preferred stock and related agreements for
amounts due and payable on September 30, 2009.  On August 18, 2009, we
prospectively agreed with the holder of the Series B preferred stock that in
lieu of making the coupon payment otherwise due on September 30, 2009, we will
instead pay the holder of the Series B preferred stock the coupon payment, plus
14% interest thereon, either:




55





a)
            in
      one lump sum representing the full coupon payment plus accrued interest on
      November 30, 2009; or


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





Off-Balance
Sheet Arrangements




Our most
significant off-balance sheet financing arrangements as of June 30, 2009 are
non-cancelable operating lease agreements, primarily for office and equipment
rentals, and future performance obligations incurred in connection with our
acquisitions where we have assessed that the payment of the obligation is not
presently probable.  As of June 30, 2009, future minimum obligations
under our operating lease agreements are $2.9 million.  As of June 30,
2009, the potential maximum cash and non-cash future off-balance sheet
performance obligations associated with our acquisitions were $0.3 million in
the aggregate, based upon an estimate of $1.00 per share for our common
stock.  Also, at June 30, 2009, we had a letter of credit for $200,000
outstanding in connection with a settlement of union-related
litigation.




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




Related
Party Transactions




As part
of the Casie Group acquisition, we issued a note payable to a former stockholder
in the principal amount of $1.0 million.  The note payable accrues
interest at 6.77% per year and is payable in the following two
installments:  $333,000 due December 31, 2009 and the remaining
principal balance plus any accrued and unpaid interest on December 31,
2010.  This note payable had an outstanding balance of approximately
$1.0 million at June 30, 2009.  The note is subordinated in right of
payment to our existing revolving lines of credit.  On June 17, 2009,
we issued a notice of setoff to the former owners of Casie Group, notifying him
of our intent to setoff post-closing claims against this note payable and shares
of Pure Earth common stock that may otherwise be due to the former owner as
permitted under the stock purchase agreement.  Effective on June 27,
2009, we offset the amounts due to the former owner under this note payable
against the post-closing claims.  The former owner of Casie has
formally denied the validity of these post-closing claims.  The
ultimate outcome of these post-closing claims remains uncertain, and therefore
the note payable will remain on our consolidated financial statements until
either a settlement with the former owner is reached or we are legally released
of this obligation.




As of
June 30, 2009, we had approximately $0.4 million in due from affiliates, which
consists of amounts due from ACR, a joint venture operation, to Casie
Group.   The $0.4 million reflects the value of goods and
services performed and provided by Casie Group to the joint venture, for which
Casie Group has not yet been compensated.




Seasonality
and Inflation




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




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




56




Recently
Issued Accounting Pronouncements




Business
Combinations.  In December 2007, the Financial Accounting
Standards Board, or FASB, issued SFAS No. 141(R) and SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements—An Amendment of
ARB No. 51.”  These new standards significantly change the accounting
for business combinations and noncontrolling (or minority) interests in a number
of areas including the treatment of contingent consideration, preacquisition
contingencies, allocation of acquisition costs, in-process research and
development and restructuring costs.  In addition, under SFAS No.
141(R), changes in an acquired entity’s deferred tax assets and uncertain tax
positions after the measurement period may impact income tax
expense.  SFAS No. 141(R) is required to be adopted concurrently with
SFAS No. 160 and is effective for business combination transactions for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  Early adoption
is prohibited.  Application of SFAS Nos. 141(R) and 160 is required to
be adopted prospectively, except for certain provisions of SFAS No. 160,
which are required to be adopted retrospectively.  Business
combination transactions accounted for before adoption of SFAS No. 141(R) should
be accounted for in accordance with SFAS No. 141, and accounting of transactions
previously completed under SFAS No. 141 should not be modified as of or
after the date of adoption of SFAS No. 141(R).  The adoption of
SFAS No. 141(R), will impact our consolidated financial statements in the event
we enter into a business combination in which we are deemed to be the acquirer
for accounting purposes.




Fair Value.  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115” (“SFAS No. 159”)  SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007, or our 2008 fiscal
year.  SFAS No. 159 permits entities to measure many financial
instruments and certain other items at fair value.  The unrealized
gains or losses on items for which the fair value option has been elected would
be reported in earnings.  The objective of SFAS No. 159 is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  We adopted SFAS No. 159 in the first quarter of
fiscal year 2008.  In connection with the Susquehanna term loan and
related interest rate swap agreement, we elected to apply the fair value option
under SFAS No. 159 to measure the Susquehanna term loan at fair
value.  See Note 10 to our condensed consolidated financial statements
for more information.




In
February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1,
“Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements For Purposes of
Lease Classification or Measurement Under Statement 13,” and FASB Staff Position
No. 157-2, “Effective Date of FASB Statement No. 157,” which, respectively,
remove leasing transactions from the scope of SFAS No. 157 and defer its
effective date for one year relative to certain nonfinancial assets and
liabilities. As a result, we were required to apply the definition of fair value
and related disclosures in SFAS No. 157 (as impacted by FSP 157-1 and FSP 157-2)
beginning January 1, 2008 on a prospective basis with respect to fair value
measurements of (a) nonfinancial assets and liabilities that are recognized or
disclosed at fair value in our financial statements on a recurring basis (at
least annually) and (b) all financial assets and liabilities. This adoption did
not have a material impact on our consolidated financial position or results of
operations. We are currently evaluating the remaining aspects of SFAS No. 157
for which the effective date was deferred under FSP 157-2.  Areas impacted
by the deferral relate to nonfinancial assets and liabilities that are measured
at fair value, but are recognized or disclosed at fair value on a nonrecurring
basis. This deferral applies to such items as nonfinancial assets and
liabilities initially measured at fair value in a business combination (but not
measured at fair value in subsequent periods) or nonfinancial long-lived asset
groups measured at fair value for an impairment assessment. The effects of these
remaining aspects of SFAS No. 157 have been applied to fair value measurements
prospectively beginning January 1, 2009.  These additional aspects of SFAS
No. 157 did not have a material impact on our condensed consolidated financial
statements.




In
October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of
a Financial Asset in a Market That Is Not Active,” which clarifies the
application of  SFAS No. 157 when the market for a financial asset is
inactive. Specially, FSP 157-3 clarifies how (1) management’s internal
assumptions should be considered in measuring fair value when observable data
are not present, (2) observable market information from an inactive market
should be taken into account, and (3) the use of broker quotes or pricing
services should be considered in assessing the relevance of observable and
unobservable data to measure fair value. The guidance in FSP 157-3 was effective
immediately including prior periods for which financial statements had not been
issued. The implementation of this standard did not have a material impact on
our condensed consolidated financial statements.




57




In April
2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly” (FSP 157-4). FSP 157-4
provides additional guidance for estimating fair value under SFAS No. 157 when
there is an inactive market or the market is not orderly. This FSP is effective
for interim and annual periods ending after June 15, 2009.  The
adoption of FSP 157-4 did not have a material impact on our condensed
consolidated financial statements.




Income Taxes.  In
June 2007, the EITF reached a consensus on EITF Issue No. 06-11, “Accounting for
Income Tax Benefits on Dividends on Share-Based Payment Awards.”  EITF
06-11 addresses share-based payment arrangements with dividend protection
features that entitle employees to receive dividends on equity-classified
non-vested shares, dividend equivalents on equity-classified non-vested share
units, or payments equal to the dividends paid on the underlying shares while an
equity-classified share option is outstanding, when those dividends or dividend
equivalents are charged to retained earnings under SFAS No. 123(R) and result in
an income tax deduction for the employer.  A realized income tax
benefit from dividends or dividend equivalents that are charged to retained
earnings are paid to employees for equity-classified non-vested shares,
non-vested equity share units, and outstanding equity share options should be
recognized as an increase in additional paid in capital.  The amount
recognized in additional paid-in capital for the realized income tax benefit
from dividends on those awards should be included in the pool of excess tax
benefits available to absorb potential future tax deficiencies on share-based
payments.  We do not expect the adoption of this pronouncement to have
a material impact on our financial position or results of
operations.




Derivatives.  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement
No. 133.”  SFAS No. 161 changes the disclosure requirements for
derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations, and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows.  The guidance in SFAS No. 161 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application
encouraged.  Accordingly, we applied the enhanced disclosure
provisions of SFAS No. 161 upon the effective date to our outstanding
derivatives, which as of June 30, 2009, consisted solely of an interest-rate
swap related to the Susquehanna term loan.




Hierarchy of
GAAP.  In May 2008, the FASB issued SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting
Principles.”  SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the accounting principles
used in preparing financial statements of nongovernmental entities that are
presented in conformity with GAAP.  Currently, the GAAP hierarchy
is provided in the American Institute of Certified Public Accountants’
U.S. Auditing Standards Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”
SFAS No. 162 is effective 60 days following the SEC’s approval of
the Public Company Accounting Oversight Board’s amendments to AU
Section 411.  We do not expect the adoption of
SFAS No. 162 to have an impact on our condensed consolidated financial
statements.




Intangible
Assets.  In April 2008, the FASB issued FSP No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets.”  FSP
FAS 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, “Goodwill and Other
Intangible Assets” in order to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under
SFAS No. 141(R) and other GAAP.  FSP FAS 142-3 is
effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008 and is to be applied prospectively to
intangible assets acquired after the effective date.  Disclosure
requirements are to be applied to all intangible assets recognized as of, and
subsequent to, the effective date. Early adoption is not
permitted.  The adoption of FSP FAS 142-3 did not have a material
impact on our condensed consolidated financial statements and footnote
disclosures.




58




Convertible Debt
Instruments.  In May 2008, the FASB issued FSP No. APB 14-1,
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement).”  FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash or other assets upon conversion to separately account for the liability
and equity components of the instrument in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. FSP APB 14-1 is effective for financial
statements issued for fiscal years and interim periods beginning after
December 15, 2008 and is to be applied retrospectively to all periods
presented, with certain exceptions. Early adoption is not
permitted.  Because we do not currently have any convertible debt
outstanding, the adoption of FSP APB 14-1 did not have any impact on our
condensed consolidated financial statements.  However, this
pronouncement may impact the accounting for our future debt
issuances.




Instruments Indexed to
Stock.  In June 2008, the FASB ratified the consensus reached
by the EITF on three issues discussed at its June 12, 2008 meeting
pertaining to EITF Issue No. 07-5, “Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entity’s Own Stock.”  The issues
include how an entity should evaluate whether an instrument, or embedded
feature, is indexed to its own stock, how the currency in which the strike price
of an equity-linked financial instrument, or embedded equity-linked feature, is
denominated affects the determination of whether the instrument is indexed to an
entity’s own stock and how the issuer should account for market-based employee
stock option valuation instruments.  EITF 07-5 is effective for
financial instruments issued for fiscal years and interim periods beginning
after December 15, 2008 and is applicable to outstanding instruments as of
the beginning of the fiscal year it is initially applied.  The
cumulative effect, if any, of the change in accounting principle shall be
recognized as an adjustment to the opening balance of retained
earnings.  The adoption of EITF 07-5 did not have an impact on our
condensed consolidated financial statements as we does not currently have any
instruments outstanding with these features, however it may impact the
accounting for the issuance of future warrants or other instruments indexed to
our common stock.




Conforming Changes to
EITF 98-5.  In June 2008, the FASB ratified the consensus
reached on June 12, 2008 by the EITF on EITF Issue No. 08-4, “Transition
Guidance for Conforming Changes to EITF Issue No. 98-5.” The conforming
changes to EITF Issue No. 98-5 resulting from EITF Issue No. 00-27,
“Application of Issue No. 98-5 to Certain Convertible Instruments” and
SFAS No. 150 are effective for financial statements issued for fiscal
years and interim periods ending after December 15, 2008.  The
effect, if any, of applying the conforming changes shall be presented
retrospectively and the cumulative effect of the change in accounting principle
shall be recognized as an adjustment to the opening balance of retained earnings
of the first period presented.  Because we do not currently have any
convertible debt instruments outstanding, the adoption of EITF 08-4 did not have
any impact on our condensed consolidated financial
statements.  However, this pronouncement may impact the accounting for
our future debt issuances.




Share Based Payments.On June
16, 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities,” which concluded that unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend equivalents (whether paid
or unpaid) are participating securities and shall be included in the computation
of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. Upon adoption, a company is required to
retrospectively adjust its earnings per share data to conform with the
provisions of FSP EITF 03-6-1. The adoption of FSP EITF 03-6-1 did not have
any impact on the condensed consolidated financial statements as there were no
unvested share-based payment awards outstanding.




Postretirement
Plans.In December 2008, the Financial Accounting Standards
Board (FASB) issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (FSP 132(R)-1).  FSP 132(R)-1
provides guidance on a plan sponsor’s disclosures about plan assets of defined
benefit pension and postretirement plans. Required disclosures include
information about categories of plan assets, fair value measurements of plan
assets, and significant concentrations of risk, as well as investment policies
and strategies. FSP 132(R)-1 is effective for fiscal years ending after
December 15, 2009.  We do not currently maintain a defined
benefit plan or postretirement plan and therefore the adoption of FSP132(R)-1 is
not expected to have an impact on the condensed consolidated financial
statements.




Impairment.In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments.”  FSP 115-2 and
124-2 amends the guidance on other-than-temporary impairment for debt securities
and modifies the presentation and disclosure of other-than-temporary impairments
on debt and equity securities in the financial statements. This FSP is effective
for interim and annual periods ending after June 15, 2009. We do not
currently have any outstanding debt securities, therefore FSP 115-2 and 124-2 is
not expected to have an impact on the condensed consolidated financial
statements.




59




In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” (FSP 107-1 and 28-1). This FSP requires
disclosure about fair value of financial instruments in interim periods, as well
as annual financial statements.  FSP 107-1 and 28-1 is effective for
interim periods ending after June 15, 2009.  We adopted FSP 107-1
and 28-1 on June 15, 2009, and have included the additional interim disclosures
as required by this FSP within our condensed consolidated financial statements
as of June 30, 2009 and for the six months there ended.  See Note 10
to our condensed consolidated financial statements for more
information.




Subsequent
Events.In May 2009, the FASB issued SFAS No. 165,
“Subsequent Events,” which establishes general standards of and accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  SFAS
165 was effective for interim and annual periods ending after June 15,
2009.   As required by SFAS 165, Subsequent Events, the we have
evaluated subsequent events through August 19, 2009, which is the date our
condensed consolidated financial statements were issued.




Transfers of Financial
Assets.  In June 2009, the FASB issued SFAS No. 166,
“Accounting for Transfers of Financial Assets — an amendment of FASB Statement
No. 140” to improve the reporting for the transfer of financial assets
resulting from (1) practices that have developed since the issuance of SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” that are not consistent with the original
intent and key requirements of that Statement and (2) concerns of financial
statement users that many of the financial assets (and related obligations) that
have been derecognized should continue to be reported in the financial
statements of transferors.  SFAS 166 must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter.
Earlier application is prohibited.   We do not currently engage
in the transfer of financial assets and therefore, do not expect that the
adoption of SFAS 166 will have a material impact on our consolidated financial
statements.




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




Codification.  In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification TM and the
Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB
Statement No. 162.” Under the Statement, The FASB Accounting Standards
Codification (Codification) will become the source of authoritative U.S.
generally accepted accounting principles (GAAP) recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On
the effective date of this Statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. SFAS 168 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. In
the FASB’s view, the issuance of this Statement and the Codification will not
change GAAP, except for certain nonpublic nongovernmental
entities.  We do not expect that the adoption of SFAS 168 will have a
material impact on our consolidated financial statements.




60




Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.




Not
applicable to smaller reporting companies.




Item
4. Controls and Procedures.




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended, as of June 30,
2009.  Based upon the June 30, 2009 disclosure controls evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective to provide a reasonable level
of assurance that information required to be disclosed in the reports we file,
furnish or submit under the Exchange Act is recorded, processed, summarized and
reported within the specified time periods in the rules and forms of the
Securities and Exchange Commission.  These officers have concluded
that our disclosure controls and procedures were also effective to provide a
reasonable level of assurance that information required to be disclosed in the
reports that we file, furnish or submit under the Exchange Act is accumulated
and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure, all
in accordance with Exchange Act Rule 13a-15(e).  Our disclosure
controls and procedures are designed to provide reasonable assurance of
achieving these objectives.




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, also conducted an evaluation of our internal control over
financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f), to
determine whether any changes occurred during the quarter ended June 30, 2009,
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.  Based on that
evaluation, there were no such changes during the quarter ended June 30,
2009.




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




PART
II - OTHER INFORMATION




Item
1.  Legal Proceedings.




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




Soil
Disposal Litigation




On
December 12, 2007, subsequent to our purchase of Soil Disposal Group, Inc.
on November 20, 2007, Clean Earth, Inc., which was the former employer of the
Soil Disposal sales representatives, and certain of its affiliates filed a
complaint in the Supreme Court of the State of New York in Manhattan, against
us, PEI Disposal Group, Inc., Soil Disposal, the Soil Disposal sales
representatives individually, one of our officers, and other named
parties.  The complaint alleges, among other things, that the
defendants breached certain covenants not to compete and a non-solicitation
covenant with respect to customers and employees of the
plaintiffs.  The complaint also claims that we interfered with
contractual relations of the plaintiffs and aided and abetted the Soil Disposal
sales representatives’ breach of certain fiduciary duties to the plaintiffs, as
well as alleges claims of unfair competition, misappropriation of trade secrets
and civil conspiracy against the salespersons, among other tort and
contract-based claims.  The plaintiffs are seeking injunctive relief,
unspecified compensatory, consequential and punitive damages and attorneys’ fees
against all defendants.




61




With the
filing of this complaint, the plaintiffs applied for a temporary restraining
order, a preliminary injunction and expedited discovery against all
defendants.  On December 20, 2007, all of these applications were
denied by the court.  In September 2008, the plaintiffs amended
their complaint and also moved to compel us and the other defendants to produce
additional documents.  The defendants opposed these motions and
cross-moved for summary judgment dismissing the case.  On April 15,
2009, the court referred the case to an alternative dispute resolution program
for a 45-day period, during which time the parties attempted to resolve the case
outside of litigation.  In the meantime, the court, at the defendants’
request, ordered a stay of all further discovery in the
litigation.  The parties were unable to resolve this litigation
through the alternative dispute resolution program.  In June 2009, the
court ordered the defendants to comply with the plaintiffs’ request for
discovery and interrogatories.  The defendants have denied all
material claims, believe that the plaintiffs’ claims are without merit and
intend to continue to contest this lawsuit vigorously.




Defamation
Litigation




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





Juda
Litigation




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




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




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




To
facilitate this settlement, we posted a $400,000 letter of credit to serve as a
credit enhancement. Pursuant to a Reimbursement and Indemnity Agreement with the
former owners of Juda, we have the right to offset any amounts owed by them
against salary compensation or annual bonuses that they would otherwise be
entitled to receive from us. We also required the former owners of Juda to
pledge 150,000 shares of our common stock held by them as collateral for the
letter of credit. The pledged shares were deposited into an escrow account that
is jointly held by the parties. On December 10, 2008, we made a payment of
$200,000 on behalf of the former owners of Juda, at which time the outstanding
letter of credit was reduced to $200,000.  At that time, we also
required the former owners of Juda to post an additional 125,000 shares of our
common stock as additional collateral.  On April 20, 2009, we accepted
and retired 200,000 of the shares of common stock held in escrow as
reimbursement for the December 2008 payment made by us on behalf of the
former owners of Juda.  A total of 75,000 shares of our common stock
remain as collateral against the future remaining payment in 2009.





62




Accounts
Receivable Litigation





In
September of 2007, we began transportation and disposal work on a large
construction job in New York City to redevelop several city
blocks.  Beginning in September 2007 and through September 30, 2008,
we billed a total of $9.2 million to this customer for which we received
payments totaling $7.3 million, leaving an outstanding receivable balance of
$1.9 million.  In addition, we also billed an additional $0.9 million
in September of 2008 relating to this same job through another one of our major
customers, which is also outstanding as of June 30, 2009 and for which we have a
payment bond in the amount of $0.9 million in place.  In August of
2008, we were notified by the customers that they were stopping payment due to a
dispute over the tonnage of material removed from the construction
site.  We promptly ceased work on the job and filed a mechanics’ lien
on the properties in September of 2008.  In December of 2008, we filed
three lawsuits in the Supreme Court for the State of New York, County of New
York, against these customers and other lien holders, alleging that
approximately $2.8 million in amounts owed to us for transportation and disposal
fees, plus applicable interest, have not been paid.  We sought to
foreclose on a mechanics’ lien and alleged breach of contract, unjust enrichment
and account stated claims.  Certain of the defendants filed
counterclaims against us for breach of contract, fraud and willful lien
exaggeration, and seek at least $2.0 million in damages in each of the three
cases, plus punitive damages and attorneys’ fees in an amount to be proven at
trial.  On May 29, 2009, we agreed to a settlement whereby we will
receive a total of $2.0 million in satisfaction of the $2.8 million of
outstanding accounts receivable and dismissal of the
counterclaims.  Of this settlement amount, $1.0 million was to be
received within 15 days of the final settlement and the remaining $1.0 million
is scheduled to be repaid in 18 monthly installments of $55,556 beginning on
September 1, 2009.  On July 1, 2009, we received the first installment
of $1.0 million.  The remaining $1.0 million note receivable is
secured by approximately $888,000 in payment bonds held by us in the event of
nonpayment by the customers.





Environmental
Matters





On
February 15, 2007, the New Jersey Department of Environmental Protection,
or NJ DEP, asserted multiple violations against MART, one of our wholly owned
subsidiaries, involving its Class B Recycling Facility Permit through the
issuance of an Administrative Order and Notice of Civil Administrative Penalty
Assessment.  The NJ DEP fined MART approximately $0.6 million, which
was accrued for as of March 30, 2007, the date we purchased MART, at
December 31, 2008. The most significant of these alleged violations, in
terms of cost to remedy, was the storage of approximately 253,000 tons of
processed and unprocessed soil in areas beyond the limits of MART’s permit, and
the ongoing processing of soil in areas where this activity was not
authorized.  Following the acquisition, we have attempted to address
these alleged violations. We installed our own supervisory team to oversee the
processing and off-site disposal of this soil, requiring an investment in MART
of approximately $3.7 million from June 30, 2007 through December 31,
2008. In addition, we have invested approximately $150,000 to install
impermeable high-density polyethylene liners over an additional area of
approximately one acre to expand the footprint of its soil processing operation.
In June of 2009, we settled the $0.6 million in outstanding fines and penalties
with the NJ DEP for approximately $0.2 million.  We believe MART’s
unprocessed soil stockpile is currently in compliance with the requirements of
the NJ DEP permit. MART has also recently submitted a permit amendment
application to formalize its expanded soil processing operation over the
newly-lined area.





Other
than as set forth above, no material developments have occurred in any legal
proceedings reported in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.  Further, except as set forth in our 2008 Form
10-K, there has not been (i) any additional material legal proceeding to which
we are a party or (ii) any material proceeding to which any of our directors,
officers or affiliates, any of our owner of record or beneficially of more than
5% of any class of our common stock, or any associate of any such director,
officer, affiliate or security holder, is a party adverse to us or has a
material interest adverse to us.




Item
1A.   Risk Factors.




Events of default have occurred under
our revolving line of credit, which may increase the likelihood
that in the future ourlendersmay bepermitted to accelerate repayment of
our outstanding obligations under the line of creditand our other indebtedness and
obligations.
  63





Certain
events of default have occurred under our revolving line of
credit.  The occurrence of an event of default permits the lender
under the revolving line of credit to accelerate repayment of all amounts due,
to terminate commitments thereunder, and to require us to provide cash
collateral equal to the face amount of all outstanding letters of
credit.  The provisions of our term loan facility with Susquehanna
Bank include as an event of default any failure to comply with a covenant or
obligation under other obligations of the borrower of $500,000 or
more.  Thus, any other default under our revolving line of credit may
trigger a default under the term loan.  Once in default, these lenders
may accelerate our obligations thereunder if we do not cure the default within
certain time periods.  We may not have sufficient cash resources to
repay these obligations should the lender accelerate these
obligations.  Acceleration of the amounts outstanding under the
revolving line of credit may have a material adverse impact on our liquidity,
financial condition and operations.





Further
defaults under this indebtedness may negatively affect our ability to
declare or pay dividends or other distributions to our stockholders,
including our Series B preferred stockholder.  The nonpayment of
dividends to the Series B preferred stockholder would constitute an event of
noncompliance under that investment agreement and related agreements if it is
not remedied prior to the dividend payment date.  Any failure to pay
these dividends could permit the Series B preferred stockholder to require
redemption of its shares of Series B preferred stock and related warrants at
stated repurchase prices, which would have a material adverse effect on
us.




Except as
described above, there have not been any material changes to the risk factors
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2008.




Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.




Unregistered
Sales of Equity Securities




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





·
            On
      May 26, 2009, we issued 30,000 shares of common stock to an individual
      whom we reasonably believed to be an accredited investor at the time of
      issuance in connection with the settlement of outstanding litigation
      against us.  We valued these shares at the time of issuance to
      be $30,000.


·
            On
      May 29, 2009, we issued a total of 50,000 shares of common stock to two
      consultants, each of whom we reasonably believed to be an accredited
      investor at the time of issuance, for marketing services rendered to
      us.  We valued these services at the time of issuance to be
      $50,000.





We
believe that the offers and sales indicated above were exempt from registration
under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof,
for, among other things, the following reasons:





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


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


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


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


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


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


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


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





64




Purchases
of Equity Securities by the Issuer and Affiliated Purchasers




During
the quarter ended June 30, 2009, we purchased shares of our common stock as
follows:




Period
            
            Total
              Number
      of Shares Purchased
            
            
            Average
      Price Per Share
            
            
            Total
      Number of
              Shares
      Purchased as Part of Publicly Announced Plans or
      Programs
            
            
            Maximum
      Number (or Approximate Dollar
              Value
      of Shares that May Yet Be Purchased Under the Plans or
      ProgramsApril
      1, 2009 to April 30, 2009
            
            
            200,000
            (1)
            
            $
            1.00
            
            
            
            ––
            
            
            
            ––May
      1, 2009 to May 31, 2009
            
            
            ––
            
            
            
            ––
            
            
            
            ––
            
            
            
            ––June
      1, 2009 to June 30, 2009
            
            
            ––
            
            
            
            ––
            
            
            
            ––
            
            
            
            ––









(1)
            All
      such shares of common stock were purchased other than through a publicly
      announced plan or program.  In April 2009, we retired these
      shares, which were previously pledged as collateral for the reimbursement
      of a $200,000 payment that we made on behalf of the former owners of Juda
      Construction, Ltd., one of our wholly-owned subsidiaries, to settle a
      pension liability lawsuit.




Limitations
on Our Payment of Dividends




We have
not paid dividends on our common stock in the past and do not anticipate paying
dividends on our common stock in the foreseeable future. We anticipate that we
will retain future earnings, if any, to fund the development and growth of our
business.  While they are outstanding, the terms of our Series B
preferred stock do not permit us to pay any cash dividends on our common
stock.  Furthermore, as a result of our covenant default under our
revolving line of credit, the lender is currently prohibiting us from making
dividend payments on any of our shares of capital stock, including on our
outstanding shares of Series B preferred stock.  We are currently
discussing this matter with the holder of our Series B preferred
stock.  See “Part I, Item 2.  Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources – Revolving Line of Credit.”  In the future, we may
be a party to other agreements that limit or restrict our ability to pay
dividends.




In
addition, the General Corporation Law of the State of Delaware prohibits us from
declaring and paying a dividend on our capital stock at a time when we do not
have either (as defined under that law):




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




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




Item
3.  Defaults upon Senior Securities




As of
June 30, 2009, we were not in compliance with the minimum adjusted net income
and debt service coverage ratio covenants under our revolving line of credit
agreement.  As a result, under the revolving line of credit agreement,
events of default have occurred since June 30, 2009 and had been continuing
until August 18, 2009 when they were waived by the lender retroactive to June
30, 2009.  As a result of this event of default under the revolving
line of credit and the corresponding lender waiver, we are prohibited from
making cash payments and distributions to the Series B Preferred
stockholder.  Pursuant to the terms of the revolving line of credit,
during the default period, the applicable interest rate on any borrowings
outstanding under the line of credit will be increased by 3% over the otherwise
applicable rate, or 10.75% as of June 1, 2009.  See “Part I, Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources -- Revolving Line of
Credit.”  The event of default under our revolving line of credit also
triggered a cross-default under our term loan with Susquehanna bank, which
cross-default was in turn cured when we obtained the waiver from the lender
under our revolving line of credit.




65





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




On June
17, 2009, we held our 2009 annual meeting of stockholders.  At the
2009 annual meeting, our stockholders:




·
            re-elected
      Charles M. Hallinan as a Class II director, to serve until our 2011 Annual
      Meeting of Stockholders, and until his successor has been elected or
      qualified or until his earlier death, resignation or
    removal;




·
            re-elected
      Brent Kopenhaver as a Class III director, to serve until our 2012 Annual
      Meeting of Stockholders, and until his successor has been elected and
      qualified or until his earlier death, resignation or removal;
      and




·
            ratified
      the appointment of Marcum LLP (formerly Marcum & Kliegman LLP) as our
      independent registered public accounting firm for the fiscal year ending
      December 31, 2009.




The
results of the voting for the election of the foregoing director nominees were
as follows:




Director
      Nominee
            
            For
            
            
            Withhold
      AuthorityCharles
      M. Hallinan
            
            
            12,265,273
            
            
            
            27,855Brent
      Kopenhaver
            
            
            12,257,673
            
            
            
            35,455




The
results of the voting on the ratification of Marcum LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2009
were as follows:




For
            
            
            Against
            
            
            Abstain
            
            
            Broker
      Non-Votes12,143,128
            
            
            
            ––
            
            
            
            150,000
            
            
            
            ––




Item
6. Exhibits.




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




Exhibit
      No.
            
            Description2.10*
            
            Asset
      Purchase Agreement, dated April 1, 2008, by and among Nycon, Inc., Robert
      Cruso, Frank Gencarelli, New Nycon, Inc. and Paul Bracegirdle
      (1)3.1
            
            Second
      Amended and Restated Certificate of Incorporation of Pure Earth, Inc. (2)
      (3)3.2
            
            Second
      Amended and Restated Bylaws of Pure Earth, Inc. (2) (3)31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 193431.2
            
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 193432.1
            
            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




66







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




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





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





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





67




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.




PURE EARTH,
    INC.Date:
      August 19, 2009
              By:
              /s/ Mark
      AlsentzerMark
      AlsentzerPresident
      and Chief Executive Officer




Date:August 19,
      2009
              By:
              /s/ Brent
      KopenhaverBrent
      KopenhaverChairman,
      Executive Vice President, Chief Financial Officer and Treasurer




68




EXHIBIT
INDEX




Exhibit
      No.
            
            Description2.10*
            
            Asset
      Purchase Agreement, dated April 1, 2008, by and among Nycon, Inc., Robert
      Cruso, Frank Gencarelli, New Nycon, Inc. and Paul Bracegirdle
      (1)3.1
            
            Second
      Amended and Restated Certificate of Incorporation of Pure Earth, Inc. (2)
      (3)3.2
            
            Second
      Amended and Restated Bylaws of Pure Earth, Inc. (2) (3)31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 193431.2
            
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 193432.1
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002







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




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





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





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




69