and enhance its alternative fuel production and distribution operations. If additional funds are raised by issuing debt, we may be subject to restrictive covenants that could limit our operating flexibility. Earth's performance will also be affected by prevailing economic conditions. Many of these factors are beyond Earth's control. There can be no assurance that adequate funds will be available when needed and on acceptable terms, or that a strategic alternative can be arranged. The accompanying financial statements do not reflect any adjustments that might result from the outcome of this uncertainty. During the fourth quarter of fiscal 2006 Earth completed the acquisition of the LNG business. The acquisition of the LNG business marked the initial entrance of Earth into the liquefied natural gas production business. The acquisition added the largest producer of wholesaler vehicle-quality LNG in the western US and Mexico, and has allowed Earth to be more diversified. Earth believes this acquisition will be a major part of establishing future financial stability. The LNG company acquisitions have produced revenues in excess of $50 million over the preceding two fiscal years.
In response to soaring fuel costs, and to avail itself of government subsidies and tax incentives, Earth has pursued a strategy of developing renewable forms of energy, such as biodiesel and ethanol. Consequently, Earth has acquired various interests in companies in Texas, N. Carolina, New Orleans, Illinois and Washington. We are working with other partners to build and refurbish plants in order to produce substantial quantities of renewable, domestic fuel. Subsequent to year end 2006 Earth obtained several credit facilities totaling $29 million with various lenders to finance the working capital needs of its Biodiesel and LNG operations. Our partners in various Ethanol plants are raising additional equity through performance bonds and USDA guaranteed loans. Earth has implemented cost saving measures, primarily in its Bio-diesel operations, by implementing cost controls designed to reduce unnecessary expenditures and operate production activities within the current economic constraints with which Earth currently operates. Earth will take additional cost savings measures, if necessary, to enhance its liquidity position. Subsequent to the quarter ended June 30, 2007, the note holders of our $52.5 million in private placement offerings dated July 24, 2006, filed with the bankruptcy courts a Chapter 7 - Involuntary Liquidation on the company. The Company has filed a request for a hearing on this issue and has submitted a business plan to the courts. A hearing was set for September 10, 2007. There are several outcomes that may occur pursuant to this hearing, any of which cannot be reasonably estimated at this time.

                                                          Six Months Ended
                                                              June 30,
                                                          2007        2006
           Revenues:
           Sales revenue                                   100 %       100 %

           Cost of sales                                    90 %        99 %

           Gross profit                                     10 %         1 %
           Compensation                                     49 %        66 %
           Other selling, general and administrative        51 %        49 %
           Depreciation and amortization                    16 %         4 %

           Net loss from operations                       (106 )%     (118 )%
           Interest expense                                222 %        18 %
           Impairments                                     113 %         0 %
           Net (loss)                                     (450 )%     (138 )%

Revenue. Total revenue for the six months ended June 30, 2007 decreased $4.2 million, or 24%, to approximately $13.3 million from approximately $17.6 million in 2006. The decrease in total revenue is primarily the result of decreased sales of biodiesel.

Cost of Sales. The types of expenses included in the cost of sales line item include the cost of raw materials, inbound freight charges, purchasing and receiving costs, terminal fees for storage and loading of biodiesal, petro fees, chemicals, and related costs of production.
Cost of sales for six months ended June 30, 2007 decreased $5.3 million, or 31%, to approximately $12.1 million from approximately $17.4 million for 2006. Our cost of goods sold is mainly affected by the cost of biodiesel, vegetable oil, and other raw materials. The decrease in cost of sales is primarily the result of decreased sales of biodiesel.
Compensation. Compensation for six months ended June 30, 2007 decreased approximately $5.1 million and related primarily to shares issued to consultants for employees and consulting services issued in 2006. The shares issued as share based compensation were valued at market consistent with SFAS No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)").
Other Selling, General and Administrative Expenses. The types of expenses included in the selling, general and administrative expenses line item include salaries and benefits, office expenses, insurance, professional services, travel and other miscellaneous expenses.
Other selling, general and administrative expenses for six months ended June 30, 2007 decreased approximately $1.8million from approximately $8.6 million for the same period in 2006. The 2007 costs decrease consists of reductions in consulting, marketing, professional, administrative and travel expenses. Depreciation and Amortization. Depreciation and amortization for the six months ended June 30, 2007 increased to approximately $2.2 million from $754,000 for the same period in 2006. The increase in depreciation and amortization is related primarily to purchases of plant and equipment.
Interest Expense. Interest expense related primarily to short term convertible debts and long term debts for the six months ended June 30, 2007was approximately $29.7 million from $3.1 million for the same period in 2006. Interest expense consisted primarily of interest fees, late charges and registration penalties related to defaults on agreements in late 2006 and 2007. Comparison of Three Months Ended June 30, 2007 To Three Months Ended June 30, 2006
The following table sets forth selected data as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of operations.

                                                         Three Months Ended
                                                              June 30,
                                                          2007         2006
          Revenues:
          Sales revenue                                    100 %        100 %

          Cost of sales                                     86 %         87 %

          Gross profit                                      14 %         13 %
          Compensation                                      21 %         59 %
          Other selling, general and administrative         51 %         67 %
          Depreciation and amortization                     18 %          6 %

          Net loss from operations                         (77 )%      (119 )%
          Interest expense                                 201 %         34 %
          Impairments                                      220 %          0 %
          Net (loss)                                      (514 )%      (157 )%

Revenue. Total revenue for the three months ended March 31, 2007 decreased $1.7 million, or 21%, to approximately $6.7 million from approximately $9 million in 2006. The decrease in total revenue is primarily the result of decreased sales of biodiesel.

Cost of Sales. Cost of sales for three months ended March 31, 2007 decreased $2 million, or 26%, to approximately $5.8 million from approximately $7.8 million for 2006. Our cost of goods sold is mainly affected by the cost of biodiesel, vegetable oil, and other raw materials. The decrease in cost of sales is primarily the result of decreased sales of biodiesel in 2007. Compensation. Compensation for three months ended March 31, 2007 decreased approximately $3.9 million and related primarily to shares issued to consultants for employees and consulting services in 2006. The shares issued as share based compensation were valued at market consistent with SFAS No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)").
Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses for three months ended March 31, 2007 decreased approximately $2.5 million from approximately $5.9 million for the same period in 2006. The decrease consists of reductions in consulting, marketing, professional, administrative and travel expenses during 2007.
Depreciation and Amortization. Depreciation and amortization for three months ended March 31, 2007 increased to approximately $1,243,000 million from $521,000 for the same period in 2006. The increase in depreciation and amortization is related primarily to purchases of plant and equipment.
Interest Expense. Interest expense related primarily to short term convertible debts and long term debts for three months ended March 31, 2007 was approximately $13.5 million from $3.1 million for the same period in 2006. Interest expense consisted primarily of interest fees and the amortization of debt discounts. Interest expense consisted primarily of interest fees, late charges and registration penalties related to defaults on agreements in late 2006 and 2007
Liquidity and Capital Resources
Overview. Our principal sources of liquidity consist of cash and cash equivalents, cash provided by operations and issuances of debt and equity securities. In addition to funding operations, our principal short-term and long-term liquidity needs have been, and are expected to be, the debt service requirements of our senior convertible notes, the acquisition and construction of new facilities, capital expenditures and general corporate purposes. In addition, as our production operations ramp up, we anticipate significant purchases of soy oil, corn and other inputs necessary for biodiesel and ethanol production. During the six months ended June, 30, 2007 our cash and cash equivalents increased by approximately $243,000 million from the same period in 2006, primarily as the result of obtaining new credit facilities in the first quarter of 2007.
Net cash used in operating activities was approximately $20.6 million for six months ended June 30, 2007 compared to net cash used in operating activities of approximately $13.8 million for the same period in 2006. The increase in net cash flow used in operating activities relates to increasing operating costs as we ramp-up our operations, including higher cost of good sold, other selling, general and administrative expenses and interest expense.
Net cash used in investing activities was approximately $2.71 million for six months ended June 30, 2007 compared to net cash used in investing activities of approximately $17.5 million for the same period in 2006. The decrease in net cash used in investing activities related to purchases of fixed assets of $3.5 million during 2006 for our Durant facility, and a decrease of $13.9 million related to investments and advances related to letters of intent and investments we have entered into to own and operate biodiesel and ethanol facilities.
Net cash provided by financing activities was $22.9 million for six months ended June 30, 2007 compared to net cash provided by financing activities of approximately $26.5 million for the same period in 2006. Cash flows

provided by financing activities during six months ended June 30, 2007 relate primarily to new credit facilities totaling $30 million, less the repayment of prior debts of $8.7 million. In addition, $1.5 million relates to proceeds from the issuance of common stock.
We incurred net losses and negative cash flows from operations of approximately $60.2 million and $20.5 million, respectively, for the six months ended June 30, 2007. Of the net losses for the six months ended June 30, 2007 approximately $3.8 million relates to shares issued to employees and nonemployees for services rendered, and approximately $5.4 million relates to amortization of debt discounts. We had approximately $534,000 in cash and cash equivalents at June 30, 2007. Our working capital deficit at six months ended June 30, 2007 was approximately $53.1 million.
Current and Future Financing Needs -
Our limited operating history makes evaluating our business and prospects difficult. Our limited operating history and recent acquisitions make it difficult to evaluate our current business and prospects or to accurately predict our future revenues or results of operations. Our revenue and income potential are unproven, and our business plan is constantly evolving. The market for alternative fuels is evolving and we may need to continue to modify our business plan to adapt to these changes. As a result, we are more vulnerable to risks, uncertainties, expenses and difficulties than more established companies. Some of these risks relate to our potential inability to: effectively manage our business and operations; successfully maintain our low-cost structure as we expand the scale of our business; and manage rapid growth in personnel and operations.
We have a history of operating losses and we anticipate losses for the foreseeable future. Unless we are able to generate profits and positive cash flow we may not be able to continue operations. We incurred consolidated net losses from operations of approximately $8 million, before depreciation and non-cash share based compensation, for the six months ended June 30, 2007. We expect operating losses to continue for the foreseeable future as we incur expenditures for start up business operations and until the additional investors are obtained and construction of all plants are completed. With increased on-going operating expenses, we will need to generate significant revenues to achieve profitability. Consequently, we may never achieve profitability. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future.
For the year ended December 31, 2006, the report of our independent registered public accounting firm stated that our financial statements were prepared assuming that we would continue as a going concern. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate and increase profits, and obtain additional investors and necessary funding from outside sources.
We may have difficulty raising additional capital, which could deprive us of necessary resources to grow our business and achieve our business objectives and expansion strategy. We expect to continue to devote capital resources to fund our business plan. Our ability to raise additional fundings depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the prices of various commodities, particularly the prices of ethanol, soybean, corn, natural gas and unleaded gasoline. We might not have access to the funding required for the expansion of our business or such funding might not be available to us on acceptable terms. Given our current indebtedness, and limited liquidity and access to financial markets and required amounts of cash flow required to service our debt, we have increased our financial risks and have decreased the amount of funds available for our growth strategy, thereby making it more challenging to implement our strategy in a timely manner. Because our common stock is listed on the NASD OTC Bulletin Board, many investors may not be willing or allowed to purchase it or may demand steep discounts. Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock. If we are unable to raise additional funds when we need them, we may have to severely curtail our operations and expansion plans.

If we fail to remain current on our reporting requirements, we could be removed from the over-the-counter bulletin board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. Companies trading on the over-the-counter bulletin board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13 in order to maintain price quotation privileges on the over-the-counter bulletin board.
There is significant volatility in our stock price. The trading price of our common stock on the over-the-counter bulletin board has been and continues to be subject to wide fluctuations. The market price of our common stock could be subject to significant fluctuations in response to various factors and events, including, among other things, the depth and liquidity of the trading market of our common stock, quarterly variations in actual or anticipated operating results, growth rates, changes in estimates by analysts, market conditions in the industry, announcements by competitors, regulatory actions and general economic conditions. In addition, the stock market from time to time experiences significant price and volume fluctuations, which may be unrelated to the operating performance of particular companies. As a result of the foregoing, our operating results and prospects from time to time may be below the expectations of public market analysts and investors. Any such event would likely result in a material adverse effect on the price of our common stock. In addition, the trading price of our common stock will continue to be volatile in response to factors including the following, many of which are beyond our control:
variations in our operating results; announcements of technological innovations, new products or new services by us or our competitors; changes in expectations of our future financial performance, including financial estimates by securities analysts and investors; our failure to meet analysts' expectations; changes in operating and stock price performance of other energy companies similar to us; fluctuations in oil and gas prices; conditions or trends in the oil and gas and alternative fuels industry; additions or departures of key personnel; and future sales of our common stock.
The loss of any of our key personnel would likely have an adverse effect on our business. Our future success depends, to a significant extent, on the continued services of our key personnel, including plant managers. Our loss of any of these key personnel most likely would have an adverse effect on our business. Competition for personnel throughout the industry is intense and we may be unable to retain our current management and staff or attract, integrate or retain other highly qualified personnel in the future. If we do not succeed in retaining our current management and our staff or in attracting and motivating new personnel and plant managers, our business could be materially adversely affected.
We may not be able to protect and enforce our intellectual property rights, which could result in the loss of our rights or increased costs. Our future success depends to a significant degree upon the protection of our proprietary technology. The misappropriation of our proprietary technology would enable third parties to benefit from our technology without paying us for it. Although we have taken steps to protect our proprietary technology, they may be inadequate and the unauthorized use thereof could have a material adverse effect on our business. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive, even if we were to prevail.
Our expansion plans, including with respect to the sites in Texas, Oklahoma, Tennessee, Kentucky, Illinois and Mississippi, are subject to significant risks and uncertainties with respect to timing of completion, financing of construction costs and our ability to timely realize the benefits we anticipate of these additional sites. Accordingly, investors should not place undue reliance on our statements about our expansion plans or their feasibility in the timeframe anticipated or at all.
Our construction costs could increase to levels that would make construction of new facilities too expensive to complete or unprofitable. Our construction costs could materially exceed budgets, which may adversely affect our financial condition and our anticipated operating results. We believe that contractors, engineering firms, construction firms and equipment suppliers increasingly are receiving requests and orders from other biodiesel/ethanol companies and, therefore, we may not be able to secure their services or products on a timely basis or on acceptable financial or commercial terms. We may suffer significant delays or cost overruns as a

result of a variety of factors, such as shortages of workers or materials, transportation constraints, adverse weather, unforeseen difficulties or labor issues, any of which could prevent us from commencing operations as expected at our facilities. Any new facility that we may complete may not operate as planned.
Our results of operations and financial condition will be significantly affected by the market price for biodiesel and the co-products from biodiesel production. Price and supply are subject to and determined by market forces over which we have no control. In 2005, approximately 75 million gallons of biodiesel were produced. In May 2006, the National Biodiesel Board estimated there were 65 active biodiesel plants producing an estimated 395 million gallons of biodiesel annually, with another 50 biodiesel plants under construction and 8 plants which are undergoing expansions. By the end of 2008, the National Biodiesel Board estimates there could be 714 million gallons of capacity. Biodiesel plants are operating or have been proposed in at least 39 states. In addition, investors should understand that we face a competitive challenge from larger biodiesel plants and from biodiesel plants owned and operated by the companies that supply our inputs. Cargill, Inc., a large supplier of soybean oil, is constructing a 37.5 million gallon biodiesel plant in Iowa Falls. Another large corporation and supplier of soybean oil, Archer Daniels Midland Co., plans to construct a 50 million gallon biodiesel plant in North Dakota. These plants will be capable of producing significantly greater quantities of biodiesel than the amount we . . .