2. Assist Weyerhaeuser in transitioning through existing ChoiceDek inventory

3. Add retail store analysis and planning expertise

4. Add a logistics and transportation partner

5. Attain additional inventory financing to support the Lowe's North American VMI (vendor managed inventory) program

6. Provide Lowe's with innovation and new green building products

7. Take care of customers and positively resolve the class action litigation
(See Item 1. Legal Proceedings)

We are positively addressing all requirements.
We continue to expand ChoiceDek distribution as part of an ongoing growth plan with Weyerhaeuser and Lowe's. In addition to Lowe's planning to open in excess of 100 new stores this year, we are offering three base ChoiceDek colors plus accessories and two tropical hardwood exotic colors available through special order. We intend to expand our special order program to offer a broader selection on a more timely basis.
Current Business Environment
The current U.S. economic environment is extremely tough with credit restrictions tight. The homebuilding and remodeling business is currently depressed and undergoing a shakeout. The composite decking business is primarily remodeling or upgrading homes. However, we believe the following factors will drive AERT's business through the remainder of 2008 and into 2009. A Focus on Building Green
The composite decking business is continuously evolving. The technology used to manufacture wood/plastic boards has advanced significantly over the last four years and many contemporary products have much improved aesthetics. Going forward, it will be important for AERT to continue to innovate keeping abreast of consumer trends and upgrading its products while keeping its price relative to wood. The ChoiceDek website, www.choicedek.com, has recently been upgraded, displaying a new interactive look.
As manufacturing technology and aesthetics of composite decking improve, market trends are also shifting. Consumers are demanding a more varied selection compared to prior periods as evidenced by increased construction of multi-color decks and matching accessories. Consumers are placing increased importance on how products are made and the impact products have on the environment. We are seeing an evolution toward a more natural wood look on the higher end of the market, while decreasing wood prices have widened the price differential on the lower end. We introduced a smaller profile deck board under the BasicsTM brand, targeted to a wood upgrade segment for light residential construction, with two additional color selections available that more closely resemble wood. The BasicsTM brand offers a more competitive price point than brands sold by our competitors. Additionally, we are introducing a new style packaged handrail kit that offers an improved wood look. We believe the introduction of this product line will

allow us to broaden our customer base and appeal to a wider market segment. The MoistureShield decking introduction is targeted toward the commercial contractor lumberyard, which provides service to large repeat customers. Most of these large customers are regularly purchasing, or have been exposed to, competing brands of composite decking. In this higher end segment, we believe success will require converting customers from higher priced competing products to our MoistureShield or ChoiceDek brands. Thus, a significant marketing effort was initiated during the fourth quarter of 2007, and will continue throughout 2008. The marketing program is aimed at converting commercial remodeling and decking contractors to our products with a focus on "green" building and value.
With difficult conditions facing the decking market, AERT is differentiating its products through a combination of green building products, quality, and outstanding customer service at a lower price point. We believe we are positioned to increase market share; however, gaining market share is a costly endeavor and maintaining our low cost model will restrict our ability to regain previous profit margins over the remainder of this year until the class action claims issues are finalized, the ChoiceDek inventory transition with Weyerhaeuser is complete and our Watts, Oklahoma project becomes operational.
We are focused on providing new products with enhanced features and appearance for 2009. In addition to new handrail kits and decking options, we will offer a new line of fencing and will introduce a new fire rated deck board into the marketplace.
We are also focused on international sales. We recently initiated a project into China and are agressively seeking sales outside of the U.S.
We have invested significantly in plastic recycling infrastructure over the last several years. As technology has improved so have the aesthetics of our products, which are overwhelmingly comprised of recycled materials. Green building is an ever increasing trend and we intend to continue capitalizing on that trend in 2008 and 2009. We are a member of the U.S. Green Building Council and support Leadership in Energy and Environmental Design (LEED®) construction standards and practices.
New regional building products distributors have begun carrying MoistureShield decking this year. We recently announced at the International Builders Show in February 2008 a new line of cedar based organic decking products to be introduced under the MoistureShield Juniper Collection. These products were recently selected by Professional Builder Magazine as one of the year's 100 best new products. We have also introduced a new matching handrail kit. For additional information, go to www.moistureshield.com. We have seen strong interest in our new LifeCycle fencing products. These products are currently being launched with several large contractors. We will continue to focus on establishing additional distribution channels, including international channels, through 2008 and into 2009. We are working to add sales through special order with our independent distributors. The MoistureShield website has been updated and features a deck design tool. Plastic Recycling Advances
With increased petrochemical prices, the cost of easy to recycle sources of plastic scrap, such as milk jugs, has increased significantly. With competition from overseas, prevailing prices of "easy to access" recyclable plastics have risen to the point that we must increase our efficiencies and find new, lower cost sources of raw materials. In December of 2007, we completed a tax-exempt bond construction financing, and during the quarter ended March 31, 2008 initiated plans to construct a state-of-the-art polyethylene film reclamation and recycling facility near Watts, Oklahoma in conjunction with the State of Oklahoma, the Cherokee Nation, and, as our debt financing source, Allstate Investments. That facility is being constructed in conjunction with upgrades to the road and sewer system of Adair County and the City of Watts, Oklahoma. We are working to assist the City of Watts, Oklahoma, in conjunction with the East Oklahoma Development District and the Cherokee Nation, in upgrading its sewer treatment system for use by this project. A related party has provided a favorable ground lease for additional wastewater application, and the Cherokee Nation has provided in excess of $0.1 million to date for engineering fees to upgrade the system. The facility is designed and intended to recycle large sources of polyethylene films which are currently not being recycled, and which can be acquired at reduced costs. We commenced site building construction during the third quarter of 2008. The facility is projected to be operational in the second quarter of 2009.
Management Focus for 2008 and Early 2009
• Continue strict cost control to return company to profitability

• Decrease operating costs relative to sales revenue

o Reduce raw material costs

§ Streamline and combine plastic recycling overhead

§ Implement bulk handling system

§ Construct and start up Watts facility

§ Improve raw materials purchasing strategies

o Reduce general and administrative overhead expenses to match growth rate

• Acquire ChoiceDek brand from Weyerhaeuser and transition into long-term purchase agreement with Lowe's Home Improvement Warehouse

• Increase MoistureShield distribution and sales

• Increase international sales

• Introduce non-decking products

• Implement outsourced transportation and logistics function for the Lowe's VMI program

• Streamline and refine new enterprise resource planning system to improve management information

• Introduce new ChoiceDek products for 2009 and work with individual stores to increase sales and selection of new products

• Refinance into larger working capital line of credit

• Introduce new embossed handrail kits and products

• Introduce new fire rated products

• Positively resolve class action issues

Results of Operations
We believe the selected sales data, the percentage relationship between net sales and major categories in the Statements of Operations and the percentage change in the dollar amounts of each of the items presented below is important in evaluating the performance of our business operations. We operate in one business segment and believe the information presented in our Management's Discussion and Analysis of Results of Operations and Financial Condition provides an understanding of our business segment, our operations and our financial condition.
Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
The following table sets forth selected information from our statements of operations.

                                                                Three Months Ended September 30,
                                                            2008                2007            % Change
Net sales                                               $ 18,633,941        $ 25,237,430            -26.2 %
Cost of goods sold                                        16,302,497          23,172,267            -29.6 %
% of net sales                                                  87.5 %              91.8 %           -4.3 %
Estimated liability for claims resolution from
class action settlement                                      453,284                   -                *
% of net sales                                                   2.4 %               0.0 %            2.4 %

Gross margin                                               1,878,160           2,065,163             -9.1 %
% of net sales                                                  10.1 %               8.2 %            1.9 %
Selling and administrative costs                           4,361,123           4,180,787              4.3 %
% of net sales                                                  23.4 %              16.6 %            6.8 %
Loss on disposition of assets                                127,622                   -                *

Operating loss                                            (2,610,585 )        (2,115,624 )           23.4 %
% of net sales                                                 -14.0 %              -8.4 %           -5.6 %
Other expense:
Late registration fees                                       (12,904 )                 -                *
Net interest expense                                        (391,112 )        (1,032,792 )          -62.1 %

Loss before dividends, taxes and extraordinary
item                                                      (3,014,601 )        (3,148,416 )           -4.3 %
% of net sales                                                 -16.2 %             -12.5 %           -3.7 %
Accrued dividends on preferred stock                        (200,000 )                 -                *

Loss before taxes and extraordinary item                  (3,214,601 )        (3,148,416 )            2.1 %
% of net sales                                                 -17.3 %             -12.5 %           -4.8 %
Net income tax benefit                                    (1,302,723 )        (1,186,569 )            9.8 %
% of net sales                                                  -7.0 %              -4.7 %           -2.3 %

Loss before extraordinary item                            (1,911,878 )        (1,961,847 )           -2.5 %
% of net sales                                                 -10.3 %              -7.8 %           -2.5 %
Extraordinary gain due to fire (net of tax)                        -             432,403           -100.0 %

Net loss applicable to common stock                     $ (1,911,878 )      $ (1,529,444 )           25.0 %
% of net sales                                                 -10.3 %              -6.1 %           -4.2 %

* Not meaningful as a percentage change.

Net Sales
Net sales for the third quarter ended September 30, 2008 were $18.6 million, down $6.6 million, or 26%, from the third quarter of 2007. Sales in all channels were impacted by the new home construction and remodeling slowdown. Our OEM (original equipment manufacturer) sales were further impacted by our exit from the window sill market during the first quarter of 2008.
Current economic uncertainty and high energy prices have caused consumer confidence to remain low and remodeling expenditures have been slow to materialize during the first three quarters of 2008. Implementation of a new MoistureShield marketing initiative continued during the quarter. This initiative encompassed several new decking products, including a tropical hardwood line (Rainforest Collection), upgraded caps and collars (decking accessories), and a new handrail system. Several new ChoiceDek products, the Eden (tropical exotic) series in particular, were recently introduced into the marketplace. Additionally, a new interactive ChoiceDek website was recently introduced at www.choicedek.com.
We will continue to add MoistureShield distribution channels and refine markets over the year with the goal of having nationwide distribution. We will also continue to expand international distribution and sales. While we are currently operating in a very challenging market, we believe our green building certification addresses a growing market niche and allows distributors to balance their product lines. We look for continued growth of this product line over time. The MoistureShield product line serves a market that is much larger than the do-it-yourself home improvement segment - principal customers are professional contractors and deck builders.
We are focused on customer service, and are working to positively resolve customer issues utilizing our fully staffed customer service department. In particular, we maintain a fully staffed customer service department, including a customer service hotline that is attended seven days a week during the building season.
Cost of Goods Sold and Gross Margin
Cost of goods sold, as a percent of sales, decreased to 88% for the quarter ended September 30, 2008. Increases in raw material and freight costs were offset by manufacturing overhead reductions discussed below.
Record petroleum prices caused freight and polyethylene feedstock price increases. The slowdown in the building products industry has dealt a harsh blow to cabinet and hardwood flooring manufacturers, from whom we acquire scrap wood fiber. The use of wood pellets as an alternative fuel source has also grown in the last few years. These two forces are acting to raise the cost of our wood raw materials.
Over the last three years, AERT has invested substantially in laboratory, analytical, processing and blending equipment at its Lowell, Arkansas facility aimed at increasing our utilization of lower grades and cheaper polyethylene feedstocks. We believe that with the implementation of these new systems, we can continue to reduce costs and work to further improve our margins. The Watts, OK facility is designed to utilize lower cost plastics which are presently not recycled by being able to wash, identify and reformulate them.
In March 2008, we hired a new president with extensive manufacturing and large scale operations experience. We previously initiated and implemented a cost reduction plan whereby certain less efficient facilities were consolidated or closed down, primarily Junction, TX, Tontitown, AR, and Alexandria, LA. With the relocation of our Alexandria, LA plastic recycling equipment to Lowell, AR, we are beginning the relocation of the existing Springdale, AR plastic recycling operations to Lowell, AR, eliminating further labor and overhead. In addition, we intend to transfer some of the existing plastic recycling equipment in our Springdale facility to the new Watts, OK facility. Combining our Lowell and Springdale plastic recycling functions should result in significant cost savings. In addition, the Watts facility, once commercially operational, is projected to reduce costs significantly, in addition to allowing for sales of recycled plastic resin to third party manufacturers.
Our gross margin increased in the third quarter of 2008 to 10% from 8% in the third quarter of 2007. The improved margin is due in part to price increases put in place at the beginning of 2008. Additionally, we have taken steps to reduce overhead, as discussed above, including a corporate staff reduction of 30 people at the beginning of the third quarter of 2008 as well as eliminated assets and leased equipment not critical to servicing our customers. Selling and Administrative Costs
Selling and administrative costs were up $0.2 million in third quarter 2008 compared to third quarter 2007, and were up to 23% of sales from 17%. This percentage increase was due to the drop in sales and an overall increase in selling and administrative costs.

The increase in selling and administrative costs was largely due to increases in professional fees, depreciation and advertising. The categories of compensation and benefits, advertising and promotion, travel and entertainment, professional fees, and commissions together made up approximately 80% of total selling and administrative expenses in third quarter 2008. Earnings
We incurred a loss from operations of $2.6 million in the third quarter of 2008, an earnings decrease of $0.5 million from 2007. Our net loss for third quarter 2008 was $1.9 million, compared to a net loss for third quarter 2007 of approximately $1.5 million. The increased loss is due to the accrual of $0.2 million in dividends on preferred stock in the third quarter of 2008 that was not outstanding in the third quarter of 2007, the weak current market and the extraordinary gain recognized in the third quarter of 2007.
Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
The following table sets forth selected information from our statements of operations.

                                                                 Nine Months Ended September 30,
                                                            2008                 2007            % Change
Net sales                                               $  73,074,928        $ 73,413,020             -0.5 %
Cost of goods sold                                         61,465,632          64,519,603             -4.7 %
% of net sales                                                   84.1 %              87.9 %           -3.8 %
Estimated liability for claims resolution from
class action settlement                                     2,869,784                   -                *
% of net sales                                                    3.9 %               0.0 %            3.9 %

Gross margin                                                8,739,512           8,893,417             -1.7 %
% of net sales                                                   12.0 %              12.1 %           -0.1 %
Selling and administrative costs                           16,183,937          12,101,541             33.7 %
% of net sales                                                   22.1 %              16.5 %            5.6 %
Loss from fixed asset impairment and disposition              595,860                   -                *

Operating loss                                             (8,040,285 )        (3,208,124 )          150.6 %
% of net sales                                                  -11.0 %              -4.4 %           -6.6 %
Other expense:
Estimated liability from class action settlement           (2,500,000 )                 -                *
Late registration fees                                       (682,259 )                 -                *
Net interest expense                                       (2,703,358 )        (2,826,147 )           -4.3 %

Loss before dividends, taxes and extraordinary
item                                                      (13,925,902 )        (6,034,271 )          130.8 %
% of net sales                                                  -19.1 %              -8.2 %          -10.9 %
Accrued dividends on preferred stock                         (600,000 )                 -                *

Loss before taxes and extraordinary item                  (14,525,902 )        (6,034,271 )          140.7 %
% of net sales                                                  -19.9 %              -8.2 %          -11.7 %
Net income tax benefit                                     (3,449,962 )        (2,516,846 )           37.1 %
% of net sales                                                   -4.7 %              -3.4 %           -1.3 %

Loss before extraordinary item                            (11,075,940 )        (3,517,425 )          214.9 %
% of net sales                                                  -15.2 %              -4.8 %          -10.4 %
Extraordinary gain due to fire (net of tax)                         -             432,403           -100.0 %

Net loss applicable to common stock                     $ (11,075,940 )      $ (3,085,022 )          259.0 %
% of net sales                                                  -15.2 %              -4.2 %          -11.0 %

* Not meaningful as a percentage change.

Net Sales
Net sales for the first three quarters of 2008 were down $0.3 million from the first three quarters of 2007. Decking sales in the first nine months of 2008 were up while OEM sales were down due to the slowdown in new home construction and our exit from the primed window component business.

Cost of Goods Sold and Gross Margin
Cost of goods sold was down $3.1 million in the first three quarters of 2008 compared to the first three quarters of 2007. The rationalization of our manufacturing operations, resulting in labor and overhead reductions, has more than offset raw material and freight cost increases. We discontinued operations at our Texas and Louisiana facilities in the fourth quarter of 2007, which reduced headcount by approximately 90 people, and we reduced corporate staff by 30 people early in the third quarter of 2008. The accrual of estimated claim resolution costs arising from the class action lawsuit negatively impacted gross margin.
Selling and Administrative Costs
Selling and administrative costs were up $4.1 million in the first nine months of 2008 compared to the first nine months of 2007; a 34% increase. Selling and administrative costs were 22% of 2008 sales, up from 17% in 2007. The categories of compensation and benefits, advertising and promotion, professional fees, travel and entertainment, and commissions together made up 77% of total selling and administrative expenses in the first three quarters of 2008. Advertising and promotion expenditures were up $2.0 million due primarily to our MoistureShield marketing campaign. Compensation and benefits increased in the first three quarters of 2008 by approximately $0.9 million over the first three quarters of 2007. Legal fees recorded during the first three quarters of 2008 associated with the class action allegations were $782,263. Cost reductions implemented in the third quarter will reduce selling and administrative costs in the future.
Asset Impairment and Other Expenses
• Approximately $0.5 million was charged during the first quarter of 2008 relating to assets no longer required at our Junction, Texas manufacturing facility. This is part of a program to streamline our manufacturing process to reduce costs.

• Approximately $0.7 million was expensed during the first three quarters of 2008 representing a one-time charge for penalties related to the late registration of shares underlying our preferred stock offering that took place in the fourth quarter of 2007. The registration statement was declared effective by the SEC on September 5, 2008, at which time the penalties ceased.

• A one-time charge of $2.5 million relating to plaintiff attorney fees and notice costs, in connection with the class action lawsuit, was made during the first nine months of 2008. An additional $2.4 million was expensed as part of cost of goods sold during the same period for the claim resolution process, while $0.2 million was charged to selling and administrative costs for the Company's attorney fees.

Earnings
We incurred a loss from operations of $8.0 million in the first three quarters of 2008 compared to an operating loss of $3.2 million in the first three quarters of 2007. Our net loss for the first three quarters of 2008, including one time charges of $6.3 million related to our lawsuit, late registration penalties and asset impairment, was $11.1 million, compared to a net loss for the first three quarters of 2007 of approximately $3.1 million. Liquidity and Capital Resources
Unrestricted cash decreased approximately $0.3 million from December 31, 2007 to $1.4 million at September 30, 2008. Significant components of that decrease . . .