Earthfirst 10QSB/A 2006 Q2 Quarterly report (small business) (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB/A

(AMENDMENT NO. 1)

(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, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from to

Commission File Number 0-23897

EARTHFIRST TECHNOLOGIES, INCORPORATED

(Exact name of small business issuer as specified in its charter)

Florida

59-3462501

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

2515 E Hanna Ave., Tampa, Florida 33610

(Address of principal executive offices)

(813) 238-5010

(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of July 31, 2006: 598,996,693 shares $ .0001 par value common stock.

Transitional Small Business Disclosure Format (check one) Yes ¨ No x

EARTHFIRST TECHNOLOGIES, INCORPORATED

FORM 10-QSB/A

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-QSB/A (this “Form 10-QSB/A”) amends our Quarterly Report on Form 10-QSB for the second quarter ended June 30, 2006, as initially filed with the Securities and Exchange Commission (the “SEC”) on August 14, 2006, and is being filed to amend the certifications contained in exhibits 31.1 and 31.2 to conform to the format provided in Item 601(b)(31) of Regulation S-B.

Except for the foregoing amended certifications, this Form 10QSB/A continues to describe conditions as presented in the original report on Form 10-QSB filed on August 14, 2006. This Form 10-QSB/A does not reflect events occurring after the filing of the Form 10-QSB/A on August 14, 2006 or modify or update these disclosures, including exhibits on the Form 10-QSB affected by subsequent events. Information not affected by the amended certifications is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-QSB on August 14, 2006.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Current assets:
Cash	$	188,353		$	1,202,480
Accounts receivable – net		11,254,154			9,232,564
Cost and estimated earnings in excess of billings on uncompleted contracts		1,501,041			1,446,326
Inventory		3,064,656			1,613,276
Prepaid expenses and other current assets		70,917			127,735

Total current assets		16,079,121			13,622,381

Property and equipment, net		5,059,333			4,967,408
Intangible assets		15,323,152			15,323,152
Loan costs and discounts		494,522			635,813
Other assets		253,467			434,577

	$	37,209,595		$	34,983,331

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	—		$	52,403
Secured convertible notes payable		4,181,867			2,959,536
Accounts payable and accrued expenses		7,378,635			5,782,182
Billings in excess of cost and estimated earnings on uncompleted contracts		1,472,841			719,820

Total current liabilities		13,033,343			9,513,941

Secured convertible notes payable, non current		334,175			301,665
Derivative liabilities		1,022,488			4,722,520
Other liabilities		58,890			890,172
Notes payable, related parties		3,216,343			—

Total liabilities		17,665,239			15,428,298

Majority and minority interests		634,868			853,648
Commitments and contingencies (Note 8)		—			—

Stockholders’ equity:
Common stock, par value $.0001, 750,000,000 shares authorized, 598,996,693 and 598,046,693 shares issued, 597,046,693 and 596,096,693 shares outstanding		59,899			59,804
Additional paid-in capital		87,622,118			87,584,713
Accumulated deficit		(67,504,469	)		(67,675,072	)

		20,177,548			19,969,445
Less treasury stock (1,950,000 shares at cost)		(1,268,060	)		(1,268,060	)

Total stockholders’ equity:		18,909,488			18,701,385

	$	37,209,595		$	34,983,331

See notes to condensed consolidated financial statements.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended June 30						Six Months Ended June 30,
	2006			2005			2006			2005
Revenue	$	12,941,939		$	9,753,062		$	24,340,401		$	17,921,161
Cost of sales		11,244,286			6,377,002			21,135,839			12,624,453

Gross profit		1,697,653			3,376,060			3,204,562			5,296,708

Selling, general and administrative expenses		2,749,590			2,036,095			5,023,306			3,239,182
Research and development expenses		40,776			127,324			195,294			320,651

Income (loss) from operations before reorganization item, income taxes and majority interest		(1,092,713	)		1,212,641			(2,014,038	)		1,736,875

Other income (expense):
Gain on extinguishment of debt, bankruptcy		36,395			1,804,739			81,020			3,983,307
Gain on disposal of assets					9,700						6,669
Claims recovery								1,100,000			—
Miscellaneous income		139,722			135,017			173,420			168,311
Derivative gain (loss)		618,868			8,046,893			3,626,768			1,597,151
Interest expense		(904,830	)		(466,246	)		(2,217,649	)		(545,676	)
Equity in loss of unconsolidated affiliates		—			(130,086	)		—			(130,086	)

Income (Loss) before reorganization item, income taxes, minority and majority interest		(1,202,558	)		10,612,658			749,521			6,816,551
Reorganization item, professional fees related to bankruptcy and pursuit of claims		(150,042	)		(1,109,017	)		(247,697	)		(1,432,678	)

Income (Loss) before income taxes, minority and majority interest		(1,352,600	)		9,503,641			501,824			5,383,873
Provision for income taxes		—			—			—			—

Income (Loss) before majority interest		(1,352,600	)		9,503,641			501,824			5,383,873
Majority interest		(104,323	)		(812,533	)		(331,221	)		(958,508	)

Income (loss) from continuing operations		(1,456,923	)		8,691,108			170,603			4,425,365

Loss on disposal of discontinued operations		—			—			—			(137,636	)

Net Income (Loss)	$	(1,456,923	)	$	8,691,108		$	170,603		$	4,287,729


Net Income (loss) per common share/basic and diluted:
Continuing operations	$	(.002	)	$	.02			—		$	.01
Discontinued operations		—			—		$	—		$	—

Net income (loss)	$	(.002	)	$	.02			—		$	.01

Weighted average shares outstanding
Basic and fully diluted		598,958,231			491,922,517			598,517,411			436,138,461

See notes to condensed consolidated financial statements.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net income (loss)	$	170,603		$	4,287,729
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Expenses funded though issuance of stock		37,500			695,000
Minority interest in joint venture		331,221			958,508
Derivative (gain)/ loss		(3,626,768	)		(1,597,151	)
Amortization of debt discount		1,781,577			274,209
Depreciation and amortization		259,343			142,416
Gain on cancellation of debt		(81,020	)		(3,983,307	)
Equity in loss of unconsolidated affiliate					130,086
Loss on disposal of discontinued operations					137,636
Gain on disposal of assets					(6,669	)
Increase (decrease) in cash due to changes in:
Current assets		(3,289,757	)		(967,758	)
Current liabilities		1,049,211			(1,290,440	)

Net cash flows from operating activities		(3,368,090	)		(1,219,741	)

Cash flows from investing activities:
Purchase of investments in unconsolidated affiliates		—			(1,050,000	)
Acquisition of property and equipment		(209,977	)		(178,545	)

Net cash flows from investing activities		(209,977	)		(1,228,545	)

Cash flows from financing activities:
Proceeds from note payable, related party		3,216,343			1,791,516
Repayment of long-term debt		(652,403	)		(6,520,636	)
Proceeds from Laurus credit facility		—			7,973,038

Net cash flows from financing activities		2,563,940			3,243,918

Increase (decrease) in cash		(1,014,127	)		795,632
Cash, beginning of period		1,202,480			1,482,383

Cash, end of period	$	188,353		$	2,278,015


Cash paid for interest:	$	375,236		$	137,472

Supplemental schedule of non-cash financing and investing activities:

During 2006, the Company:

•

Issued 700,000 shares of common stock, as a cashless exercise of an option to purchase 1,000,000 common shares.

During 2005, the Company:

•

Converted $9,204,157 of related party debt to 189,643,210 shares of common stock

•

Loan costs of $390,290 funded through proceeds of Laurus credit facility

See notes to condensed consolidated financial statements.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2006

(UNAUDITED)


	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Total
	Shares	Amount		Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Total
Balances, December 31, 2005	598,046,693	$	59,804	$	87,584,713		$	(67,675,072	)	$	(1,268,060	)	$	18,701,385
Stock issued for professional services	250,000		25		37,475									37,500
Stock issued for exercise of Options	700,000		70		(70	)
Net income								170,603						170,603

Balances June 30, 2006	598,996,693	$	59,899	$	87,622,118		$	(67,504,469	)	$	(1,268,060	)	$	18,909,488

See notes to condensed consolidated financial statements.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

1.	Nature of business, basis of presentation and summary of significant accounting policies:

Nature of business:

EarthFirst Technologies, Incorporated, a Florida Corporation formed in 1997, is a specialized holding company owning subsidiaries engaged in developing and commercializing technologies for the production of alternative fuel sources and the destruction and/or remediation of liquid and solid waste, and in supplying electrical contracting services internationally.

The Company’s solid waste division, operated through World Environmental Solutions Company, Inc. (WESCO), a wholly owned subsidiary, remained focused on the commercialization of its “Solid Waste Remediation Plant” in Mobile, Alabama. This unit is known as the “Catalytic Activated Vacuum Distillation Process (“CAVD”) Reactor”. This plant processes rubber tires extracting carbon and other raw materials for resale. This process efficiently disposes of the tires in an environmentally compliant manner that allows raw materials from those waste products to be recycled and reused.

The Company anticipates providing additional CAVD plants to customers in various industries. The Company expects to bring proven technology in replicating its production plants and distribution network for the disposal of the by-products produced in the process.

The Company has developed technologies for the treatment of liquid waste products. The technology involves the use of high temperature plasma through which the liquid waste products are passed. The harmful properties contained in the liquid waste products are broken down at the molecular level as they pass through the plasma and a clean burning gas is produced.

Through its Electric Machinery Enterprises, Inc. subsidiary (EME), the Company performs services as an electrical contractor and subcontractor in the construction of commercial and municipal projects primarily located in Florida and the Caribbean. Substantially all of the Company’s revenues were generated by EME in 2006 and 2005.

Basis of presentation:

The interim financial statements of EarthFirst Technologies, Incorporated and its subsidiaries (“EarthFirst” or the “Company”) that are included herein are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations, although we believe the disclosures which have been made are adequate to make the information presented not misleading. In the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the periods presented. The interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2005 included in the Company’s Annual Report on Form 10-KSB for the year then ended. The interim results reflected in the accompanying financial statements are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

Principles of Consolidation:

The financial statements include the consolidated accounts of EarthFirst Technologies Incorporated and all of its subsidiaries (including the variable interest entity discussed below) (collectively, the “Company”). All significant intercompany transactions and accounts have been eliminated.

Restricted Cash:

The balance in cash includes $100,000 representing funds held by a bank as collateral for an irrevocable letter of credit issued in connection with a vendor. This letter of credit expires on September 16, 2006 and will be extended automatically for one year provided the Company does not take action to the contrary.

Use of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

Variable Interest Entity:

During 2004, the Company entered into a joint venture to operate Peleme, Ltd. (an EME affiliated Cayman company) to perform work in the Cayman Islands. The Shareholder Agreement provided for EME’s 40% ownership interest; however, it entitled EME to 70% of the net profit of this project and EME was responsible for 100% of the financial support pursuant to the agreement. In accordance with SFAS Interpretation No. 46R, the Company has accounted for this investment as a variable interest entity and the accompanying financial statements include the assets and liabilities of Peleme and the majority interest in this entity. Accordingly, the joint venture financial statements have been combined with those of the Company. Further, although organized in the Cayman’s, Peleme’s functional currency is in U.S. Dollars. All invoices are billed in U.S. Dollars and substantially all invoices paid in U.S. Dollars.

At December 31, 2005, the Company negotiated the purchase of the majority interest obligation relative to this project for $550,000 payable in installments. The final payment was made in April 2006.

Accounts Receivable, allowance for doubtful accounts, customer concentrations and foreign revenues:

Accounts receivable are customer obligations due under normal trade terms. Retainage on construction contracts, which aggregate $2,167,471 at June 30, 2006, and are included in accounts receivable, are contractual obligations of the customer that are withheld from progress billings until project completion and are generally collected within one year. The Company performs continuing credit evaluations of its customers’ financial condition and does not require collateral.

Senior management reviews receivables on a weekly basis to determine if any amounts may become uncollectible. Any contract receivable balances that are determined to be uncollectible, along with a general reserve, are included in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, the Company believes the allowance for doubtful accounts of $279,500 is adequate as of June 30, 2006.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

Accounts receivables from two customers accounted for approximately 27% of the Company’s trade accounts receivable balance at June 30, 2006. In addition, revenues from one customer represented approximately 22% of all offshore revenues and approximately 12% of total revenues for the six months ended June 30, 2006. This construction contract is performed in the Caribbean.

Contract Claims

As of June 30, 2006 the Company has certain contracts and claims in various stages of negotiation, arbitration and litigation in the approximate amount of $9,000,000. The Company is attempting to resolve these matters, and expects to be successful in recovering these amounts. However, as in all matters in litigation, the outcome is not certain and amounts recovered, if any, could be materially different than expected. The Company does not record contract claims until such claims are realized pursuant to guidance in Statement of Position 81-1 Accounting for Performance Construction-Type and Certain Production-Type Contracts. The guidance states that “recognition of amounts of additional contract revenue relating to claims is appropriate only if it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated.” Those two requirements are satisfied by the existence of all of the conditions described in the pronouncement. All of the conditions were not present so these claims are considered to be contingent gains and will be recorded when realized. These amounts, which are not carried as assets on the balance sheet, will be recorded as revenue when such claims are settled.

During the first quarter of 2006, the Company recognized $1,100,000 in revenue for amounts that were collected in relation to these claims. This claim recovery is included in other income in the accompanying statement of operations for the six months ended June 30, 2006.

Stock-based compensation:

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“FAS 123(R)”) using the modified-prospective-transition method. Under this transition method, compensation cost in 2006 includes the fair value of the vested portion of cost for options granted prior to but not vested as of December 31, 2005, and options granted and vested in 2006. Therefore results for prior periods have not been restated.

The adoption of SFAS No. 123(R) had no effect on net income for the three months and six months ended June 30, 2006, compared to accounting for share-based compensation using the previously adopted intrinsic value method under APB No. 25, Accounting for Stock Issued to Employees.

There was no stock based compensation during the three months and six months ended June 30, 2006 under the fair value method prescribed by FASB 123(R).

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

As of June 30, 2006, there was no unrecognized compensation cost related to unvested share-based compensation awards granted.

In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 (“FSP 123(R)”), Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. FSP 123(R)-3 provides an elective alternative transition method for calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of FAS 123(R). Companies may take up to one year from the effective date of FSP 123(R)-3 to evaluate the available transition alternatives and make a one-time election as to which method to adopt. The company is currently in the process of evaluating the alternative methods.

No options were granted to employees or directors during the first two quarters of 2006.

Net income (loss) per share:

The Company computes income (loss) per share under Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” The statement requires presentation of two amounts; basic and diluted loss per share. Basic loss per share is computed by dividing the income or loss available to common stockholders by the weighted average common shares outstanding. Diluted earnings per share would include all common stock equivalents unless anti-dilutive. The Company has not included the outstanding options and warrants, or convertible debentures as common stock equivalents for the three months and six months ended June 30, 2006 because the effect would be anti-dilutive.

Recent accounting pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 155 (SFAS No. 155), ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS—AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140, to simplify and make more consistent the accounting for certain financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. Prior to fair value measurement, however, interests in securitized financial assets must be evaluated to identify interests containing embedded derivatives requiring bifurcation. The amendments to SFAS No. 133 also clarify that interest-only and principal-only strips are not subject to the requirements of the SFAS, and that concentrations of credit risk in the form of subordination are not embedded derivatives. Finally, SFAS No. 155 amends SFAS No. 140, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, to allow a qualifying special-purpose entity (SPE) to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, with earlier application allowed. The Company does not anticipate that the adoption of this statement to have a material impact on its consolidated financial statements.

The Financial Accounting Standards Board (“FASB”) has recently announced a new interpretation, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which will be effective for fiscal years beginning after December 15, 2006, FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has not determined the impact of the adoption of FIN 48 on its consolidated financial statements.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

2.	Laurus Credit Facility

On March 30, 2005, the Company entered into agreements with Laurus Master Funds, Ltd, a Cayman Islands corporation (“Laurus”), pursuant to which the Company sold convertible debt and an option and a warrant to purchase common stock of the Company to Laurus in a private offering pursuant to exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The securities being sold to Laurus include the following:

•

a secured convertible minimum borrowing note and a secured revolving note with an aggregate principal amount not to exceed $5,000,000;

•

a secured convertible term note with a principal amount of $3,000,000;

•

a common stock purchase warrant to purchase 11,162,790 shares of common stock of the Company, at a purchase price of $0.23 for the first 5,581,395 shares and $0.28 for any additional shares, exercisable for a period of seven years; and

•

an option to purchase 24,570,668 shares of common stock of the Company, at a purchase price equal to $0.01 per share, exercisable for a period of six years

At the closing of the foregoing financing from Laurus, on March 31, 2005, the Company received $3,000,000 in connection with the convertible term note. In addition, the Company is permitted to borrow an amount based upon its eligible accounts receivable and inventory, pursuant to the convertible minimum borrowing note and the revolving note. Accordingly, the Company received an additional $3,600,000 at closing, and $1,400,000 on May 15, 2005 for an aggregate of $8,000,000 in financing from Laurus.

The Company must pay certain fees in the event the facility is terminated prior to expiration. The Company’s obligations under the notes are secured by all of the assets of the Company, including but not limited to inventory, accounts receivable and a pledge of the stock of Electric Machinery Enterprises, Inc., EarthFirst Resources, Inc., World Environmental Solutions Company, Inc., EarthFirst Investments, Inc., EM Enterprise Resources, Inc. and EME Modular Structures, Inc., the active subsidiaries of the Company. The notes mature on March 30, 2008. Annual interest on the convertible minimum borrowing note and the revolving note is equal to the “prime rate” published in The Wall Street Journal from time to time, plus 2.0%, provided, that, such annual rate of interest may not be less than 7.0%, subject to certain downward adjustments resulting from certain increases in the market price of the Company’s common stock. Annual interest on the convertible term note is equal to the “prime rate” published in The Wall Street Journal from time to time, plus 2.5%, subject to certain downward adjustments resulting from certain increases in the market price of the Company’s common stock.

The principal amount of the secured convertible term note is repayable at the rate of $100,000 per month together with accrued but unpaid interest, commencing on October 1, 2005. Such amounts may be paid, at the holder’s option (i) in cash with a 2% premium; or (ii) in shares of

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

common stock, assuming the shares of common stock are registered under the Securities Act of 1933. If paid in shares of common stock the number of shares to be issued shall equal the total amount due, divided by $0.19. If the average closing price of the common stock for five consecutive trading days prior to an amortization date is equal to or greater than $.209, the Company may require the holder to convert into common stock an amount of principal, accrued interest and fees due under the term note equal to a maximum of 25% of the aggregate dollar trading volume of the common stock for the 22 consecutive trading days prior to a notice of conversion. The Company in cash may redeem the term note by paying the holder 125% of the principal amount, plus accrued interest during the first year of the note, 115% of the principal amount, plus accrued interest during the second year of the note and 110% of the principal amount, plus accrued interest thereafter. The holder of the term note may require the Company to convert all or a portion of the term note, together with interest and fees thereon at any time. The number of shares to be issued shall equal the total amount to be converted, divided by $0.19.

The principal amount of the secured convertible minimum borrowing note, together with accrued interest thereon is payable on April 1, 2008. The secured convertible minimum borrowing note may be redeemed by the Company in cash by paying the holder 103% of the principal amount, plus accrued interest during the first year of the note, 102% of the principal amount, plus accrued interest during the second year of the note and 101% of the principal amount, plus accrued interest thereafter. The holder of the term note may require the Company to convert all or a portion of the term note, together with interest and fees thereon at any time. The number of shares to be issued shall equal the total amount to be converted, divided by $0.19.

Upon an issuance of new shares of common stock below the fixed conversion price, the fixed conversion price of the notes will be reduced accordingly. The conversion price of the secured convertible notes may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution.

120% of the full principal amount of the convertible notes are due upon default under the terms of convertible notes. Laurus has contractually agreed to restrict its ability to convert pursuant to the terms of the convertible notes to an amount that would be convertible into that number of Conversion shares which would exceed the difference between 4.99% of the outstanding shares of Common Stock, and the number of shares of Common stock beneficially owned by the holder and issuable to the holder upon the exercise of the warrant and the option held by such holder. The intent is that at no time shall Laurus own more than 4.99% of the outstanding Common Stock of the Company.

The Company is obligated to file a registration statement registering the resale of shares of the Company’s common stock issuable upon conversion of the convertible notes, exercise of the warrant and exercise of the option. If the registration statement is not filed by May 30, 2005, or declared effective by January 31, 2006, or if the registration is suspended other than as permitted, in the registration rights agreement between the Company and Laurus, the Company

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

may be obligated to pay Laurus certain fees. The Company has filed this registration statement and has responded to two rounds of comments, and is preparing a response to the third round of comments from the SEC.

The Company paid a fee at closing to Laurus Capital Management LLC, the manager of the Laurus Master Funds, Ltd., equal to 3.6% of the total maximum funds to be borrowed under the Company’s agreements with Laurus. The amount of the fee was $288,000.

The following table reflects balances of the secured convertible notes at June 30, 2006:


Face value $2,100,000 Secured Convertible Term Note, variable rate of prime plus 2.5% (10.75% at June 30, 2006), due in stated monthly payments of $100,000 to March 30, 2008.	$	578,706
Face value $1,000,000 Secured Convertible Minimum Note, variable rate of prime plus 2%, subject to 7% floor (10.25% at June 30, 2006), due at maturity on March 30, 2008.		86,158
Face value $4,000,000 Secured Convertible Revolving Note, variable rate of prime plus 2%, subject to 7% floor (10.25% at June 30, 2006), due at maturity on March 30, 2008.		3,851,178
		4,516,042
Less current maturities		(4,181,867	)

	$	334,175

Scheduled maturities of face values for the years ending June 30 are as follows:
2006	$	5,200,000
2007		900,000
2008		1,000,000

Convertible debentures	$	7,100,000

(a)Laurus Financings: During March 2005, the Company entered into a series of three separate financing agreements (the “Laurus Financings”) with Laurus Master Fund, Ltd. (“Laurus”) whereby the Company issued: (i) Secured Convertible Notes in the amounts of $3,000,000, $1,000,000 and $5,000,000 (aggregate borrowing capacity), and (ii) warrants with six-year terms to purchase 11,162,790 shares of common stock (at fixed exercise prices ranging from $0.23-$0.28) and, (iii) options with six-years terms to purchase 24,570,668 shares of common stock at a fixed exercise price of $0.01. The Secured Convertible Notes are convertible into common stock at conversion rates of $0.19, $0.19 and $0.20, relative to the $3,000,000, $1,000,000 and $5,000,000 (aggregate borrowing capacity) Secured Convertible Notes referred to above.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

(b) The Laurus Financings included registration rights and certain other terms and conditions related to share settlement of the embedded conversion features and the warrants that the Company has determined are not within its control. In addition, certain features associated with the financings, such as anti-dilution protection afforded the financing agreements render the number of shares issuable to be indeterminate. In these instances, EITF 00-19Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, requires allocation of the proceeds between the various instruments and the derivative elements carried at fair values.

The following tabular presentation reflects the allocation of the proceeds on the date of the financings:


	Term Note			Minimum Note			Revolving Note
Allocation:
Warrants and options	$	3,578,591		$	1,192,864		$	3,101,445
Embedded derivative features		1,932,632			644,211			2,600,000
Debt instrument		—			—			—
Derivative loss		(2,511,223	)		(837,075	)		(1,701,445	)
Total proceeds	$	3,000,000		$	1,000,000		$	4,000,000

Derivative losses arose in connection with the allocation of proceeds to derivative financial instruments at their respective fair values, which amounts exceed amounts received by the Company in connection with the financing arrangement. See Fair Value of Financial Instruments, below, for additional information about the Company’s financial instruments.

The discount to the debt instruments resulting from the aforementioned allocation is being amortized through periodic charges to interest expense using the effective method for the Term and Minimum Notes and the straight-line method for the Revolving Note.

The following tabular presentation reflects the amortization of the debt discounts included in interest for each instrument:


	Term Note		Minimum Note		Revolving Note		Total
Three months ended June 30, 2006	$	398,634	$	27,457	$	266,821	$	692,912
Six months ended June 30, 2006	$	815,307	$	46,164	$	1,072,745	$	1,934,216

3.	Fair Value of Financial Instruments

The carrying values of cash, accounts receivable, accounts payable, accrued expenses, acquisition consideration payable and bank borrowings generally approximate the respective fair values of these instruments due to their current nature.

The fair values of convertible notes for disclosure purposes only are estimated based upon the present value of the estimated cash flows at 12.75% credit risk adjusted interest rates for convertible instruments. As of June 30, 2006, estimated fair values and respective carrying values for debt instruments are as follows:


Debt Instrument	Fair Value		Carrying Value
$2,100,000 Face Value Convertible Secured Term Note	$	1,834,478	$	578,706

$1,000,000 Face Value Convertible Secured Minimum Note	$	873,561	$	86,158

$4,000,000 Face Value Convertible Secured Revolving Note	$	3,494,244	$	3,851,178

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

4.	Derivative Financial Instruments

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. However, certain other financial instruments, such as warrants and embedded conversion features that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

The caption Derivative Financial Instruments consists of (i) the fair values associated with derivative features embedded in the Laurus Convertible Secured Term Notes and (ii) the fair values of the detachable warrants and options that were issued in connection with those financing arrangements.

On July 27, 2005, Laurus Master Fund exercised common stock options for the purchase of 19,000,000 shares of common stock at the strike price of $0.01 per share. On that date, the fair value of the freestanding derivative associated with the stock options exercised, amounting to $2,470,000 was reclassed to stockholders’ equity.

The following tabular presentation reflects the components of Derivative financial instruments on the Company’s balance sheet at June 30, 2006:


(Assets) Liabilities:
Embedded derivative instruments	$	177,895
Freestanding derivatives (warrants and options)		844,593
	$	1,022,488

The following tabular presentation reflects the number of common shares into which the aforementioned derivatives are indexed at June 30, 2006:


Common shares indexed:
Embedded derivative instruments		39,578,946
Freestanding derivatives (warrants and options)		16,733,458
		56,312,404

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

Income for the three months and six months ended June 30, 2006 associated with adjustments recorded to reflect the aforementioned derivatives at fair value amounted to $618,868 and $3,626,768 respectively.

Fair value considerations for derivative financial instruments:

Freestanding derivative instruments, consisting of warrants and options that arose from the Laurus financing are valued using the Black-Scholes-Merton valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions included in this model as of June 30, 2006 are as follows:


Holder	Laurus	Laurus
Instrument	Warrants	Options
Exercise prices	$0.23–$0.28	$0.01
Term (years)	4.75	4.75
Volatility	59.09%	59.09%
Risk-free rate	4.25%	4.25%

Embedded derivative instruments consist of multiple individual features that were embedded in the convertible debt instruments. The Company evaluated all significant features of the hybrid instruments and, where required under current accounting standards, bifurcated features for separate report classification. These features were, as attributable to each convertible note, aggregated into one compound derivative financial instrument for financial reporting purposes. The compound embedded derivative instruments are valued using the Flexible Monte Carlo methodology because that model embodies certain relevant assumptions (including, but not limited to, interest rate risk, credit risk, and Company-controlled redemption privileges) that are necessary to value these complex derivatives.

Significant assumptions included in this model as of June 30, 2006 are as follows:


Holder	Laurus	Laurus	Laurus
Instrument	Term	Minimum	Revolver
Conversion prices	$.19	$.19	$.20
Actual term (years)	1.75	1.75	1.75
Equivalent volatility	45.29%	45.29%	45.29%
Equivalent interest rate	6.35%	6.35%	6.35%
Equivalent yield rate	14.86%	14.86%	14.86%

Equivalent amounts reflect the net results of multiple modeling simulations that the Monte Carlo Simulation methodology applies to underlying assumptions.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

5.	Contracts in Progress

Uncompleted contracts are summarized as follows:


Costs incurred on uncompleted contracts	$	24,997,697
Estimated earnings on uncompleted contracts		4,379,109

		29,376,806
Less billings to date		(29,348,606	)

	$	28,200

The components of this amount are included on the balance sheet under the following captions:


Costs and estimated earnings in excess of billings on uncompleted contracts	$	1,501,041
Billings in excess of costs and estimated earnings on uncompleted contracts		(1,472,841	)

	$	28,200

6.	Related Party Transactions:

Material related party transactions that have been entered into by the Company that are not otherwise in these notes are summarized below:

The Company leases and rents the real property, building, and all other improvements located at 2515 E Hanna Avenue, Tampa, Florida 33610 from Hanna Properties, Inc., a related party affiliated with Jaime Jurado, the Vice Chairman of EFTI. Mr. Jurado owns 45.425% of the common stock of Hanna Properties, Inc. This property consists of 29,680 sq. ft. of office space, 80,320 sq. ft. of warehouse space and 26,992 sq. ft. of garage and workshop space. Monthly rental including sales tax, but excluding real estate taxes and insurances is $52,133. This lease obligation was assumed pursuant to EME’s reorganization plan for a period of two years, at which time EarthFirst has the option to re-evaluate. This location is the corporate headquarters of EarthFirst Technologies Incorporated and its subsidiaries.

In January 2006, the Company through its subsidiary EarthFirst Americas, Incorporated, entered into a revolving line of credit promissory note in the amount of $3,000,000, with “US Sustainable Energy Corp., an entity related to John Stanton, the Company’s Chairman of the Board, Chief Executive Officer, and President. In June 2006, the amount of the revolving line of credit promissory note was increased to $5,000,000, and the terms were modified to require no payments until January 2009. The Promissory note accrues interest at the rate of 6%. Simultaneously with the execution of the promissory note, the Company entered into a security agreement pledging as collateral all of debtor’s right title and interest in and to all Palm Oil and Palm Methyl Ester Products, and any and all assets associated with the biofuels business of EarthFirst Americas, Incorporated. As of June 30, 2006, the balance including accrued interest was $3,216,343.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

7.	Stockholders’ Equity:

On March 23, 2006, the Company issued 250,000 shares of its common stock to BGM Ventures, LLC under its professional services agreement.

On April 6, 2006, the Company issued 700,000 shares of its common stock upon the exercise of stock options.

8.	Commitments and Contingencies

Lease obligations:

The Company leases vehicles and certain office equipment under noncancellable operating leases for periods up to four years. In addition, the Company conducts its operations in a facility leased from a related corporation owned by certain stockholders of the Company.

The total rent expense for the six months ended June 30, 2006 and 2005 was approximately $500,880 and 366,462, respectively, of which approximately $381,003 and $342,109, respectively, was for the facility leased from the related corporation.

Approximate future minimum rentals on noncancellable leases at June 30, 2006 are as follows:


Year ending June 30,
2007	$	621,162
2008		218,788
2009		209,854
2010		47,813

	$	1,097,617

Legal proceedings:

The matters contemplated above will be referred to as the “Santilli Suit” and the “Hadronic Suit”. Hadronic claims to own the intellectual property rights to one or more aspects of the Company’s liquid waste technologies. Management continues to believe that the Company owns all of the intellectual property rights necessary to commercialize and further develop its liquid and solid waste technologies without resorting to a license from any third parties.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

During 2004, the Company attempted to reach agreement with Santilli and his related parties to resolve the differences between the parties. As of this date, the Company is still interested in resolving these differences.

The litigation described above does not involve the technology the Company is developing in connection with its efforts for the processing of used automotive tires.

The Company is also involved in disputes with vendors for various alleged obligations associated with operations that were discontinued in prior years. Several disputes involve deficiency balances associated with lease obligations for equipment acquired by the Company for its contract manufacturing and BORS Lift operations that were discontinued during calendar 2000. The machinery and equipment associated with many of these obligations has been sold with the proceeds paid to the vendor or the equipment has been returned to the vendor. Several of the equipment leasing entities claim that balances on the leases are still owed.

The Company has other litigation and disputes that arise in the ordinary course of its business. The Company has accrued amounts for which it believes all of its disputes will ultimately be settled.

Professional services agreement

The Company has entered into a professional services agreement with BGM Ventures, LLC, a company affiliated with Barry Markowitz, a member of the board of directors, commencing on October 1, 2005 for a period of three years. Compensation will be $65,000 per year, payable quarterly, and one million shares of the Company’s common stock issued at increments of 250,000 shares annually through October 1, 2008.

9.	Subsequent Events

On July 31, 2006, Laurus Master Fund elected to exercise their option to purchase the remaining balance of 5,570,668 common shares available to them through the common stock option granted them in March 2005. The original grant was for 24,570,668 common shares at an exercise price of $.01 per share. In July 2005, Laurus elected to exercise a portion of their option, and purchased 19,000,000 common shares for $190,000. On July 31, 2006, Laurus elected to utilize its cashless exercise privilege which will result in an issuance of 5,013,601 common shares in the third quarter of 2006.

10.

Management’s Plans Regarding Liquidity and Capital Resources:

Prior to its acquisition of EME in late 2004, the Company experienced net losses and, as such, experienced negative operating cash flows. The Company has historically funded these negative operating cash flows with proceeds from sales of common and preferred stock, as well as notes and convertible debentures and related party loans.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

Commencing with the Company’s acquisition of EME in late 2004, the Company has restructured many of EME’s liabilities with funding provided by the Laurus credit facility discussed in Note 2 as well as additional related party loans (all related party loans as of December 31, 2005, had been converted to common stock.)

The Company generated a net income in the fourth quarter of 2004 of $1,096,136 and a net operating profit, net of stock-based compensation, of $1,423,259 for the year ended December 31, 2005. While the Company’s profitability suffered during the first and second quarters of 2006 due to certain contract losses and substantially greater selling and administrative expenses associated with the expansion into the biofuels segment and electrical contracting for the residential housing market, management expects EME’s business volume and profitability to continue to grow through 2006 and beyond.

At June 30, 2006, the Company had approximately $3,000,000 of positive working capital, including approximately $200,000 in cash.

As discussed in Note 6, the Company secured a $5,000,000 line of credit with an entity related to the Company’s Chairman and Chief Executive Officer to facilitate the new biofuels business. Approximately $1,784,000 of this credit facility remains available at June 30, 2006.

Management believes that the Company’s existing cash and available line of credit along with the expected profitability from EME’s operations will be adequate to fund the Company’s operations for the foreseeable future. However, management may seek additional, alternatives to fund growth opportunities in its Biofuels and Waste Disposal business segments.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

16.

Segment Information

Commencing with the Company’s acquisition of EME in the fourth quarter of 2004, and the establishment of EarthFirst Americas in 2005, the Company operates in three business segments. The waste disposal segment is focused on research and development and bringing the existing technologies to commercial realization. The Contracting segment operates electrical contracting and subcontracting services on commercial and municipal construction projects primarily in Florida and the Caribbean. The Caribbean projects are all denominated in U.S. currency. The Biofuels segment is focused on the importing and producing of biodiesel fuels.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2006

SEGMENT INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 2006 IS AS FOLLOWS:


	Waste Disposal			Contracting			Biofuels			Total
Revenue	$	—		$	23,549,249		$	791,152		$	24,340,401
Cost of Sales					20,182,346			953,493			21,135,839

Gross profit (loss)		—			3,366,903			(162,341	)		3,204,562
Selling, general and administrative expenses		648,559			2,751,405			362,327			3,762,291
Research and development expenses		155,323									155,323

Income (loss) from operations before reorganization item, income taxes and majority interest		(803,882	)		615,498			(524,668	)		(713,052	)
Other income (expense)
Gain on extinguishment of debt, bankruptcy					81,020						81,020
Claims recovery					1,100,000						1,100,000
Miscellaneous income					110,040			56,306			166,346
Interest expense					(278	)		(58,508	)		(58,786	)

Income (loss) before reorganization item, Income taxes and majority and minority interests		(803,882	)		1,906,280			(526,870	)		575,528
Reorganization item, professional fees related to bankruptcy and pursuit of claims					(244,218	)					(244,218	)

Income (loss) before majority and minority interests		(803,882	)		1,662,062			(526,870	)		331,310
Majority interest and minority interests					(331,221	)					(331,221	)

Income (loss) from continuing operations		(803,882	)		1,330,841			(526,870	)		89
Net Income (loss) for reportable segments	$	(803,882	)		1,330,841		$	(526,870	)	$	89

Total Assets	$	2,978,293		$	31,727,043		$	1,991,129		$	36,696,465

Goodwill				$	15,323,152					$	15,323,152


Reconciliation of Segment Amounts Reported to Condensed Consolidated Amounts
Revenue
Total revenues for reportable segments							$	24,340,401

Total consolidated revenue							$	24,340,401

Net income (loss)
Net income (loss) for reportable segments							$	89
Unallocated amounts relating to corporate operations
Miscellaneous income								3,589
Selling, general and administrative expenses								(1,261,015	)
Research and development expense								(39,965	)
Interest expense								(2,158,863	)
Derivative gain								3,626,768

Total consolidated net income							$	170,603

Assets
Total assets for reportable segments							$	36,696,465
Corporate investments and other assets								513,130

Total consolidated assets							$	37,209,595

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion and analysis provides information which management believes is relevant for an assessment and understanding of the results of operations and financial condition. The discussion should be read in conjunction with the audited consolidated financial statements and notes thereto.

Electrical Contracting – Electric Machinery Enterprises

The Company performs electrical contracting and subcontracting services on commercial and municipal projects primarily in Florida and the Caribbean through its subsidiary Electric Machinery Enterprises, Inc. (“EME”). Substantially all of the Company’s revenues are currently generated through EME’s contracting and subcontracting services.

EME’s revenues are generated through three separate sources: Offshore, Domestic, and Domestic Services.

Offshore work includes electrical contract work performed on commercial properties throughout the Caribbean. The damage caused throughout the Caribbean during the Hurricane Season of 2004 has resulted in a sharp increase in the contracts obtained by EME and we currently have a backlog of approximately $18 million. During 2004, EME entered into a joint venture agreement to operate Peleme, Ltd. to perform electrical contracting work in the Cayman Islands. This joint venture performed work on a sizable contract to repair hurricane damage on one of the major hotels in the Caymans through the end of 2005. This joint venture has since been dissolved, but the Company has been ale to secure significant additional contract work for the continuing development of the Caymans.

Domestic work includes electrical contract work performed principally in the State of Florida. The Company is attempting to improve profitability in this segment of its business by introducing enhanced technology in the bidding process for these contracts and in monitoring the progress with budgeted amounts as work is performed. The Company is optimistic that these and other enhancements will enable it to be the successful bidder on an increased number of financially attractive contracts.

Domestic services include numerous small projects for electrical contract work on a time and materials basis for commercial projects located in Florida.

During calendar 2005, EME entered the market as an electrical contractor for residential real estate. Initially these services were provided on a small scale to allow the Company to evaluate the economic viability of this market. In response to management’s evaluation of early demand from the custom residential home building market, EME formally establishedPrime Power Residential, Inc., a wholly owned subsidiary in the electrical contracting business of the Company, which now manages 15 actively engaged residential crews on the job throughout the State of Florida.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

Catalytic Activated Vacuum Distillation Process (“CAVD”) Reactors

EarthFirst developed the Catalytic Activated Vacuum Distillation Process Reactor. The CAVD Reactor offers a unique solution to the problem of disposing of harmful solid wastes in and environmentally friendly manner and allows raw materials from the wastes to be recycled and reused.

We believe that the CAVD Reactor can be designed to process a number of harmful solid waste products. We anticipate that governmental and nongovernmental entities who are faced with the problem of disposing of various types of solid waste products through conventional means will conclude that the CAVD Reactors can provide a superior, safe and effective means of eliminating these materials.

Initially, we are focusing on the processing of rubber tires. However, other uses are also being pursued. Such uses include the recycling of carpet materials, the destruction of animal waste and remains, transuranic wastes (e.g. gloves, overalls, tools, etc. that have been exposed to low levels of radiation), and medical wastes.

In general, the Company processes used tires by having shredded tires added to a low pressure, heated, catalytically driven process in the CAVD Reactor. The tires are converted to a high quality carbon and a light hydrocarbon mix that can be used as a fuel. Scrap steel and gases that can be used as a fuel are also recovered.

Traditionally, tires have been disposed of in landfills, placed in stockpile areas, or recycled using low-level technologies to produce products such as tire-derived fuel and mulch. Stockpiles of discarded tires are particularly vulnerable to catching fire. Fires at tire dumps are extremely difficult to extinguish and may take years to burn themselves out. Such fires can release significant amounts of pollution into the atmosphere.

The owners of these dumping areas have long sought a cost-effective means of disposing of the unwanted tires. We believe the CAVD Reactor provides a solution for the environmentally safe and efficient problem of the disposal of used tires.

The Company’s first CAVD Reactor was constructed at a facility in Mobile, Alabama and processes shredded tires.

During processing in the CAVD Reactor, carbon, scrap steel, gas and oil are recovered and are available for resale. The processing of a 20-pound tire yields approximately 5.5 to 8.5 pounds of carbon, 1.2 to 2 gallons of fuel oil, 12 to 16 cubic feet of gas, and .36 pounds of scrap steel. The amounts recovered depend upon the type of tire and the length of time in the reactor.

The financial viability of the CAVD Reactor for use in processing used tires is dependant upon the successful sale of the by-products recovered. We believe that the carbon and oil by-products represent the greatest value of this process. With current oil pricing reaching levels as high as $72 per barrel, the attractiveness of the CAVD technology has grown beyond the prior emphasis on carbon. It is expected that the steel recovered from the process will be sold for scrap and the

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

oil recovered can be used as an industrial oil or other fuel. Optimal operation of the CAVD Reactor may include the use of a generator with the reactor which can utilize the gas produced from the processing to produce electricity that can be both used by the operator of the reactor and additional electricity sold to the electrical grid.

Testing of the carbon recovered from our CAVD Reactor has led us to believe that the carbon has certain unique qualities that will prove valuable in the development of high-performance polymers in various industrial uses. Researchers concluded that due to the unique formation method through the CAVD Reactor, the carbon can be used as is or economically modified to produce a functionalized polymer that can replace petroleum based chemical polyurethanes with a less expensive recycled product made from reclaimed tires. Work is being conducted to improve the carbons’ performance by adding reactive compounds that improve the product’s ability to bond with the urethane matrix.

As with most new products, it is time consuming for the end users of the carbon to satisfy themselves as to the advantages of this product over the products that they are currently using. To hasten the acceptance of our carbon in the marketplace, the Company is working with several potential end users who are conducting substantive testing of the carbon for use in their operations. The Company is currently working with carpet manufacturers, producers of asphalt and shingles, with third parties in automotive applications, and with producers of other products to prove the advantages of the carbon produced by the CAVD Reactor as a polymer with their products.

The carbon recovered through the CAVD Reactor is rapidly gaining acceptance with potential end users as a polymer. We believe that the carbon has unique qualities that may ultimately enable its acceptance as a substitute for certain high-end polymers currently being used in addition to use in the more traditional roles currently being explored.

Provisional Patent Application US60/681,701 filed on May 17, 2005 describes the CAVD technology as a unique process for producing carbon and other products, and also contains several claims for novel components in the system. The technology is the cumulative result of six years of research and development.

Three new provisional patents are being filed based on the Company’s recycled carbon being placed into plastic and rubber as an additive and as a replacement for the current petrochemical products used.

The Company has several letters of intent with unrelated entities to license the technology for CAVD Reactors. Based upon our experiences thus far, we expect that there is considerable interest in the CAVD Reactor from potential users. We believe that delays in the creation of definitive agreements with the end users of the CAVD Reactors have centered around the evaluation of the financial viability of the alternative uses of the carbon product recovered from the process. In addition to the efforts described above, the Company is also seeking to work with one or more nationally recognized scientific and technology enterprises to further commercialize the technology for the CAVD Reactor for additional uses. It is expected that such an arrangement could allow our technology to gain immediate credibility in the

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

marketplace with both a variety of potential end users of the CAVD Reactors as well as the end users of carbon products recovered in the process. It is envisioned that joint efforts would include work on adapting the CAVD Reactors to process other solid waste streams such as municipal solid wastes, animal remains, and certain types of industrial waste products.

Liquid Waste Technologies

The Company is continuing to attempt to identify and implement commercially viable applications of its plasma arc converter technologies embodied in the BigSpark™ converter. The Company’s BigSpark™ plasma based technology splits apart the complex molecular bonds of water and hydrocarbon wastes to produce the clean burning, hydrogen-based fuel. BigSpark™ compares favorably with conventional combustion technologies used in the disposal of liquid wastes in several significant areas. First, the waste is subjected to higher temperatures for longer periods of time (7,000 degree temperature of the plasma arc; and materials spend minutes, not seconds, in the reaction zone). Second, BigSpark™ has a second stage combustion in a very high temperature oxygen flame. Third, BigSpark™ converters are compact and can be moved to the source of contaminated waste.

One application of the plasma arc technology that the Company has been investigating involves the destruction of Poly-Chlorinated Biphenyls, commonly referred to as “PCBs”. PCBs have many stable qualities that led to its use in various industrial applications before it was learned that long-term exposure to PCBs may increase the risk of cancer in humans.

Preliminary tests have indicated that passing PCB laden liquids through a plasma arc similar to that found in the BigSpark™ converters results in the destruction of the PCB molecules. While the results of such tests are encouraging, in order to be commercially successful, the technology will need to be adapted to destroy PCBs in surroundings where such elements are commonly found and on a sufficient scale to economically address the problems faced in PCB disposal.

The Company is also considering commercial adaptations for the plasma arc converters to develop solutions to issues involving the disposal and / or remediation of other liquid wastes including waste oils and antifreeze.

Carbon Technologies

The Company’s efforts in commercializing the technologies it has developed for carbon products have been slowed due to the current emphasis on our solid waste technologies. The technology developed is promising and the Company intends to pursue commercialization in the future. We believe that the research and development efforts conducted by the Company have yielded results that may produce superior qualities in a wide range of water treatment applications.

Prime Power of Tampa, Inc.

EME, a wholly owned subsidiary of EarthFirst, and Triad Companies have consummated the formation of Prime Power of Tampa, Inc. (“Prime”), a strategic alliance created by the

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

companies to jointly pursue major utility projects, large offshore projects, and/or major design/build opportunities. Through this strategic alliance, Prime has the unique ability to address large electrical contracting projects from design through build to maintenance and support, offering a fully integrated contracting solution. Management believes that the combination of the strengths of these two companies will create a competitive advantage when pursuing work on large projects.

EarthFirst Americas, Incorporated (Biofuels)

Through the vast network of business relationships maintained by the Company, management has determined an opportunity relative to the utilization of its CAVD technology in the harvesting and production of African Palm Oil. To facilitate the pursuit of this endeavor, the Company has formed a new wholly owned subsidiary corporation name EarthFirst Americas Incorporated. Its purpose will be the development of the market opportunities available associated with palm oil.

Palm oil is an edible oil made from the fruit of the African oil palm, which grows only in regions within 15 degrees from the equator, where annual rainfall is high. Palm oil, the world’s second largest oilseed crop, is less expensive than soybean or canola oil, principally because the African palm is incredibly productive.

The principal palm oil producers are Malaysia and Indonesia, with significant production in Central Africa, Central and South America. The largest palm oil consumers are India, China, and the European Union. Although concerns over saturated fat content have limited sales in the United States in the past, palm oil use is now growing in the U.S. because the oil is free of “trans” fats and cholesterol.

Preliminary analysis demonstrates that palm fruit treated by the CAVD process may result in a higher yield palm oil with significant and productive by-products. If proven applicable to produce palm oil, the CAVD reactor could become a significant American made import to all palm oil producing nations.

THREE AND SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2005.

Revenues for the three month period ending June 30, 2006 exceeded those of 2005 by $3,188,877, an increase of 33%. Revenues for the six month period ending June 30, 2006 exceeded those of 2005 by $6,419,240, an increase of 36%. Substantially all revenues are generated from contracting and subcontracting services.

Gross profit decreased from 35% for the three month period ended June 30, 2005 to 13% for the three month period ending June 30, 2006. Gross profit decreased from 30% for the six month period ended June 30, 2005 to 13% for the six month period ending June 30, 2006. This was due to declines in profitability in several contracting/subcontracting jobs which were in process at December 31, 2005 for which actual costs recorded during the first two quarters of 2006 exceeded those previously estimated. Management does not believe that any similar situations exist for open contracts at June 30, 2006.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

Selling, general and administrative expenses for the three-month period ending June 30, 2006 increased by $713,495, from $2,036,095 in the prior year, to $2,749,590 in the current period, or an increase of approximately 35% compared to the three-month period ending June 30, 2005. Selling, general and administrative expenses for the six month period ending June 30, 2006 increased by $1,784,124 from $3,239,182 in the prior year, to $5,023,306 in the current year, or an increase of approximately 55% compared to the six month period ending June 30, 2005.

Selling, general and administrative expenses for the current year included administrative expenses supporting the new biofuels business that were not in the prior year in the amount of approximately $362,000. The remaining increase is primarily attributable to higher labor, consulting and insurance costs than in the prior year.

Research and development expenses for the three months ended June 30, 2006 decreased from $127,324 to $40,776, or a 68% decrease when compared to the three month period ended June 30, 2005. Research and development expenses for the six months ended June 30, 2006 decreased from $320,651 to $195,294, or a 39% decrease when compared to the six month period ended June 30, 2005. This decrease is due to the maturity of the CAVD technology, and a reduction of expenditures for development and an increase in sales and marketing.

Income from operations decreased by $2,305,354 from a gain for the three months ended June 30, 2005 of $1,212,641 to a loss of $1,092,713 for the three months ended June 30, 2006. Income from operations decreased by $3,750,913 from a gain for the six months ended June 30, 2005 of $1,736,875 to a loss of $2,014,038. This decrease is due to the results of operations from the consolidated subsidiary of EME.

Gain on extinguishment of debt, bankruptcy for the three months ended June 30, 2006 decreased to $36,395 from $1,804,739 for the three months ended June 30, 2005. Gain on extinguishment of debt, bankruptcy for the six months ended June 30, 2006 decreased to $81,020 from $3,983,307 for the six months ended June 30, 2005. These amounts are attributable to the settlement of the unsecured creditors in EME’s plan of reorganization. The amounts recognized for the current year are diminishing due to the progress of wrapping up the remainder of the bankruptcy plan

During the first quarter of 2006, the company realized income from the settlement of a claim that the company had been pursuing for approximately two years in the amount of $1,100,000. This amount was recognized as income upon receipt of the funds.

Interest expense increased from $466,246 for the three-month period ended June 30, 2005 to $904,830 for the three months ended June 30, 2006. Interest expense increased from $545,676 for the six months ended June 30, 2005 to $2,217,649 for the six months ended June 30, 2006. These increases in interest expense are primarily due to amortization of the debt discounts associated with the new credit facility.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

Derivative gain fluctuated from a gain of $8,046,893 for the three month period ended June 30, 2005 to a gain of $618,868 for the three month period ended June 30, 2006. Derivative gain fluctuated from a gain of $1,597,151 for the six month period ended June 30, 2005 to a gain of $3,626,768 for the six month period ended June 30, 2006. The derivative gain is associated with the new credit facility and fluctuations occur normally in the fair value adjustment of the derivatives each reporting period, which result primarily from fluctuations in the Company’s stock price.

Majority and minority interest expense decreased $708,210 from $812,533 for the three month period ended June 30, 2005 to $104,323 for the three month period ended June 30, 2006. Majority and minority interest expense decreased $627,287 from $958,508 for the six month period ended June 30, 2005 to $331,221 for the six month period ended June 30, 2006. The majority and minority interest expense is a function of the net income of the entities, which the Company does not wholly own.

Loss on disposal of discontinued operations was $137,636 for the six month period ended June 30, 2005. This loss is associated with the disposal of EME’s General Contractors division in 2005 and there were no related expenses during the first quarter of 2006.

LIQUIDITY AND CAPITAL RESOURCES

The Company generated a net income in the fourth quarter of 2004 of $1,096,136 and a net operating profit, net of stock-based compensation, of $1,423,259 for the year ended December 31, 2005. While the Company’s profitability suffered during the first two quarters of 2006 due to certain contract losses and substantially greater selling and administrative expenses associated with the expansion into the biofuels segment and electrical contracting for the residential housing market, management expects EME’s business volume and profitability to continue to grow through 2006 and beyond.

At June 30, 2006, the Company had approximately $4,000,000 of positive working capital, including approximately $200,000 in cash.

As discussed in Note 6, in January 2006, the Company secured a $5,000,000 line of credit with an entity related to the Company’s Chairman and Chief Executive Officer to facilitate the new biofuels business. Approximately $1,784,000 of this credit facility remains available at June 30, 2006.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

EFFECTS OF INFLATION

Management does not believe that inflation has had a significant impact on the financial position or results of operations of the Company since its inception.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance 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 financial statements and accompanying notes. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they are important to the portrayal of our financial statements and they require our most difficult, subjective or complex judgments in the preparation of our financial statements:

Revenue Recognition: The Company uses the percentage-of-completion method of accounting for contract revenue from electrical contracts where percentage of completion is computed on the cost to total cost method. Under this method, contract revenue is recorded based upon the percentage of total contract costs incurred to date to total estimated contract costs, after giving effect to the most recent estimates of costs to complete. Revisions in costs and revenue estimates are reflected in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined without regard to the percentage-of-completion. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that these estimates used will change within the near term.

Employee Stock-Based Compensation: Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“FAS 123(R)”) using the modified-prospective-transition method. Under this transition method, compensation cost in 2006 includes cost for options granted prior to but not vested as of December 31, 2005, and options vested in 2006. Therefore results for prior periods have not been restated.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

Impairment of Goodwill and Long-Lived Assets: In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), and Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the Company reviews its non-amortizable long-lived assets, including intangible assets and goodwill for impairment annually, or sooner whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. Other depreciable or amortizable assets are reviewed when indications of impairment exist. Upon such an occurrence, recoverability of these assets is determined as follows. For long-lived assets that are held for use, the Company compares the forecasted undiscounted net cash flows to the carrying amount. If the longlived asset is determined to be unable to recover the carrying amount, than it is written down to fair value. For long-lived assets held for sale, assets are written down to fair value. Fair value is determined based on discounted cash flows, appraised values or management’s estimates, depending upon the nature or the assets. Intangibles with indefinite lives are tested by comparing their carrying amounts to fair value. Impairment within goodwill is tested using a two step method. The first step is to compare the fair value of the reporting unit to its book value, including goodwill. If the fair value of the unit is less than its book value, the Company than determines the implied fair value of goodwill by deducting the fair value of the reporting unit’s net assets from the fair value of the reporting unit. If the book value of goodwill is greater than its implied fair value, the Company writes down goodwill to its implied fair value. The Company’s goodwill relates to the acquisition of Electric Machinery Enterprises, Inc.

RECENT ACCOUNTING PRONOUNCEMENTS

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures: As of June 30, 2006, the Company’s management carried out an evaluation, under the supervision of the Company’s Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s system of disclosure controls and procedures pursuant to the Securities and Exchange Act, Rule 13a-15(d) and 15d-15(d) under the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, as of the date of their evaluation, for the purposes of recording, processing, summarizing and timely reporting material information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934.

Changes in internal controls: There were no changes in the Company’s internal controls over financial reporting, that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially effect, the Company’s internal control over financial reporting.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in litigation with Ruggero Maria Santilli (“Santilli”), The Institute for Basic Research, Inc. (“IBR”), and Hadronic Press, Inc. (“Hadronic”) concerning certain aspects of the Company’s liquid waste technologies. The matters contemplated above will be referred to as the “Santilli Suit” and the “Hadronic Suit”. Hadronic claims to own the intellectual property rights to one or more aspects of the Company’s liquid waste technologies.

Management continues to believe that the Company owns all of the intellectual property rights necessary to commercialize and further develop its liquid and solid waste technologies without resorting to a license from any third parties.

During 2004, the Company has attempted to reach agreement with Santilli and his related parties to resolve the differences between the parties. As of this date, the parties are continuing their efforts to resolve their differences.

The litigation described above does not involve the technology the Company is developing in connection with its efforts for the processing of used automotive tires.

The Company has other litigation and disputes that arise in the ordinary course of its business. The Company has accrued amounts for which it believes all of its disputes will ultimately be settled.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

There have not been any unregistered sales of equity securities during the three months ended June 30, 2006.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

There have not been any defaults on any senior Securities during the three months ended June 30, 2006.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the Security Holders of the Company for a vote during the three months ended June 30, 2006.

ITEM 5. OTHER INFORMATION

The Company has no other information to report.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits


31.1		Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Section 302

31.2		Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Section 302

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350(*)

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350(*)

*	A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request

(b)

Reports on Form 8-K (incorporated by reference)

On February 16, 2006, the Company filed Form 8-K with the Securities and Exchange Commission in which it reported under Item 5.02 the resignation of Leon Toups as Chief Executive Officer, President and Chairman of the Board of Directors of the Company. Toups will remain a member of the Board of Directors. John D. Stanton, a member of the Board of Directors, was appointed as the successor Chief Executive Officer, President and Chairman of the Board of Directors of the Company. Additionally, the Company reported under Item 9.01 a press release date February 13, 2006, in which the Company announced the resignation.

On March 28, 2006, the Company filed Form 8-K with the Securities and Exchange Commission in which it reported under Item 7.01 that the Board of Directors approved in principle a merger of the Company with Cast-Crete Corporation. Additionally, the Company reported under Item 9.01 a press release date March 27, 2006, in which the Company discussed the approved merger.

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

FORM 10-QSB

(c)

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	EarthFirst Technologies, Incorporated
	(Registrant)

Date: October 12, 2006

	By:	/s/ John D. Stanton
		John D. Stanton
		Chief Executive Officer and President

Earthfirst (EFTIE) Inactive 10QSB/A2006 Q2 Quarterly report (small business) (amended)