##### Table of Contents



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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q



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|     |  |                                                                                        
|---- |  | ---------------------------------------------------------------------------------------
|XBOX |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

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

Commission File Number. 333-64745



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PENHALL INTERNATIONAL CORP.

(Exact Name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|ARIZONA                                                        |  | 86-0634394                             
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

1801 PENHALL WAY, ANAHEIM, CA 92803
(Address of principal executive offices) (Zip Code)

(714) 772-6450
(Registrants telephone number, including area code)



---

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

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|                             |  |                          |         | 
|---------------------------- |  | ------------------------ | ------- | 
|CLASS AND TITLE OF           |  | SHARES OUTSTANDING AS OF
|CAPITAL STOCK                |  | May 14, 2002            
|                             |  |                         
|Common Stock, $.01 Par Value |  |                          | 986,331 | 



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TABLE OF CONTENTS



|                               |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|Part I  Financial Information
|                               | Item 1. Financial Information                                                                
|                               |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS      
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|Part II  Other Information   
|                               | Items 1-5 are not applicable                                                                 
|                               | Item 6. Exhibits and Reports on Form 8-K.                                                    



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##### Table of Contents



PENHALL INTERNATIONAL CORP.
 
INDEX

|                                                                                              |                                                                                                                    |  |          |   | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ |  | -------- | - | 
|                                                                                              |                                                                                                                    |  | Page No.
|                                                                                              |                                                                                                                    |  |         
|Part I  Financial Information                                                                |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements                                                                  |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets as of June 30, 2001 and March 31, 2002                                       |  |          | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Operations for the three and nine month periods ended
March 31, 2001 and 2002 |  |          | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the nine month periods ended
March 31, 2001 and 2002           |  |          | 5 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                               |  |          | 6 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                    |  | 17       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                    |  | 23       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Part II  Other Information                                                                   |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Items 1-5 are not applicable                                                                  |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                    |  | 24       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                    |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | a)      Reports on Form 8-K                                                                                        |  |          |   | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | None                                                                                                               |  |          |   | 

2



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##### Table of Contents









Item 1. Financial Information

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |            |            |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------- | ------------------------------------- | ---------- | ---------- | ----------- | ----------- | ---------- | ---------- |  | 
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            | June 30,   |             | March 31,  
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            | 2001       |             | 2002       
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |            
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   | ASSETS                                |            |            |             |             |            |            |  | 
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Current assets:                                                                                                                                                                                                             |                                                                             |                                                                    |                                   |                                       |            |            |             |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Cash and cash equivalents                                                   |                                                                    | $                                 | 1,030,000                             |            |            | $           | 3,117,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Receivables:                                                                |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            |                                                                             | Contract and trade receivables                                     |                                   |                                       | 35,257,000 |            |             |             | 26,320,000 |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            |                                                                             | Contract retentions due upon completion and acceptance of the work |                                   |                                       | 5,328,000  |            |             |             | 4,805,000  |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            |                                                                             | Income taxes                                                       |                                   |                                       | 1,084,000  |            |             |             | 1,962,000  |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    | 41,669,000                        |                                       |            |            | 33,087,000  |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            |                                                                             | Less allowance for doubtful receivables                            |                                   |                                       | 1,763,000  |            |             |             | 1,360,000  |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    | Net receivables                   |                                       |            | 39,906,000 |             |             |            | 31,727,000 | 
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Costs and estimated earnings in excess of billings on uncompleted contracts |                                                                    |                                   | 1,856,000                             |            |            |             | 1,869,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Deferred tax assets                                                         |                                                                    |                                   | 2,329,000                             |            |            |             | 2,329,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Inventories                                                                 |                                                                    |                                   | 2,273,000                             |            |            |             | 1,874,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Prepaid expenses and other current assets                                   |                                                                    |                                   | 1,417,000                             |            |            |             | 1,939,000   |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    | Total current assets              |                                       |            | 48,811,000 |             |             |            | 42,855,000 | 
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Property, plant and equipment, at cost:                                                                                                                                                                                     |                                                                             |                                                                    |                                   |                                       |            |            |             |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Land                                                                        |                                                                    |                                   | 5,004,000                             |            |            |             | 5,004,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Buildings and leasehold improvements                                        |                                                                    |                                   | 9,417,000                             |            |            |             | 8,819,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Construction and other equipment                                            |                                                                    |                                   | 115,670,000                           |            |            |             | 121,788,000 |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    | 130,091,000                       |                                       |            |            | 135,611,000 |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Less accumulated depreciation and amortization                              |                                                                    |                                   | 63,888,000                            |            |            |             | 67,609,000  |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    | Net property, plant and equipment |                                       |            | 66,203,000 |             |             |            | 68,002,000 | 
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Goodwill, net of accumulated amortization                                                                                                                                                                                   |                                                                             |                                                                    | 7,263,000                         |                                       |            |            | 9,149,000   |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Debt issuance costs, net of accumulated amortization                                                                                                                                                                        |                                                                             |                                                                    | 4,062,000                         |                                       |            |            | 3,398,000   |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Other assets, net                                                                                                                                                                                                           |                                                                             |                                                                    | 623,000                           |                                       |            |            | 1,503,000   |            
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                            |                                                                             | $                                                                  | 126,962,000                       |                                       |            | $          | 124,907,000 |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   | LIABILITIES AND STOCKHOLDERS DEFICIT |            |            |             |             |            |            |  | 
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Current liabilities:                                                                                                                                                                                                        |                                                                             |                                                                    |                                   |                                       |            |            |             |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Current installments of long-term debt                                      |                                                                    | $                                 | 6,436,000                             |            |            | $           | 9,212,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Trade accounts payable                                                      |                                                                    |                                   | 9,976,000                             |            |            |             | 5,817,000   |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Accrued liabilities                                                         |                                                                    |                                   | 15,061,000                            |            |            |             | 12,708,000  |           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                            | Billings in excess of costs and estimated earnings on uncompleted contracts |                                                                    |                                   | 1,688,000                             |            |            |             | 582,000     |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|                                                                                                                                                                                                                            |                                                                             |                                                                    | Total current liabilities         |                                       |            | 33,161,000 |             |             |            | 28,319,000 | 
|                                                                                                                                                                                                                            |                                                                             |                                                                    |                                   |                                       |            |            |             |             |           
|Long-term debt, excluding current installments                                                                                                                                                                              |                                                                             |                                                                    | 18,772,000                        |                                       |            |            | 19,722,000  |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Senior notes                                                                                                                                                                                                                |                                                                             |                                                                    | 100,000,000                       |                                       |            |            | 100,000,000 |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Deferred tax liabilities                                                                                                                                                                                                    |                                                                             |                                                                    | 7,312,000                         |                                       |            |            | 9,271,000   |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Senior Exchangeable Preferred Stock, redemption value $13,573,000 and $14,685,000 at June 30, 2001 and March 31, 2002,
respectively. Authorized, issued and outstanding 10,000 shares at June 30, 2001 and March 31, 2002   |                                                                             |                                                                    | 13,573,000                        |                                       |            |            | 14,685,000  |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|Series A Preferred Stock, redemption value $15,219,000 and $16,781,000 at June 30, 2001 and March 31, 2002, respectively
Authorized 25,000 shares; issued and outstanding 10,428 shares at June 30, 2001 and March 31, 2002 |                                                                             |                                                                    | 15,219,000                        |                                       |            |            | 16,781,000  |            
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           
|                                                                                                                                                                                                                           



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##### Table of Contents



|                       |                                                                                                                                                                                                                                                            |  |                             |             |   |             |   |             |   |             |   | 
|---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | ----------- | - | ----------- | - | ----------- | - | 
|                       |                                                                                                                                                                                                                                                            |  |                             |             |   | June 30,    |   | March 31,  
|                       |                                                                                                                                                                                                                                                            |  |                             |             |   | 2001        |   | 2002       
|                       |                                                                                                                                                                                                                                                            |  |                             |             |   |             |   |            
|Stockholders deficit: |                                                                                                                                                                                                                                                            |  |                             |             |   |             |   |            
|                      
|                      
|                      
|                      
|                       | Series B Preferred Stock, par value $.01 per share. Authorized 50,000 shares; issued and outstanding 18,701 shares at June
30, 2001 and 18,796 shares at March 31, 2002                                                                                    |  |                             | 27,273,000  |   |             |   | 30,215,000  |  
|                      
|                      
|                      
|                      
|                       | Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 1,017,480 at June 30, 2001 and 1,021,127
shares at March 31, 2002, including 34,173 and 34,617 shares held in treasury at June 30, 2001 and March 31, 2002,
respectively |  |                             | 10,000      |   |             |   | 10,000      |  
|                      
|                      
|                      
|                      
|                       | Additional paid-in capital                                                                                                                                                                                                                                 |  |                             | 1,831,000   |   |             |   | 2,044,000   |  
|                      
|                      
|                      
|                      
|                       | Treasury stock, at cost, 34,173 common shares at June 30, 2001 and 34,617 common shares at March 31, 2002                                                                                                                                                  |  |                             | (288,000    | ) |             |   | (309,000    | )
|                      
|                      
|                      
|                      
|                       | Accumulated deficit                                                                                                                                                                                                                                        |  |                             | (89,901,000 | ) |             |   | (95,831,000 | )
|                       |                                                                                                                                                                                                                                                            |  |                             |             |   |             |   |             |  
|                       |                                                                                                                                                                                                                                                            |  | Total stockholders deficit |             |   | (61,075,000 | ) |             |   | (63,871,000 | )
|                       | Commitments and contingencies                                                                                                                                                                                                                              |  |                             |             |   |             |   |             |  
|                       |                                                                                                                                                                                                                                                            |  |                             |             |   |             |   |             |  
|                       |                                                                                                                                                                                                                                                            |  | $                           | 126,962,000 |   |             | $ | 124,907,000 |  
|                       |                                                                                                                                                                                                                                                            |  |                             |             |   |             |   |             |  

See accompanying notes to condensed consolidated financial statements

3



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##### Table of Contents






PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

|                                                                |                                                          |   |                     |           |                    |   |            |            |      |   |             |            |  |   |             |            |  
|--------------------------------------------------------------- | -------------------------------------------------------- | - | ------------------- | --------- | ------------------ | - | ---------- | ---------- | ---- | - | ----------- | ---------- |  | - | ----------- | ---------- | -
|                                                                |                                                          |   | THREE MONTH PERIODS |           | NINE MONTH PERIODS
|                                                                |                                                          |   | ENDED MARCH 31,     |           | ENDED MARCH 31,   
|                                                                |                                                          |   |                     |           |                   
|                                                                |                                                          |   | 2001                |           | 2002               |   | 2001       |            | 2002
|                                                                |                                                          |   |                     |           |                    |   |            |            |     
|Revenues                                                        |                                                          | $ | 33,619,000          |           |                    | $ | 30,010,000 |            |      | $ | 128,530,000 |            |  | $ | 116,841,000 |           
|                                                               
|                                                               
|                                                               
|                                                               
|Cost of revenues                                                |                                                          |   | 24,904,000          |           |                    |   | 23,965,000 |            |      |   | 90,818,000  |            |  |   | 86,286,000  |           
|                                                                |                                                          |   |                     |           |                    |   |            |            |      |   |             |            |  |   |             |           
|                                                                | Gross profit                                             |   |                     | 8,715,000 |                    |   |            | 6,045,000  |      |   |             | 37,712,000 |  |   |             | 30,555,000 |  
|                                                               
|                                                               
|                                                               
|                                                               
|General and administrative expenses                             |                                                          |   | 6,013,000           |           |                    |   | 6,606,000  |            |      |   | 20,887,000  |            |  |   | 21,555,000  |           
|                                                               
|                                                               
|                                                               
|                                                               
|Other operating income, net                                     |                                                          |   | 213,000             |           |                    |   | 423,000    |            |      |   | 1,000,000   |            |  |   | 979,000     |           
|                                                                |                                                          |   |                     |           |                    |   |            |            |      |   |             |            |  |   |             |           
|                                                                | Earnings (loss) before interest expense and
income taxes |   |                     | 2,915,000 |                    |   |            | (138,000   | )    |   |             | 17,825,000 |  |   |             | 9,979,000  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Interest expense                                                |                                                          |   | 3,700,000           |           |                    |   | 3,440,000  |            |      |   | 11,378,000  |            |  |   | 10,747,000  |           
|                                                                |                                                          |   |                     |           |                    |   |            |            |      |   |             |            |  |   |             |           
|                                                                | Earnings (loss) before income taxes                      |   |                     | (785,000  | )                  |   |            | (3,578,000 | )    |   |             | 6,447,000  |  |   |             | (768,000   | )
|                                                               
|                                                               
|                                                               
|                                                               
|Income tax expense (benefit)                                    |                                                          |   | (322,000            | )         |                    |   | (1,465,000 | )          |      |   | 2,644,000   |            |  |   | (315,000    | )         
|                                                                |                                                          |   |                     |           |                    |   |            |            |      |   |             |            |  |   |             |           
|Net earnings (loss)                                             |                                                          |   | (463,000            | )         |                    |   | (2,113,000 | )          |      |   | 3,803,000   |            |  |   | (453,000    | )         
|                                                               
|                                                               
|                                                               
|                                                               
|Accretion of preferred stock to redemption value                |                                                          |   | (803,000            | )         |                    |   | (905,000   | )          |      |   | (2,373,000  | )          |  |   | (2,674,000  | )         
|                                                               
|                                                               
|                                                               
|                                                               
|Accrual of cumulative dividends on preferred stock              |                                                          |   | (739,000            | )         |                    |   | (953,000   | )          |      |   | (2,395,000  | )          |  |   | (2,803,000  | )         
|                                                                |                                                          |   |                     |           |                    |   |            |            |      |   |             |            |  |   |             |           
|Net loss available to common stockholders                       |                                                          | $ | (2,005,000)         | )         |                    | $ | (3,971,000 | )          |      | $ | (965,000    | )          |  | $ | (5,930,000  | )         
|                                                                |                                                          |   |                     |           |                    |   |            |            |      |   |             |            |  |   |             |           
|Loss per share
basic and diluted                                |                                                          | $ | (1.97               | )         |                    | $ | (4.02      | )          |      | $ | (.95        | )          |  | $ | (6.02       | )         
|                                                               
|                                                               
|                                                               
|                                                               
|Weighted average number of shares outstanding
basic and diluted |                                                          |   | 1,017,480           |           |                    |   | 986,657    |            |      |   | 1,015,450   |            |  |   | 984,998     |           

See accompanying notes to condensed consolidated financial statements

4



---



##### Table of Contents






PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |             |           |            |             |  
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------- | ---------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------- | ------------------ | ----------- | ----------- | --------- | ---------- | ----------- | -
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           | NINE MONTH PERIODS
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           | ENDED MARCH 31,   
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                   
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           | 2001               |             | 2002       
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|Cash flows provided by operating activities:                           |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Net earnings (loss)                                                                        |                                                                         | $                                                                            | 3,803,000                                                                   |           |                    | $           | (453,000    | )        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |                                                                         |                                                                              |                                                                             |           |                    |             |             |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         | Depreciation and amortization                                                |                                                                             |           | 12,046,000         |             |             |           | 12,752,000 |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         | Amortization of debt issuance costs                                          |                                                                             |           | 663,000            |             |             |           | 664,000    |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         | Provision for doubtful accounts                                              |                                                                             |           | 14,000             |             |             |           | (5,000     | )          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         | Gain on sale of assets                                                       |                                                                             |           | (282,000           | )           |             |           | (129,000   | )          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         | Changes in operating assets and liabilities, net of effects of acquisitions: |                                                                             |           |                    |             |             |           |            |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         |                                                                              | Receivables                                                                 |           |                    | 5,607,000   |             |           |            | 6,873,000   |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         |                                                                              | Inventories, prepaid expenses and other assets                              |           |                    | (358,000    | )           |           |            | (123,000    | )
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         |                                                                              | Costs and estimated earnings in excess of billings on uncompleted contracts |           |                    | 2,582,000   |             |           |            | (13,000     | )
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         |                                                                              | Trade accounts payable and accrued liabilities                              |           |                    | (10,933,000 | )           |           |            | (8,368,000  | )
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         |                                                                              | Billings in excess of costs and estimated earnings on uncompleted contracts |           |                    | (1,431,000  | )           |           |            | (1,106,000  | )
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            |                                                                         |                                                                              | Net cash provided by operating activities                                   |           |                    | 11,711,000  |             |           |            | 10,092,000  |  
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|Cash flows from investing activities:                                  |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Proceeds from sale of assets                                                               |                                                                         |                                                                              | 795,000                                                                     |           |                    |             | 320,000     |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Capital expenditures                                                                       |                                                                         |                                                                              | (13,298,000                                                                 | )         |                    |             | (7,235,000  | )        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Acquisition of assets                                                                      |                                                                         |                                                                              | (520,000                                                                    | )         |                    |             | (3,507,000  | )        
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            |                                                                         |                                                                              | Net cash used in investing activities                                       |           |                    | (13,023,000 | )           |           |            | (10,422,000 | )
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|Cash flows from financing activities:                                  |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Borrowings under long-term debt                                                            |                                                                         |                                                                              | 45,961,000                                                                  |           |                    |             | 62,641,000  |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Repayments of long-term debt                                                               |                                                                         |                                                                              | (46,924,000                                                                 | )         |                    |             | (62,480,000 | )        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Book overdraft                                                                             |                                                                         |                                                                              | 1,444,000                                                                   |           |                    |             | 1,925,000   |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Proceeds from issuance of common stock                                                     |                                                                         |                                                                              | 309,000                                                                     |           |                    |             | 213,000     |          
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Repurchase of common stock and Series B preferred stock                                    |                                                                         |                                                                              | (501,000                                                                    | )         |                    |             | (40,000     | )        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Issuance of Series B preferred stock                                                       |                                                                         |                                                                              | 187,000                                                                     |           |                    |             | 158,000     |          
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            |                                                                         |                                                                              | Net cash provided by financing activities                                   |           |                    | 476,000     |             |           |            | 2,417,000   |  
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            |                                                                         |                                                                              | Net change in cash and cash equivalents                                     |           |                    | (836,000    | )           |           |            | 2,087,000   |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Cash and cash equivalents at beginning of period                       |                                                                                            |                                                                         | 2,109,000                                                                    |                                                                             |           |                    | 1,030,000   |            
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|Cash and cash equivalents at end of period                             |                                                                                            | $                                                                       | 1,273,000                                                                    |                                                                             |           | $                  | 3,117,000   |            
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Supplemental disclosure of cash flow information:                      |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            | Cash paid during the period for:                                        |                                                                              |                                                                             |           |                    |             |             |           |           
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            |                                                                         |                                                                              | Income taxes                                                                |           | $                  | 3,847,000   |             |           | $          | 791,000     |  
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            |                                                                         |                                                                              | Interest                                                                    |           | $                  | 13,586,000  |             |           | $          | 13,084,000  |  
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|Supplemental disclosure of noncash investing and financing activities: |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                                            | Accrued liabilities related to the acquisition of assets                |                                                                              | $                                                                           | 480,000   |                    |             | $           | 3,400,000 |           
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            | Borrowings related to the acquisition of assets                         |                                                                              | $                                                                           | 675,000   |                    |             | $           | 3,265,000 |           
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            | Borrowings related to capital leases and equipment financing agreements |                                                                              | $                                                                           | 1,130,000 |                    |             | $           | 300,000   |           
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            | Accretion of preferred stock to redemption value                        |                                                                              | $                                                                           | 2,373,000 |                    |             | $           | 2,674,000 |           
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            
|                                                                       |                                                                                            | Accrual of cumulative dividends on preferred stock                      |                                                                              | $                                                                           | 2,395,000 |                    |             | $           | 2,803,000 |           
|                                                                       |                                                                                            |                                                                         |                                                                              |                                                                             |           |                    |             |            

See accompanying notes to condensed consolidated financial statements

5



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##### Table of Contents






PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2002
(Unaudited)



|(1) |  | Basis Of Presentation
|--- |  | ---------------------

Penhall International, Inc. (PII) was founded in 1957 and was
incorporated in the state of California on April 19, 1988. On August 4, 1998,
$100,000,000 of 12% Senior Notes (the Senior Notes) were sold by Penhall
Acquisition Corp., an Arizona corporation formed by an unrelated third party
(the Third Party) to effect the recapitalization of PII. As part of the
recapitalization, a series of mergers (the Recapitalization Mergers) were
consummated pursuant to which Phoenix Concrete Cutting, Inc., a wholly-owned
subsidiary of PII, became the corporate parent of PII, the Third Party acquired
a 62.5% interest in Phoenix Concrete Cutting, Inc. and Phoenix Concrete
Cutting, Inc. became the successor obligor of the Senior Notes. Following the
consummation of the Recapitalization Mergers, Phoenix Concrete Cutting, Inc.
changed its name to Penhall International Corp., and PII changed its name to
Penhall Rental Corp.

Under accounting principles generally accepted in the United States of
America, the Recapitalization Mergers were accounted for as a leveraged
recapitalization transaction in a manner similar to a pooling-of-interests.
Under this method, the transfer of controlling interest in PII to the
Third-Party did not change the accounting basis of the assets and liabilities
in PIIs separate stand-alone financial statements.

The accompanying unaudited condensed consolidated financial statements of
Penhall International Corp. (Penhall or the Company) 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-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.

Results of operations for the nine month period ended March 31, 2002 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 2002. The unaudited condensed consolidated financial statements
included herein should be read in conjunction with the Companys audited
consolidated financial statements and footnotes thereto included in the Form
10-K for the year ended June 30, 2001.

Loss Per Share

Basic loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted loss per share is calculated by dividing net loss
available to common stockholders by the weighted average number of common
shares outstanding during the period plus the impact of assumed potential
dilutive securities. There were 9,340 options issued during the nine month
period ended March 31, 2002. For the three and nine month
periods ended March 31, 2002 these options had no
potential dilutive effect on diluted loss per share. There were no potential
dilutive securities for the three and nine month periods ended March 31, 2001.

On October 7, 1999, the Board of Directors of Penhall adopted the Penhall
International Corp. Stock Incentive Plan.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to long-term construction contracts, accounts
receivable, goodwill, long-lived assets, self-insurance,
contingencies and

6



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##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

litigation. The Company bases its estimates on current information, historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the
recognition of revenue that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. The Company believes the following critical accounting policy
affects its more significant judgments and estimates used in the preparation of
its consolidated financial statements:

Revenue Recognition on Long-Term Construction Contracts

Income from construction operations is recorded using the
percentage-of-completion method of accounting. The Company has two types of
contracts. The first type of contract is fixed unit in which the percentage of
completion is determined based on the units completed as a percentage of
estimated total units. The second type of contract is lump sum in which
percentage of completion is determined based on costs to date as compared to
total estimated costs at completion. If estimated total costs on any contract
indicate a loss, the Company provides currently for the total loss anticipated
on the contract. For long-term contracts, which extend beyond fiscal year ends,
revisions in cost and profit estimates during the course of the work are
reflected in the accounting period in which facts requiring the revision become
known. All remaining revenue and costs are recognized as work is performed.



|(2) |  | Acquisition
|--- |  | -----------

In March 2002, Penhall Company, a California corporation and a
wholly-owned subsidiary of Penhall, purchased 100% of the stock of Bob Mack
Company, Inc (Bob Mack) and selected assets of Bobbie Mack Grinding, Inc
(Grinding). Bob Mack and Grinding were related parties prior to the
purchase. Total consideration for the purchase of Bob Mack stock was
approximately $6.0 million, $3.0 million in cash and the remainder payable in
equal installments in March 2003 and 2004. Total consideration for the
purchase of selected assets from Grinding was $800,000, $400,000 in cash and
the remainder payable in equal installments in March 2003 and 2004. In
addition, the shareholders of Bob Mack signed 5 year non-compete agreements
with Penhall which restrict the former shareholders of Bob Mack from competing
with the acquired business and requires Penhall to pay the former shareholders
$1.4 million in 5 equal payments over a four year period. The acquisition was
accounted for in accordance with SFAS 141, Business Combinations. The
results of operations for the month of March 2002 of Bob Mack are included in
the consolidated financial statements as of March 31, 2002. Approximately
$2.4 million of goodwill was recorded related to this transaction. Based in
Visalia, California, Bob Mack primarily operates in central California and is a
provider of asphalt removal, grinding and milling services. The acquisition of
Bob Mack expands the range of services offered by Penhall.



|(3) |  | Commitments and Contingencies
|--- |  | -----------------------------

Litigation

There are various lawsuits and claims pending against and claims being
pursued by the Company and its subsidiaries arising out of the normal course of
business. It is managements present opinion, based in part upon the advise of
legal counsel, that the outcome of these proceedings will not have a material
effect on the Companys consolidated financial statements taken as a whole.

7



---



##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)



|(4) |  | Condensed Consolidating Financial Information
|--- |  | ---------------------------------------------

The following consolidating financial information is presented for
purposes of complying with the reporting requirements of the Guarantor
Subsidiaries, (Penhall Rental Corp. and Penhall Company). Separate financial
statements and other disclosures with respect to the Guarantor Subsidiaries are
not presented because the Company believes that such financial statements and
other information would not provide additional information that is material to
investors.

The condensed consolidating financial information presents condensed
financial statements as of June 30, 2001 and March 31, 2002 and for the three
and nine month periods ended March 31, 2002 and 2001 of:

a)      Penhall International Corp. on a parent company only basis (Parent) (carrying its investments in the subsidiaries under the equity method),

b)      the Guarantor Subsidiaries (Penhall Rental Corp. and Penhall Company)

c)      elimination entries necessary to consolidate the parent company and its subsidiaries, and

d)      the Company on a consolidated basis.

8



---



##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |             |            |            | 
|---------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------- | ----------- | ------------- | ---------- | ---------- | ----------- | ---------- | ------- | ------------ | ---------- | ------------ | ---------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ---------- | ---------- | 
|                                               |                                                                             |                                                                             |                      |             | JUNE 30, 2001
|                                               |                                                                             |                                                                             |                      |             |              
|                                               |                                                                             |                                                                             |                      |             | Penhall       |            | Penhall    |             |            |         |              |            |              |            |             |             |             |             |            
|                                               |                                                                             |                                                                             |                      |             | International |            | Rental     |             | Penhall    |         |              |            |              |            |             |             |            
|                                               |                                                                             |                                                                             |                      |             | Corp.         |            | Corp.      |             | Company    |         | Eliminations |            | Consolidated
|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |             
|Assets                                         |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            
|                                              
|                                              
|                                              
|                                              
|                                               | Current assets:                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |             |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Receivables, net                                                            |                      | $           | 1,082,000     |            |            | $           |           |         |              | $          | 38,824,000   |            |             | $           |            |             |             | $           | 39,906,000 |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Inventories                                                                 |                      |             |              |            |            |             |           |         |              |            | 2,273,000    |            |             |             |            |             |             |             | 2,273,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Costs and estimated earnings in excess of
billings on uncompleted contracts |                      |             |              |            |            |             |           |         |              |            | 1,856,000    |            |             |             |            |             |             |             | 1,856,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Intercompany assets                                                         |                      |             | 29,006,000    |            |            |             |           |         |              |            |             |            |             |             | (29,006,000 | )           |             |             |           |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Other current assets                                                        |                      |             | 112,000       |            |            |             | 966,000    |         |              |            | 3,698,000    |            |             |             |            |             |             |             | 4,776,000  |           
|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             |                                                                             | Total current assets |             |               | 30,200,000 |            |             |            | 966,000 |              |            |              | 46,651,000 |             |             |             | (29,006,000 | )           |             |            | 48,811,000 | 
|                                              
|                                              
|                                              
|                                              
|                                               | Intercompany assets                                                         |                                                                             |                      | 10,000,000  |               |            |            |            |            |         |              |           |              |            |             | (10,000,000 | )           |             |             |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Net property, plant and equipment                                           |                                                                             |                      |            |               |            |            | 9,424,000   |            |         |              | 56,779,000 |              |            |             |            |             |             |             | 66,203,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Other assets, net                                                           |                                                                             |                      | 4,062,000   |               |            |            |            |            |         |              | 7,886,000  |              |            |             |            |             |             |             | 11,948,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in parent                                                        |                                                                             |                      |            |               |            |            | 4,001,000   |            |         |              |           |              |            |             | (4,001,000  | )           |             |             |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in subsidiaries                                                  |                                                                             |                      | 55,992,000  |               |            |            |            |            |         |              |           |              |            |             | (55,992,000 | )           |             |             |            |           
|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             | $                                                                           | 100,254,000          |             |               | $          | 14,391,000 |             |            | $       | 111,316,000  |            |              | $          | (98,999,000 | )           |             | $           | 126,962,000 |            
|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            
|Liabilities and Stockholders Equity
(Deficit) |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            
|                                              
|                                              
|                                              
|                                              
|                                               | Current installments of long-term debt                                      |                                                                             | $                    | 5,173,000   |               |            | $          | 10,000      |            |         | $            | 1,253,000  |              |            | $           |            |             |             | $           | 6,436,000   |           
|                                              
|                                              
|                                              
|                                              
|                                               | Trade accounts payable                                                      |                                                                             |                      | 3,000       |               |            |            |            |            |         |              | 9,973,000  |              |            |             |            |             |             |             | 9,976,000   |           
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued liabilities                                                         |                                                                             |                      | 5,295,000   |               |            |            | (20,000     | )          |         |              | 9,786,000  |              |            |             |            |             |             |             | 15,061,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Billings in excess of costs and estimated
earnings on uncompleted contracts |                                                                             |                      |            |               |            |            |            |            |         |              | 1,688,000  |              |            |             |            |             |             |             | 1,688,000   |           
|                                              
|                                              
|                                              
|                                              
|                                               | Intercompany liabilities                                                    |                                                                             |                      |            |               |            |            | 28,346,000  |            |         |              | 660,000    |              |            |             | (29,006,000 | )           |             |             |            |           
|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             | Total current liabilities                                                   |                      |             | 10,471,000    |            |            |             | 28,336,000 |         |              |            | 23,360,000   |            |             |             | (29,006,000 | )           |             |             | 33,161,000 |           
|                                              
|                                              
|                                              
|                                              
|                                               | Intercompany liabilities                                                    |                                                                             |                      |            |               |            |            |            |            |         |              | 10,000,000 |              |            |             | (10,000,000 | )           |             |             |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Long-term debt, excluding
current installments                              |                                                                             |                      | 18,066,000  |               |            |            | 186,000     |            |         |              | 520,000    |              |            |             |            |             |             |             | 18,772,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Senior notes                                                                |                                                                             |                      | 100,000,000 |               |            |            |            |            |         |              |           |              |            |             |            |             |             |             | 100,000,000 |           
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred tax liabilities                                                    |                                                                             |                      |            |               |            |            | (143,000    | )          |         |              | 7,455,000  |              |            |             |            |             |             |             | 7,312,000   |           
|                                              
|                                              
|                                              
|                                              
|                                               | Senior Exchangeable Preferred stock                                         |                                                                             |                      | 13,573,000  |               |            |            |            |            |         |              |           |              |            |             |            |             |             |             | 13,573,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Series A Preferred stock                                                    |                                                                             |                      | 15,219,000  |               |            |            |            |            |         |              |           |              |            |             |            |             |             |             | 15,219,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Stockholders equity (deficit)                                              |                                                                             |                      | (57,075,000 | )             |            |            | (13,988,000 | )          |         |              | 69,981,000 |              |            |             | (59,993,000 | )           |             |             | (61,075,000 | )         
|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             | $                                                                           | 100,254,000          |             |               | $          | 14,391,000 |             |            | $       | 111,316,000  |            |              | $          | (98,999,000 | )           |             | $           | 126,962,000 |            
|                                               |                                                                             |                                                                             |                      |             |               |            |            |             |            |         |              |            |              |            |             |             |             |             |             |            

9



---



##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |             |            |            | 
|---------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------- | ----------- | -------------- | ---------- | ---------- | ---------- | ---------- | --------- | ------------ | ---------- | ------------ | ---------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ---------- | ---------- | 
|                                               |                                                                             |                                                                             |                      |             | MARCH 31, 2002
|                                               |                                                                             |                                                                             |                      |             |               
|                                               |                                                                             |                                                                             |                      |             | Penhall        |            | Penhall    |            |            |           |              |            |              |            |             |             |             |             |            
|                                               |                                                                             |                                                                             |                      |             | International  |            | Rental     |            | Penhall    |           |              |            |              |            |             |             |            
|                                               |                                                                             |                                                                             |                      |             | Corp.          |            | Corp.      |            | Company    |           | Eliminations |            | Consolidated
|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |             
|Assets                                         |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            
|                                              
|                                              
|                                              
|                                              
|                                               | Current assets:                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |             |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Receivables, net                                                            |                      | $           | 2,189,000      |            |            | $          |           |           |              | $          | 29,538,000   |            |             | $           |            |             |             | $           | 31,727,000 |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Inventories                                                                 |                      |             |               |            |            |            |           |           |              |            | 1,874,000    |            |             |             |            |             |             |             | 1,874,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Costs and estimated earnings in excess of
billings on uncompleted contracts |                      |             |               |            |            |            |           |           |              |            | 1,869,000    |            |             |             |            |             |             |             | 1,869,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Intercompany assets                                                         |                      |             | 25,206,000     |            |            |            |           |           |              |            |             |            |             |             | (25,206,000 | )           |             |             |           |           
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Other current assets                                                        |                      |             | 126,000        |            |            |            | 2,943,000  |           |              |            | 4,316,000    |            |             |             |            |             |             |             | 7,385,000  |           
|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             |                                                                             | Total current assets |             |                | 27,521,000 |            |            |            | 2,943,000 |              |            |              | 37,597,000 |             |             |             | (25,206,000 | )           |             |            | 42,855,000 | 
|                                              
|                                              
|                                              
|                                              
|                                               | Intercompany assets                                                         |                                                                             |                      | 2,309,000   |                |            |            |           |            |           |              |           |              |            |             | (2,309,000  | )           |             |             |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Net property, plant and equipment                                           |                                                                             |                      |            |                |            |            | 9,147,000  |            |           |              | 58,855,000 |              |            |             |            |             |             |             | 68,002,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Other assets, net                                                           |                                                                             |                      | 3,398,000   |                |            |            |           |            |           |              | 10,652,000 |              |            |             |            |             |             |             | 14,050,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in parent                                                        |                                                                             |                      |            |                |            |            | 4,001,000  |            |           |              |           |              |            |             | (4,001,000  | )           |             |             |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in subsidiaries                                                  |                                                                             |                      | 61,979,000  |                |            |            |           |            |           |              |           |              |            |             | (61,979,000 | )           |             |             |            |           
|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             | $                                                                           | 95,207,000           |             |                | $          | 16,091,000 |            |            | $         | 107,104,000  |            |              | $          | (93,495,000 | )           |             | $           | 124,907,000 |            
|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            
|Liabilities and Stockholders Equity
(Deficit) |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            
|                                              
|                                              
|                                              
|                                              
|                                               | Current installments of long-term debt                                      |                                                                             | $                    | 5,858,000   |                |            | $          | 3,000      |            |           | $            | 3,351,000  |              |            | $           |            |             |             | $           | 9,212,000   |           
|                                              
|                                              
|                                              
|                                              
|                                               | Trade accounts payable                                                      |                                                                             |                      | 4,000       |                |            |            |           |            |           |              | 5,814,000  |              |            |             | (1,000      | )           |             |             | 5,817,000   |           
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued liabilities                                                         |                                                                             |                      | 2,249,000   |                |            |            | 25,000     |            |           |              | 10,434,000 |              |            |             |            |             |             |             | 12,708,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Billings in excess of costs and estimated
earnings on uncompleted contracts |                                                                             |                      |            |                |            |            |           |            |           |              | 582,000    |              |            |             |            |             |             |             | 582,000     |           
|                                              
|                                              
|                                              
|                                              
|                                               | Intercompany liabilities                                                    |                                                                             |                      |            |                |            |            | 25,206,000 |            |           |              |           |              |            |             | (25,206,000 | )           |             |             |            |           
|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             | Total current liabilities                                                   |                      |             | 8,111,000      |            |            |            | 25,234,000 |           |              |            | 20,181,000   |            |             |             | (25,207,000 | )           |             |             | 28,319,000 |           
|                                              
|                                              
|                                              
|                                              
|                                               | Intercompany liabilities                                                    |                                                                             |                      |            |                |            |            |           |            |           |              | 2,309,000  |              |            |             | (2,309,000  | )           |             |             |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Long-term debt, excluding
current installments                              |                                                                             |                      | 15,500,000  |                |            |            | 184,000    |            |           |              | 4,038,000  |              |            |             |            |             |             |             | 19,722,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Senior notes                                                                |                                                                             |                      | 100,000,000 |                |            |            |           |            |           |              |           |              |            |             |            |             |             |             | 100,000,000 |           
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred tax liabilities                                                    |                                                                             |                      |            |                |            |            | (143,000   | )          |           |              | 9,414,000  |              |            |             |            |             |             |             | 9,271,000   |           
|                                              
|                                              
|                                              
|                                              
|                                               | Senior Exchangeable Preferred stock                                         |                                                                             |                      | 14,685,000  |                |            |            |           |            |           |              |           |              |            |             |            |             |             |             | 14,685,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Series A Preferred stock                                                    |                                                                             |                      | 16,781,000  |                |            |            |           |            |           |              |           |              |            |             |            |             |             |             | 16,781,000  |           
|                                              
|                                              
|                                              
|                                              
|                                               | Stockholders equity (deficit)                                              |                                                                             |                      | (59,870,000 | )              |            |            | (9,184,000 | )          |           |              | 71,162,000 |              |            |             | (65,979,000 | )           |             |             | (63,871,000 | )         
|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            
|                                               |                                                                             | $                                                                           | 95,207,000           |             |                | $          | 16,091,000 |            |            | $         | 107,104,000  |            |              | $          | (93,495,000 | )           |             | $           | 124,907,000 |            
|                                               |                                                                             |                                                                             |                      |             |                |            |            |            |            |           |              |            |              |            |             |             |             |             |             |            

10



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##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

|                                    |                                                   |   |                                         |            |         |   |         |         |              |   |              |           |  |   |            |            |   |   |            |           |  
|----------------------------------- | ------------------------------------------------- | - | --------------------------------------- | ---------- | ------- | - | ------- | ------- | ------------ | - | ------------ | --------- |  | - | ---------- | ---------- | - | - | ---------- | --------- | -
|                                    |                                                   |   | THREE MONTH PERIOD ENDED MARCH 31, 2001
|                                    |                                                   |   |                                        
|                                    |                                                   |   | Penhall                                 |            | Penhall |   |         |         |              |   |              |           |  |   |            |            |  
|                                    |                                                   |   | International                           |            | Rental  |   | Penhall |         |              |   |              |           |  |   |           
|                                    |                                                   |   | Corp.                                   |            | Corp.   |   | Company |         | Eliminations |   | Consolidated
|                                    |                                                   |   |                                         |            |         |   |         |         |              |   |             
|Revenues                            |                                                   | $ |                                        |            |         | $ | 371,000 |         |              | $ | 33,619,000   |           |  | $ | (371,000   | )          |   | $ | 33,619,000 |          
|                                   
|                                   
|                                   
|                                   
|Cost of revenues                    |                                                   |   |                                        |            |         |   |        |         |              |   | 24,904,000   |           |  |   |           |            |   |   | 24,904,000 |          
|                                    |                                                   |   |                                         |            |         |   |         |         |              |   |              |           |  |   |            |            |   |   |            |          
|                                   
|                                   
|                                   
|                                   
|                                    | Gross profit                                      |   |                                         |           |         |   |         | 371,000 |              |   |              | 8,715,000 |  |   |            | (371,000   | ) |   |            | 8,715,000 |  
|                                   
|                                   
|                                   
|                                   
|General and administrative
expenses |                                                   |   | 94,000                                  |            |         |   | 120,000 |         |              |   | 6,170,000    |           |  |   | (371,000   | )          |   |   | 6,013,000  |          
|                                   
|                                   
|                                   
|                                   
|Other operating income, net         |                                                   |   | 2,000                                   |            |         |   |        |         |              |   | 211,000      |           |  |   |           |            |   |   | 213,000    |          
|                                   
|                                   
|                                   
|                                   
|Equity earnings in subsidiaries     |                                                   |   | 1,765,000                               |            |         |   |        |         |              |   |             |           |  |   | (1,765,000 | )          |   |   |           |          
|                                    |                                                   |   |                                         |            |         |   |         |         |              |   |              |           |  |   |            |            |   |   |            |          
|                                   
|                                   
|                                   
|                                   
|                                    | Earnings before interest
expense and income taxes |   |                                         | 1,673,000  |         |   |         | 251,000 |              |   |              | 2,756,000 |  |   |            | (1,765,000 | ) |   |            | 2,915,000 |  
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |                                                   |   | 3,685,000                               |            |         |   | 1,000   |         |              |   | 14,000       |           |  |   |           |            |   |   | 3,700,000  |          
|                                    |                                                   |   |                                         |            |         |   |         |         |              |   |              |           |  |   |            |            |   |   |            |          
|                                   
|                                   
|                                   
|                                   
|                                    | Earnings (loss) before income
taxes               |   |                                         | (2,012,000 | )       |   |         | 250,000 |              |   |              | 2,742,000 |  |   |            | (1,765,000 | ) |   |            | (785,000  | )
|                                   
|                                   
|                                   
|                                   
|Income tax expense (benefit)        |                                                   |   | (1,549,000                              | )          |         |   | 103,000 |         |              |   | 1,124,000    |           |  |   |           |            |   |   | (322,000   | )        
|                                    |                                                   |   |                                         |            |         |   |         |         |              |   |              |           |  |   |            |            |   |   |            |          
|                                   
|                                   
|                                   
|                                   
|Net earnings (loss)                 |                                                   | $ | (463,000                                | )          |         | $ | 147,000 |         |              | $ | 1,618,000    |           |  | $ | (1,765,000 | )          |   | $ | (463,000   | )        
|                                    |                                                   |   |                                         |            |         |   |         |         |              |   |              |           |  |   |            |            |   |   |            |          

11



---



##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

|                                    |                                                          |                                     |            |                                         |            |         |           |           |           |              |            |              |            |   |            |        |            |   |            |          |            |  
|----------------------------------- | -------------------------------------------------------- | ----------------------------------- | ---------- | --------------------------------------- | ---------- | ------- | --------- | --------- | --------- | ------------ | ---------- | ------------ | ---------- | - | ---------- | ------ | ---------- | - | ---------- | -------- | ---------- | -
|                                    |                                                          |                                     |            | THREE MONTH PERIOD ENDED MARCH 31, 2002
|                                    |                                                          |                                     |            |                                        
|                                    |                                                          |                                     |            | Penhall                                 |            | Penhall |           |           |           |              |            |              |            |   |            |        |            |  
|                                    |                                                          |                                     |            | International                           |            | Rental  |           | Penhall   |           |              |            |              |            |   |            |       
|                                    |                                                          |                                     |            | Corp.                                   |            | Corp.   |           | Company   |           | Eliminations |            | Consolidated
|                                    |                                                          |                                     |            |                                         |            |         |           |           |           |              |            |             
|Revenues                            |                                                          | $                                   |           |                                         |            | $       | 2,163,000 |           |           | $            | 31,433,000 |              |            | $ | (3,586,000 | )      |            | $ | 30,010,000 |         
|                                   
|                                   
|                                   
|                                   
|Cost of revenues                    |                                                          |                                     |           |                                         |            |         |          |           |           |              | 24,062,000 |              |            |   | (97,000    | )      |            |   | 23,965,000 |         
|                                    |                                                          |                                     |            |                                         |            |         |           |           |           |              |            |              |            |   |            |        |            |   |            |         
|                                    |                                                          | Gross profit                        |            |                                         |           |         |           |           | 2,163,000 |              |            |              | 7,371,000  |   |            |        | (3,489,000 | ) |            |          | 6,045,000  |  
|                                   
|                                   
|                                   
|                                   
|General and administrative
expenses |                                                          |                                     | 97,000     |                                         |            |         | 77,000    |           |           |              | 8,042,000  |              |            |   | (1,610,000 | )      |            |   | 6,606,000  |         
|                                   
|                                   
|                                   
|                                   
|Royalties                           |                                                          |                                     |           |                                         |            |         |          |           |           |              | 1,880,000  |              |            |   | (1,880,000 | )      |            |   |           |         
|                                   
|                                   
|                                   
|                                   
|Other operating income, net         |                                                          |                                     | 1,000      |                                         |            |         |          |           |           |              | 422,000    |              |            |   |           |        |            |   | 423,000    |         
|                                   
|                                   
|                                   
|                                   
|Equity earnings in subsidiaries     |                                                          |                                     | (47,000    | )                                       |            |         |          |           |           |              |           |              |            |   | 47,000     |        |            |   |           |         
|                                    |                                                          |                                     |            |                                         |            |         |           |           |           |              |            |              |            |   |            |        |            |   |            |         
|                                    | Earnings (loss) before interest
expense and income taxes |                                     |            | (143,000                                | )          |         |           | 2,086,000 |           |              |            | (2,129,000   | )          |   |            | 48,000 |            |   |            | (138,000 | )         
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |                                                          |                                     | 3,403,000  |                                         |            |         | 4,000     |           |           |              | 33,000     |              |            |   |           |        |            |   | 3,440,000  |         
|                                    |                                                          |                                     |            |                                         |            |         |           |           |           |              |            |              |            |   |            |        |            |   |            |         
|                                    |                                                          | Earnings (loss) before income
Taxes |            |                                         | (3,546,000 | )       |           |           | 2,082,000 |              |            |              | (2,162,000 | ) |            |        | 48,000     |   |            |          | (3,578,000 | )
|                                   
|                                   
|                                   
|                                   
|Income tax expense (benefit)        |                                                          |                                     | (1,433,000 | )                                       |            |         | 854,000   |           |           |              | (886,000   | )            |            |   |           |        |            |   | (1,465,000 | )       
|                                    |                                                          |                                     |            |                                         |            |         |           |           |           |              |            |              |            |   |            |        |            |   |            |         
|Net earnings (loss)                 |                                                          | $                                   | (2,113,000 | )                                       |            | $       | 1,228,000 |           |           | $            | (1,276,000 | )            |            | $ | 48,000     |        |            | $ | (2,113,000 | )       
|                                    |                                                          |                                     |            |                                         |            |         |           |           |           |              |            |              |            |   |            |        |            |   |            |         

12



---



##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |            | 
|----------------------------------- | ------------------------------------------------- | - | -------------------------------------- | ---------- | ------- | - | --------- | --------- | ------------ | - | ------------ | ---------- |  | - | ----------- | ----------- | - | - | ----------- | ---------- | 
|                                    |                                                   |   | NINE MONTH PERIOD ENDED MARCH 31, 2001
|                                    |                                                   |   |                                       
|                                    |                                                   |   | Penhall                                |            | Penhall |   |           |           |              |   |              |            |  |   |             |             |  
|                                    |                                                   |   | International                          |            | Rental  |   | Penhall   |           |              |   |              |            |  |   |            
|                                    |                                                   |   | Corp.                                  |            | Corp.   |   | Company   |           | Eliminations |   | Consolidated
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |             
|Revenues                            |                                                   | $ |                                       |            |         | $ | 1,138,000 |           |              | $ | 128,530,000  |            |  | $ | (1,138,000  | )           |   | $ | 128,530,000 |           
|                                   
|                                   
|                                   
|                                   
|Cost of revenues                    |                                                   |   |                                       |            |         |   |          |           |              |   | 90,818,000   |            |  |   |            |             |   |   | 90,818,000  |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|                                    | Gross profit                                      |   |                                        |           |         |   |           | 1,138,000 |              |   |              | 37,712,000 |  |   |             | (1,138,000  | ) |   |             | 37,712,000 | 
|                                   
|                                   
|                                   
|                                   
|General and administrative
expenses |                                                   |   | 303,000                                |            |         |   | 358,000   |           |              |   | 21,364,000   |            |  |   | (1,138,000  | )           |   |   | 20,887,000  |           
|                                   
|                                   
|                                   
|                                   
|Other operating income, net         |                                                   |   | 7,000                                  |            |         |   |          |           |              |   | 993,000      |            |  |   |            |             |   |   | 1,000,000   |           
|                                   
|                                   
|                                   
|                                   
|Equity earnings in subsidiaries     |                                                   |   | 10,618,000                             |            |         |   |          |           |              |   |             |            |  |   | (10,618,000 | )           |   |   |            |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|                                    | Earnings before interest
expense and income taxes |   |                                        | 10,322,000 |         |   |           | 780,000   |              |   |              | 17,341,000 |  |   |             | (10,618,000 | ) |   |             | 17,825,000 | 
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |                                                   |   | 11,255,000                             |            |         |   | 1,000     |           |              |   | 122,000      |            |  |   |            |             |   |   | 11,378,000  |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|                                    | Earnings (loss) before income
taxes               |   |                                        | (933,000   | )       |   |           | 779,000   |              |   |              | 17,219,000 |  |   |             | (10,618,000 | ) |   |             | 6,447,000  | 
|                                   
|                                   
|                                   
|                                   
|Income tax expense (benefit)        |                                                   |   | (4,736,000                             | )          |         |   | 320,000   |           |              |   | 7,060,000    |            |  |   |            |             |   |   | 2,644,000   |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|Net earnings                        |                                                   | $ | 3,803,000                              |            |         | $ | 459,000   |           |              | $ | 10,159,000   |            |  | $ | (10,618,000 | )           |   | $ | 3,803,000   |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           

13



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##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |            |  
|----------------------------------- | ------------------------------------------------- | - | -------------------------------------- | ---------- | ------- | - | --------- | --------- | ------------ | - | ------------ | ---------- |  | - | ----------- | ----------- | - | - | ----------- | ---------- | -
|                                    |                                                   |   | NINE MONTH PERIOD ENDED MARCH 31, 2002
|                                    |                                                   |   |                                       
|                                    |                                                   |   | Penhall                                |            | Penhall |   |           |           |              |   |              |            |  |   |             |             |  
|                                    |                                                   |   | International                          |            | Rental  |   | Penhall   |           |              |   |              |            |  |   |            
|                                    |                                                   |   | Corp.                                  |            | Corp.   |   | Company   |           | Eliminations |   | Consolidated
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |             
|Revenues                            |                                                   | $ |                                       |            |         | $ | 8,427,000 |           |              | $ | 121,578,000  |            |  | $ | (13,164,000 | )           |   | $ | 116,841,000 |           
|Cost of revenues                    |                                                   |   |                                       |            |         |   |          |           |              |   | 86,616,000   |            |  |   | (330,000    | )           |   |   | 86,286,000  |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|                                   
|                                   
|                                   
|                                   
|                                    | Gross profit                                      |   |                                        |           |         |   |           | 8,427,000 |              |   |              | 34,962,000 |  |   |             | (12,834,000 | ) |   |             | 30,555,000 |  
|                                   
|                                   
|                                   
|                                   
|General and administrative
expenses |                                                   |   | 285,000                                |            |         |   | 268,000   |           |              |   | 26,549,000   |            |  |   | (5,547,000  | )           |   |   | 21,555,000  |           
|                                   
|                                   
|                                   
|                                   
|                                    | Royalties                                         |   |                                        |           |         |   |           |          |              |   |              | 7,288,000  |  |   |             | (7,288,000  | ) |   |             |           |  
|                                   
|                                   
|                                   
|                                   
|Other operating income, net         |                                                   |   | 3,000                                  |            |         |   |          |           |              |   | 976,000      |            |  |   |            |             |   |   | 979,000     |           
|                                   
|                                   
|                                   
|                                   
|Equity earnings in subsidiaries     |                                                   |   | 5,987,000                              |            |         |   |          |           |              |   |             |            |  |   | (5,987,000  | )           |   |   |            |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|                                    | Earnings before interest
expense and income taxes |   |                                        | 5,705,000  |         |   |           | 8,159,000 |              |   |              | 2,101,000  |  |   |             | (5,986,000  | ) |   |             | 9,979,000  |  
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |                                                   |   | 10,634,000                             |            |         |   | 14,000    |           |              |   | 99,000       |            |  |   |            |             |   |   | 10,747,000  |           
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|                                    | Earnings (loss) before income
taxes               |   |                                        | (4,929,000 | )       |   |           | 8,145,000 |              |   |              | 2,002,000  |  |   |             | (5,986,000  | ) |   |             | (768,000   | )
|                                   
|                                   
|                                   
|                                   
|Income tax expense (benefit)        |                                                   |   | (4,476,000                             | )          |         |   | 3,340,000 |           |              |   | 821,000      |            |  |   | -          |             |   |   | (315,000    | )         
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           
|Net earnings (loss)                 |                                                   | $ | (453,000                               | )          |         | $ | 4,805,000 |           |              | $ | 1,181,000    |            |  | $ | (5,986,000  | )           |   | $ | (453,000    | )         
|                                    |                                                   |   |                                        |            |         |   |           |           |              |   |              |            |  |   |             |             |   |   |             |           

14



---



##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW

|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |             |             |  
|--------------------------------------------------- | ------------------------------------------------------- | --------------------------------------------------- | ---------- | -------------------------------------- | --------- | ------- | --------- | ---------- | ---------- | ------------ | ---------- | ------------ | ----------- | - | - | - | - | - | ---------- | ----------- | ----------- | -
|                                                    |                                                         |                                                     |            | NINE MONTH PERIOD ENDED MARCH 31, 2001
|                                                    |                                                         |                                                     |            |                                       
|                                                    |                                                         |                                                     |            | Penhall                                |           | Penhall |           |            |            |              |            |              |             |   |   |   |   |  
|                                                    |                                                         |                                                     |            | International                          |           | Rental  |           | Penhall    |            |              |            |              |             |   |   |  
|                                                    |                                                         |                                                     |            | Corp.                                  |           | Corp.   |           | Company    |            | Eliminations |            | Consolidated
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |             
|Net cash provided by (used in) operating activities |                                                         | $                                                   | (9,030,000 | )                                      |           | $       | 385,000   |            |            | $            | 20,356,000 |              |             | $ |  |   |   | $ | 11,711,000 |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|Cash flows from investing activities:               |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sale of assets                            |                                                     |            |                                       |           |         |           |           |            |              |            | 795,000      |             |   |   |  |   |   |            | 795,000     |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Capital expenditures                                    |                                                     |            |                                       |           |         |           | (1,175,000 | )          |              |            | (12,123,000  | )           |   |   |  |   |   |            | (13,298,000 | )          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Acquisition of assets                                   |                                                     |            |                                       |           |         |           |           |            |              |            | (520,000     | )           |   |   |  |   |   |            | (520,000    | )          
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|                                                    |                                                         | Net cash used in
investing activities               |            |                                        |          |         |           |            | (1,175,000 | )            |            |              | (11,848,000 | ) |   |   |  |   |            |             | (13,023,000 | )
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|Cash flows from financing activities:               |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Due to (from) affiliates                                |                                                     |            | 8,514,000                              |           |         |           | 594,000    |            |              |            | (9,108,000   | )           |   |   |  |   |   |            |            |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Borrowings under long-term debt                         |                                                     |            | 45,961,000                             |           |         |           |           |            |              |            |             |             |   |   |  |   |   |            | 45,961,000  |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Repayments of long-term debt                            |                                                     |            | (45,540,000                            | )         |         |           | (9,000     | )          |              |            | (1,375,000   | )           |   |   |  |   |   |            | (46,924,000 | )          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Book overdraft                                          |                                                     |            |                                       |           |         |           |           |            |              |            | 1,444,000    |             |   |   |  |   |   |            | 1,444,000   |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from issuance of common stock                  |                                                     |            | 309,000                                |           |         |           |           |            |              |            |             |             |   |   |  |   |   |            | 309,000     |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Repurchase of common stock and
Series B preferred stock |                                                     |            | (501,000                               | )         |         |           |           |            |              |            |             |             |   |   |  |   |   |            | (501,000    | )          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Issuance of Series B preferred stock                    |                                                     |            | 187,000                                |           |         |           |           |            |              |            |             |             |   |   |  |   |   |            | 187,000     |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|                                                    |                                                         | Net cash provided by (used in)
financing activities |            |                                        | 8,930,000 |         |           |            | 585,000    |              |            |              | (9,039,000  | ) |   |   |  |   |            |             | 476,000     |  
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|                                                    |                                                         | Net change in cash
and cash equivalents             |            |                                        | (100,000  | )       |           |            | (205,000   | )            |            |              | (531,000    | ) |   |   |  |   |            |             | (836,000    | )
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents at
beginning of period    |                                                         |                                                     | 100,000    |                                        |           |         | 1,370,000 |            |            |              | 639,000    |              |             |   |  |   |   |   | 2,109,000  |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            
|Cash and cash equivalents at
end of period          |                                                         | $                                                   |           |                                        |           | $       | 1,165,000 |            |            | $            | 108,000    |              |             | $ |  |   |   | $ | 1,273,000  |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |   |   |   |   |            |            

15



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##### Table of Contents



PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW

|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |             |             |  
|--------------------------------------------------- | ------------------------------------------------------- | --------------------------------------------------- | ---------- | -------------------------------------- | --------- | ------- | --------- | ---------- | ---------- | ------------ | ---------- | ------------ | ----------- | - | ---------- | --------- | --------- | - | ---------- | ----------- | ----------- | -
|                                                    |                                                         |                                                     |            | NINE MONTH PERIOD ENDED MARCH 31, 2002
|                                                    |                                                         |                                                     |            |                                       
|                                                    |                                                         |                                                     |            | Penhall                                |           | Penhall |           |            |            |              |            |              |             |   |            |           |           |  
|                                                    |                                                         |                                                     |            | International                          |           | Rental  |           | Penhall    |            |              |            |              |             |   |            |          
|                                                    |                                                         |                                                     |            | Corp.                                  |           | Corp.   |           | Company    |            | Eliminations |            | Consolidated
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |             
|Net cash provided by (used in)
operating activities |                                                         | $                                                   | (3,955,000 | )                                      |           | $       | 4,953,000 |            |            | $            | 15,080,000 |              |             | $ | (5,986,000 | )         |           | $ | 10,092,000 |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|Cash flows from investing activities:               |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sale of assets                            |                                                     |            |                                       |           |         |           |           |            |              |            | 320,000      |             |   |            |          |           |   |            | 320,000     |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Capital expenditures                                    |                                                     |            |                                       |           |         |           | 30,000     |            |              |            | (7,265,000   | )           |   |            |          |           |   |            | (7,235,000  | )          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Acquisition of assets                                   |                                                     |            |                                       |           |         |           |           |            |              |            | (3,507,000   | )           |   |            |          |           |   |            | (3,507,000  | )          
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|                                                    |                                                         | Net cash provided by (used in)
investing activities |            |                                        |          |         |           |            | 30,000     |              |            |              | (10,452,000 | ) |            |           |          |   |            |             | (10,422,000 | )
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|Cash flows from financing activities:               |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Due to (from) affiliates                                |                                                     |            | 5,505,000                              |           |         |           | (3,140,000 | )          |              |            | (8,351,000   | )           |   |            | 5,986,000 |           |   |            |            |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Borrowings under long-term debt                         |                                                     |            | 59,760,000                             |           |         |           |           |            |              |            | 2,881,000    |             |   |            |          |           |   |            | 62,641,000  |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Repayments of long-term debt                            |                                                     |            | (61,641,000                            | )         |         |           | (9,000     | )          |              |            | (830,000     | )           |   |            |          |           |   |            | (62,480,000 | )          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Book overdraft                                          |                                                     |            |                                       |           |         |           |           |            |              |            | 1,925,000    |             |   |            |          |           |   |            | 1,925,000   |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from issuance of common stock                  |                                                     |            | 213,000                                |           |         |           |           |            |              |            |             |             |   |            |          |           |   |            | 213,000     |            
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Repurchase of common stock and
Series B preferred stock |                                                     |            | (40,000                                | )         |         |           |           |            |              |            |             |             |   |            |          |           |   |            | (40,000     | )          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Issuance of Series B preferred stock                    |                                                     |            | 158,000                                |           |         |           |           |            |              |            |             |             |   |            |          |           |   |            | 158,000     |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|                                                    |                                                         | Net cash provided by (used in)
financing activities |            |                                        | 3,955,000 |         |           |            | (3,149,000 | )            |            |              | (4,375,000  | ) |            |           | 5,986,000 |   |            |             | 2,417,000   |  
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|                                                    |                                                         | Net change in cash
and cash equivalents             |            |                                        |          |         |           |            | 1,834,000  |              |            |              | 253,000     |   |            |           |          |   |            |             | 2,087,000   |  
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents at
beginning of period    |                                                         |                                                     |           |                                        |           |         | 921,000   |            |            |              | 109,000    |              |             |   |           |           |           |   | 1,030,000  |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            
|Cash and cash equivalents at
end of period          |                                                         | $                                                   |           |                                        |           | $       | 2,755,000 |            |            | $            | 362,000    |              |             | $ |           |           |           | $ | 3,117,000  |            
|                                                    |                                                         |                                                     |            |                                        |           |         |           |            |            |              |            |              |             |   |            |           |           |   |            |            



|(5) |  | Subsequent Event
|--- |  | ----------------

In April 2002, Penhall Company, a California corporation and a
wholly-owned subsidiary of Penhall, purchased selected assets of Arizona Curb
Cut for approximately $540,000 in total consideration.

16



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##### Table of Contents






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

The following discussion of the results of operations and financial
condition of Penhall International Corp. (Penhall) should be read in
conjunction with the unaudited condensed consolidated financial statements and
footnotes thereto included in this quarterly report on Form 10-Q and the
Companys audited consolidated financial statements and footnotes thereto
included in the annual report on Form 10-K, filed with the Securities and
Exchange Commission.

General

Penhall was founded in 1957 in Anaheim, California with one piece of
equipment, and today is one of the largest Operated Equipment Rental Services
companies in the United States. Penhall differentiates itself from other
equipment rental companies by providing specialized services in connection with
infrastructure projects through renting equipment along with skilled operators
to serve customers in the construction, industrial, manufacturing, governmental
and residential markets. In addition, Penhall complements its Operated
Equipment Rental Services with fixed-price contracts, which serve to market its
operated equipment rental services business and increase utilization of its
operated equipment rental fleet. Penhall provides its services from thirty nine
locations in eighteen states, with a presence in some of the fastest growing
states in terms of construction spending and population growth.

The operated equipment rental industry is a specialized niche of the
highly fragmented United States equipment rental industry, in which there are
approximately 17,000 companies. Penhall has taken advantage of consolidation
opportunities by acquiring small companies in targeted markets as well as by
establishing new offices in those markets. Since 1995, Penhall has effected ten
strategic acquisitions, including:



| | 1.  |  | Concrete Coring Company, an Austin-based company acquired in 1995,                                            
| | --- |  | --------------------------------------------------------------------------------------------------------------
|
| | 2.  |  | Zig Zag Company, a Denver-based firm acquired in 1996,                                                        
|
| | 3.  |  | Metro Concrete Cutting, an Atlanta-based company acquired in 1996,                                            
|
| | 4.  |  | HSI, a Minnesota-based firm acquired in April 1998,                                                           
|
| | 5.  |  | Daley Concrete Cutting, a South Carolina-based division of U.S.
Rentals
acquired in October 1998,             
|
| | 6.  |  | Lipscomb Concrete Cutting, a North Carolina-based company acquired in
November 1998,                          
|
| | 7.  |  | Prospect Drilling and Sawing, a Minnesota-based company acquired in
June 1999,                                
|
| | 8.  |  | Advance Concrete Sawing and Drilling, Inc., a Bakersfield,
California-based company
acquired in September 2000
|
| | 9.  |  | H&P Sawing and Drilling, a Kansas City, Missouri-based Company
acquired
in March 2001 and                     
|
| | 10. |  | Bob Mack Company, a Visalia, California-based company acquired in
March 2002.                                 

During the same period, Penhall established operations in ten new markets
by opening offices in Las Vegas, Salt Lake City, Portland, Dallas, Richmond,
Fresno, Buffalo, Reno, Seattle and Cleveland.

In March 2002, Penhall Company, a California corporation and a
wholly-owned subsidiary of Penhall, purchased 100% of the stock of Bob Mack
Company, Inc (Bob Mack) and selected assets of Bobbie Mack Grinding, Inc
(Grinding). Bob Mack and Grinding were related parties prior to the
purchase. Total consideration

17



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##### Table of Contents



for the purchase of Bob Mack stock was approximately $6.0 million, $3.0 million
in cash and the remainder payable in equal installments in March 2003 and 2004.
Total consideration for the purchase of selected assets from Grinding was
$800,000, $400,000 in cash and the remainder payable in equal installments in
March 2003 and 2004. In addition, the shareholders of Bob Mack signed 5 year
non-compete agreements with Penhall which restrict the former shareholders of
Bob Mack from competing with the acquired business and requires Penhall to pay
the former shareholders $1.4 million in 5 equal payments over a four year
period. The acquisition was accounted for in accordance with SFAS 141,
Business Combinations. The results of operations for the month of March 2002
of Bob Mack are included in the consolidated financial statements as of March
31, 2002. The Company recorded approximately $2.4 million of goodwill related
to this transaction. Based in Visalia, California, Bob Mack primarily operates
in central California and is a provider of asphalt removal, grinding and
milling services. The acquisition of Bob Mack expands the range of services
offered by Penhall.

Penhall derives its revenues primarily from services provided for
infrastructure related jobs. Penhalls Operated Equipment Rental Services are
complemented by long-term fixed-price contracts. Penhalls revenues are
derived from highway-related projects, building-related projects, airport,
residential and other projects. The following table shows the breakdown of the
components of revenue for the periods indicated:

|                                   |                |   |                                     |        |                                    |  |      |       |       |   |        |        |       |  |      |       |       |   |        |         |  |  |      |       |      |   |        |         |  |  |      |       |  
|---------------------------------- | -------------- | - | ----------------------------------- | ------ | ---------------------------------- |  | ---- | ----- | ----- | - | ------ | ------ | ----- |  | ---- | ----- | ----- | - | ------ | ------- |  |  | ---- | ----- | ---- | - | ------ | ------- |  |  | ---- | ----- | -
|                                   |                |   | THREE MONTH PERIODS ENDED MARCH 31, |        | NINE MONTH PERIODS ENDED MARCH 31,
|                                   |                |   |                                     |        |                                   
|                                   |                |   | 2002                                |        | 2001                               |  | 2002 |       | 2001 
|                                   |                |   |                                     |        |                                    |  |      |       |      
|                                   |                |   |                                     |        |                                    |  | % of |       |       |   |        |        | % of  |  |      |       |       |   | % of   |         |  |  |      |       | % of
|                                   |                |   | $                                   |        | Total                              |  | $    |       | Total |   | $      |        | Total |  | $    |       | Total
|                                   |                |   |                                     |        |                                    |  |      |       |       |   |        |        |       |  |      |       |      
|                                   |                |   | (Dollars in Thousands)              |        | (Dollars in Thousands)            
|Operated Equipment Rental Services |                | $ | 23,743                              |        |                                    |  | 79.1 | %     |       | $ | 25,744 |        |       |  | 76.6 | %     |       | $ | 87,422 |         |  |  | 74.8 | %     |      | $ | 93,182 |         |  |  | 72.5 | %    
|                                  
|                                  
|                                  
|                                  
|Contract Services (1)              |                |   | 6,267                               |        |                                    |  | 20.9 | %     |       |   | 7,875  |        |       |  | 23.4 | %     |       |   | 29,419 |         |  |  | 25.2 | %     |      |   | 35,348 |         |  |  | 27.5 | %    
|                                   |                |   |                                     |        |                                    |  |      |       |       |   |        |        |       |  |      |       |       |   |        |         |  |  |      |       |      |   |        |         |  |  |      |      
|                                   | Total Revenues |   | $                                   | 30,010 |                                    |  |      | 100.0 | %     |   | $      | 33,619 |       |  |      | 100.0 | %     |   | $      | 116,841 |  |  |      | 100.0 | %    |   | $      | 128,530 |  |  |      | 100.0 | %
|                                   |                |   |                                     |        |                                    |  |      |       |       |   |        |        |       |  |      |       |       |   |        |         |  |  |      |       |      |   |        |         |  |  |      |      



---

|(1) |  | Contract services revenues exclude services performed by the operated
equipment rental divisions on long-term contracts.
|--- |  | ------------------------------------------------------------------------------------------------------------------------

Revenue growth is influenced by infrastructure change, including new
construction, modification and natural disasters, such as the 1989 and 1994
earthquakes in Northern and Southern California. Other factors that influence
Penhalls operations are demand for operated rental equipment, the amount and
quality of equipment available for rent, rental rates and general economic
conditions. Historically, revenues have been seasonal, as weather conditions in
the spring and summer months result in stronger performance in the first and
fourth fiscal quarters than in the second and third fiscal quarters.

The principal components of Penhalls operating costs include the cost of
labor, equipment rental fleet maintenance costs including parts and service,
equipment rental fleet depreciation, insurance and other direct operating
costs. Given the varied, and in some cases specialized, nature of its rental
equipment, Penhall utilizes a range of periods over which it depreciates its
equipment on a straight-line basis. On average, Penhall depreciates its
equipment over an estimated useful life of six years with a 10% residual value.

Critical Accounting Policies and Estimates

The Companys discussion and analysis of its financial condition and results of
operations are based upon the Companys consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of consolidated
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
the Company evaluates its estimates, including those related to long-term
construction contracts, accounts receivable, goodwill, long-lived assets,
self-insurance, contingencies and litigation. The Company bases its estimates
on current information, historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities and the

18



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##### Table of Contents



recognition of revenue that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

The Company believes the following critical accounting policy affects its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:

Revenue Recognition on Long-Term Construction Contracts

Income from construction operations is recorded using the
percentage-of-completion method of accounting. The Company has two types of
contracts. The first type of contract is fixed unit in which the percentage of
completion is determined based on the units completed as a percentage of
estimated total units. The second type of contract is lump sum in which
percentage of completion is determined based on costs to date as compared to
total estimated costs at completion. If estimated total costs on any contract
indicate a loss, the Company provides currently for the total loss anticipated
on the contract. For long-term contracts, which extend beyond fiscal year ends,
revisions in cost and profit estimates during the course of the work are
reflected in the accounting period in which facts requiring the revision become
known. All remaining revenue and costs are recognized as work is performed.

The Company is not a party to any off-balance sheet arrangements, and does not
engage in trading activities involving non-exchange traded contracts, and is
not a party to any transactions with any persons or activities that derive
benefits from their non-independent relations with the Company.

Results of Operations

Nine Months Ended March 31, 2002 Compared to Nine months Ended March 31,
2001

Revenues.Revenues for the nine months ended March 31, 2002 (Interim
2002) were $116.8 million, a decrease of $11.7 million or 9.1% over the nine
months ended March 31, 2001 (Interim 2001). Lower revenues in Interim 2002
were primarily a result of a weaker economy and increased competition.

Gross Profit.Gross profit totaled $30.6 million in Interim 2002, a
decrease of $7.2 million or 18.9% from Interim 2001. Gross profit as a
percentage of revenues decreased from 29.3% in Interim 2001 to 26.1% in Interim
2002. The decrease in gross profit from Interim 2001 to Interim 2002 is
primarily attributable to decreased revenue, increased competition, and an
increase of $1.0 million in insurance costs during Interim 2002. The decrease
in gross profit as a percentage of revenues was due to increased competition,
an increase in insurance costs and a decrease in equipment utilization.

General and Administrative Expenses.General and administrative expenses
were $21.6 million in Interim 2002 compared to $20.9 million in Interim 2001.
As a percent of revenues, general and administrative expenses were 18.4% in
Interim 2002 compared to 16.2% in Interim 2001. The increase in general and
administrative expenses as a percentage of revenues during Interim 2002 is
attributable to the fixed nature of these types of expenses and an increase in
salaries and related expenses for new offices that was offset by a general
decrease in salaries in all divisions due to staff reductions in response to
the weakening economy.

Interest Expense.Interest expense was $10.7 million in Interim 2002
compared to interest expense of $11.4 million in Interim 2001. The decrease in
interest expense is attributable to lower interest rates and lower borrowings
by the Company in Interim 2002.

Income Tax Expense (Benefit).The Company recorded an income tax benefit
of $0.3 million, or 41% of loss before income taxes in Interim 2002, compared
to an income tax provision of $2.6 million, or 41% of earnings before income
taxes in Interim 2001. The income tax benefit is attributable to a loss before income tax in Interim 2002.

19



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Three months Ended March 31, 2002 Compared to Three months Ended March 31,
2001

Revenues.Revenues for the three months ended March 31, 2002 (Interim
2002) were $30.0 million, a decrease of $3.6 million or 10.7% over the three
months ended March 31, 2001 (Interim 2001). Lower revenues in Interim 2002
were primarily a result of a weaker economy and increased competition.

Gross Profit.Gross profit totaled $6.0 million in Interim 2002, a
decrease of $2.7 million or 30.6% from Interim 2001. Gross profit as a
percentage of revenues decreased to 20.1% in Interim 2002 from 25.9% in Interim
2001. The decrease in gross profit is primarily attributable to decreased
revenue and an increase in competition and increased insurance costs. The
decrease in gross profit as a percentage of revenues was due primarily to
increased competition and a decrease in utilization, particularly the Companys
grinding and excavating equipment.

General and Administrative Expenses.General and administrative expenses
were $6.6 million in Interim 2002 compared to $6.0 million in Interim 2001, an
increase of $0.6 million. As a percent of revenues, general and administrative
expenses were 22.0% in Interim 2002 compared to 17.9% in Interim 2001. The
increase in general and administrative expenses as a percentage of revenues is
primarily due to the fixed nature of these expenses and includes an increase in
health insurance expense of $0.1 million, as well as an increase in salaries
and related expenses for new offices that was offset by a general decrease in
salaries in all divisions due to staff reductions in response to the weakening
economy.

Interest Expense.Interest expense was $3.4 million in Interim 2002
compared to interest expense of $3.7 million in Interim 2001. The decrease in
interest expense is attributable to lower interest rates and lower borrowings
in Interim 2002.

Income Tax Expense (Benefit).The Company recorded an income tax benefit
of $1.5 million, or 41% of loss before income taxes in Interim 2002 compared to
an income tax benefit of $0.3 million, or 41% of loss before income taxes in
Interim 2001. The tax benefit is attributable to a higher loss before income
tax in Interim 2002.

Liquidity and Capital Resources

It is anticipated that the Companys principal uses of liquidity will be
to fund working capital, meet debt service requirements and finance the
Companys strategy of pursuing strategic acquisitions and expanding through
internal growth. The Companys principal sources of liquidity are expected to
be cash flow from operations and borrowings under the New Credit Facility
(originated in 1998). The New Credit Facility consists of two facilities: (i) a
six-year senior secured term loan facility in an aggregate principal amount
equal to $20.0 million (the Term Loan Facility); and (ii) a six-year
revolving credit facility in an aggregate principal amount not to exceed $30.0
million (the Revolving Credit Facility). The Company drew $20.0 million of
loans under the Term Loan Facility (Term Loans) on the closing date of the
New Credit Facility in connection with the Recapitalization. The Term Loans
amortize on a quarterly basis and are payable in installments under a schedule set
forth in the New Credit Facility. Advances made under the Revolving Credit
Facility (Revolving Loans) are due and payable in full on June 15, 2004. The
Term Loans and the Revolving Loans are subject to mandatory prepayments and
reductions in the event of certain extraordinary transactions or issuances of
debt and equity by the Company or any subsidiary of the Company that guarantees
amounts under the New Credit Facility. Such loans are also required to be
prepaid with 75% of the Excess Cash Flow (as such term is defined in the New
Credit Facility) of the Company or, if the Companys Leverage Ratio (as such
term is defined in the New Credit Facility) is less than 5.25 to 1.0, 50% of
such Excess Cash Flow.

|                                   |                      |      |         |         |   |  |        |         |   |  |  |  | 
|---------------------------------- | -------------------- | ---- | ------- | ------- | - |  | ------ | ------- | - |  |  |  | 
|SUMMARY CASH FLOW DATA (000's) FOR |                      |      |         |         |   |  |        |         |   |  |  | 
|THE NINE MONTHS ENDED March 31,    |                      | 2001 |         | 2002    |   |  |        |        
|                                  
|Cash and cash equivalents          |                      |      | 1,273   |         |   |  | 3,117  |         |   |  |  | 
|                                  
|Net cash provided by (used in):    |                      |      |         |         |   |  |        |         |   |  |  | 
|                                  
|                                   | Operating activities |      |         | 11,711  |   |  |        | 10,092  |   |  |  |  | 
|                                  
|                                   | Investing activities |      |         | (13,023 | ) |  |        | (10,422 | ) |  |  |  | 
|                                  
|                                   | Financing activities |      |         | 476     |   |  |        | 2,417   |   |  |  |  | 
|                                  
|Capital expenditures               |                      |      | (13,298 | )       |   |  | (7,235 | )       |   |  |  | 
|                                  

20



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Cash provided by operating activities decreased to $10.1 million in
Interim 2002 from $11.7 million in Interim 2001, a decrease of $1.6 million.
In Interim 2002, the Companys net loss and depreciation plus a decrease in
receivables less a decrease in trade accounts payable and accrued liabilities
resulted in $10.1 million net cash provided by operating activities. In
Interim 2001, the Companys net earnings and depreciation plus a reduction in
receivables, offset by a reduction in accounts payable, accrued liabilities and
income taxes resulted in $11.7 million net cash provided from operating
activities.

Net cash used in investing activities decreased $2.6 million to $10.4
million in Interim 2002 from $13.0 million in Interim 2001. The reduction in
net cash used in investing activities is primarily attributable to a decrease
in capital expenditures of $6.1 million, offset by an increase in acquisitions
of $3.5 million in Interim 2002 as compared to Interim 2001.

Management estimates that the Companys annual capital expenditures will
be approximately $11.0 million for fiscal 2002, including replacement and
maintenance of equipment, purchases of new equipment, and purchases of real
property.

Net cash provided by financing activities in Interim 2002 was $2.4 million
as compared to $0.5 million provided by Interim 2001. In Interim 2002, the
Companys financing activities are primarily a result of borrowings and
repayments of long-term debt and a book overdraft. In Interim 2001, the
Companys financing activities were primarily the result of borrowings and
repayments of long-term debt and a book overdraft.

Historically, the Company has funded its working capital requirements,
capital expenditures and other needs principally from operating cash flows. As
a result of the Transactions, however, the Company has substantial indebtedness
and debt service obligations. As of March 31, 2002, the Company and its
subsidiaries had approximately $128.9 million of total indebtedness outstanding
(including the Notes) plus outstanding letters of credit of $4.5 million and a
stockholders deficit of approximately $63.9 million. As of March 31, 2002,
approximately $17.5 million of additional borrowing was available under the
Companys New Credit Facility.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be
accounted for separately. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.

The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior to
July 1, 2001, which have been accounted for using the pooling-of-interests
method, and Statement 142 effective July 1, 2002. Companies with fiscal year
ends beginning after March 15, 2001, who have not yet issued financial
statements for their first interim period may early adopt Statement 142.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature. Goodwill and intangible

21



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##### Table of Contents



assets acquired in business combinations completed before July 1, 2001
will continue to be amortized prior to the adoption of Statement 142.

Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141
for recognition apart from goodwill. Upon adoption of Statement 142, the
Company will be required to reassess the useful lives and residual values of
all intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim
period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of
a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether
there is an indication that goodwill is impaired as of the date of adoption.
To accomplish this, the Company must identify its reporting units and determine
the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. The Company will then have up to
six months from the date of adoption to determine the fair value of each
reporting unit and compare it to the reporting units carrying amount. To the
extent a reporting units carrying amount exceeds its fair value, an indication
exists that the reporting units goodwill may be impaired and the Company must
perform the second step of the transitional impairment test. In the second
step, the Company must compare the implied fair value of the reporting units
goodwill, determined by allocating the reporting units fair value to all of it
assets (recognized and unrecognized) and liabilities in a manner similar to a
purchase price allocation in accordance with Statement 141, to its carrying
amount, both of which would be measured as of the date of adoption. This second
step is required to be completed as soon as possible, but no later than the end
of the year of adoption. Any transitional impairment loss will be recognized as
the cumulative effect of a change in accounting principle in the Companys
statement of operations.

And finally, any unamortized negative goodwill existing at the date
Statement 142 is adopted must be written off as the cumulative effect of a
change in accounting principle.

The Company will adopt Statement 142 in the first quarter of fiscal 2003.
The adoption of Statement 142 may have a significant effect on the Companys
results from operations. Because of the extensive effort needed to comply with
adopting Statements 141 and 142, it is not practicable to reasonably estimate
the impact of adopting these statements on the Companys consolidated financial
statements at the date of this report, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle. The Company anticipates unamortized Goodwill
immediately prior to adoption of Statement 142 will be $9.0 million.

In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144), which supersedes both FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of (Statement 121) and the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (Opinion 30), for the disposal
of a segment of a business (as previously defined in that Opinion). Statement
144 retains the fundamental provisions in Statement 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale, while also resolving significant
implementation issues associated with Statement 121. Statement 144 retains the
basic provisions of Opinion 30 on how to present discontinued operations in the
income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). Unlike Statement 121, an
impairment assessment under Statement 144 will never result in a write-down of
goodwill. Rather, goodwill is evaluated for impairment under Statement No.
142, Goodwill and Other Intangible Assets.

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The Company is required to adopt Statement 144 no later than the year
beginning after December 15, 2001. Accordingly, the Company will adopt
Statement 144 in the first quarter of fiscal 2003. Management does not expect
the adoption of Statement 144 for long-lived assets held for use to have a
material impact on the Companys financial statements because the impairment
assessment under Statement 144 is largely unchanged from Statement 121. The
provisions of the Statement for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities. Management does not believe that the
adoption of Statement 144 for assets held for sale or other disposal to have a
material impact on the Companys financial statements.

On July 18, 2001, the SEC issued interpretative guidance relating to the
Classification and Measurement of Redeemable Securities. This ruling
requires, among other things, that preferred shares subject to redemption upon
change in control be classified outside of permanent equity. In accordance
with the required implementation of this new requirement, the Company has
evaluated the impact on the Series B Preferred Stock and determined that there
is no impact on the classification of the Series B Preferred Stock.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement requires an enterprise to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets. Since the requirement is to recognize the obligation when
incurred, approaches that have been used in the past to accrue the asset
retirement obligation over the life of the asset are no longer acceptable.
SFAS No. 143 also requires the enterprise to record the contra to the initial
obligation as an increase to the carrying amount of the related long-lived
asset, i.e., the associated asset retirement costs, and to depreciate that
cost over the life of the asset. The liability is increased at the end of each
period to reflect the passage of time, i.e., accretion expense, and changes in
the estimated future cash flows underlying the initial fair value measurement.
The Company will adopt SFAS No. 143 in the first quarter of fiscal 2003. This
Statement is not expected to have a material impact on the Companys financial
reporting and related disclosures.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

The Company is exposed to interest rate changes primarily as a result of
its notes payable, including Senior Notes, Term Loan and Revolving Loan used to
maintain liquidity and fund capital expenditures and expansion of the Companys
operations. The Companys interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower
its overall borrowing costs. To achieve its objectives the Company borrows
primarily at fixed rates and has the ability to choose interest rates under the
Term Loan and Revolving Loan. The Company does not enter into derivative or
interest rate transactions for speculative purposes.

The table below presents the principal amounts of debt (excluding capital
lease obligations of $3,231,000), weighted average interest rates, fair values
and other items required by the year of expected maturity to evaluate the
expected cash flows and sensitivity to interest rate changes as of March 31,
2002.

|                                           |  |                      |       |      |  |      |       |      |  |      |        |            |  |       |       |       |  |   |         |   |  |   |       |   |  |   |         |   |  |      |         |    
|------------------------------------------ |  | -------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ------ | ---------- |  | ----- | ----- | ----- |  | - | ------- | - |  | - | ----- | - |  | - | ------- | - |  | ---- | ------- | ---
|                                           |  | Years Ended June 30, |       |      |  |      |       |      |  |      |        |            |  |      
|                                           |  |                      |       |      |  |      |       |      |  |      |        |            |  |      
|                                           |  |                      |       |      |  |      |       |      |  |      |        |            |  |       |       |       |  |   |         |   |  |   |       |   |  |   |         |   |  | Fair
|                                           |  | 2002                 |       | 2003 |  | 2004 |       | 2005 |  | 2006 |        | Thereafter |  | Total |       | Value
|                                           |  |                      |       |      |  |      |       |      |  |      |        |            |  |       |       |      
|                                           |  | (In thousands)      
|Fixed rate debt                            |  | $                    | 473   |      |  | $    | 2,140 |      |  | $    | 1,658  |            |  | $     | 4     |       |  | $ | 100,004 |   |  | $ | 171   |   |  | $ | 104,450 |   |  | $    | 104,450 | (2)
|                                          
|                                          
|                                          
|                                          
|Average interest rate                      |  |                      | 9.14  | %    |  |      | 4.36  | %    |  |      | 2.70   | %          |  |       | 10.00 | %     |  |   | 12.00   | % |  |   | 10.00 | % |  |   | 11.68   | % |  |      | 11.68   | %  
|                                          
|                                          
|                                          
|                                          
|Variable rate LIBOR debt (1)               |  | $                    | 1,250 |      |  | $    | 6,000 |      |  | $    | 14,000 |            |  | $     | 0     |       |  | $ | 0       |   |  | $ | 0     |   |  | $ | 21,250  |   |  | $    | 21,250  |    
|                                          
|                                          
|                                          
|                                          
|Weighted average current
interest rate (1) |  |                      |       |      |  |      |       |      |  |      |        |            |  |       |       |       |  |   |         |   |  |   |       |   |  |   |         |   |  |      | 3.74    | %  



---

|(1) |  | The Company has different interest rate options for its variable rate
debt.
|--- |  | ---------------------------------------------------------------------------

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|(2) |  | The fair value of fixed rate debt was determined based on current rates
offered for debt instruments with similar risks and maturities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------




Part II  Other Information




Items 1-5 are not applicable




Item 6. Exhibits and Reports on Form 8-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|      |  |              |  |                                                                                                  
|----- |  | ------------ |  | -------------------------------------------------------------------------------------------------
|      |  |              |  | Penhall International Corp.                                                                      
|     
|      |  |              |  |                                                                                                  
|     
|Date: |  | May 14, 2002 |  | /s/      John T. SawyerJohn T. SawyerChairman of the Board, President and
Chief Executive Officer

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