<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2005 OR


[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
                          ____________ TO ____________


                         COMMISSION FILE NUMBER 0-13667



                             PDG ENVIRONMENTAL, INC.
             (Exact name of registrant as specified in its charter)




                  DELAWARE                                      22-2677298
(State or other jurisdiction of incorporation                 (I.R.S. Employer
              or organization)                               Identification No.)

      1386 BEULAH ROAD, BUILDING 801
          PITTSBURGH, PENNSYLVANIA                                      15235
 (Address of principal executive offices)                            (Zip Code)

                                  412-243-3200
              (Registrant's telephone number, including area code)

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

Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes      No  X
                                        ---     ---

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

As of December 12, 2005, there were 15,742,926 shares of the registrant's common
stock outstanding.


<PAGE>


                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES


                                      INDEX




<TABLE>
<S>                                                                                                     <C>
PART I.  FINANCIAL INFORMATION                                                                           PAGE

    Item 1.   Consolidated Financial Statements and Notes to Consolidated Financial Statements


         (a)  Condensed Consolidated Balance Sheets as of October 31, 2005 (unaudited) and
              January 31, 2005                                                                             3

         (b)  Consolidated Statements of Operations for the Three Months Ended October 31, 2005
              and 2004 (unaudited)                                                                         4

         (c)  Consolidated Statements of Operations for the Nine Months Ended October 31, 2005
              and 2004 (unaudited)                                                                         5

         (d)  Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2005
              and 2004 (unaudited)                                                                         6

         (e)  Notes to Consolidated Financial Statements (unaudited)                                       7


    Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations       18

    Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                  22

    Item 4.   Controls and Procedures                                                                     22

PART II.  OTHER INFORMATION

    Item 1.   Legal Proceedings                                                                           24

    Item 1A.   Risk Factors                                                                               24

    Item 4.   Submission of Matters to a Vote of Security Holders                                         26

    Item 6.   Exhibits                                                                                    27

    Signature and Certification                                                                           28
</TABLE>



                                       2
<PAGE>



                          PART I. FINANCIAL INFORMATION
                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    OCTOBER 31,          JANUARY 31,
                                                                                       2005                 2005
                                                                                   ------------         ------------
                                                                                    (UNAUDITED)
<S>                                                                               <C>                  <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents                                                          $    283,000         $    333,000
Accounts receivable - net of allowance of $214,000                                   21,513,000           14,907,000
Costs and estimated earnings in excess of billings on uncompleted contracts           8,042,000            4,940,000
Inventory                                                                               794,000              590,000
Prepaid income taxes                                                                     45,000                 --
Other current assets                                                                    552,000              226,000
                                                                                   ------------         ------------

TOTAL CURRENT ASSETS                                                                 31,229,000           20,996,000
                                                                                   ------------         ------------

PROPERTY, PLANT AND EQUIPMENT                                                         9,549,000            8,565,000
Less:  accumulated depreciation                                                      (7,620,000)          (7,227,000)
                                                                                   ------------         ------------
                                                                                      1,929,000            1,338,000
                                                                                   ------------         ------------

GOODWILL                                                                              2,600,000            1,338,000
OTHER ASSETS                                                                          5,725,000              270,000
                                                                                   ------------         ------------

TOTAL ASSETS                                                                       $ 41,483,000         $ 23,942,000
                                                                                   ============         ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                                                                   $  7,248,000         $  4,145,000
Billings in excess of costs and estimated earnings
  on uncompleted contracts                                                            2,233,000            2,222,000
Current portion of long-term debt                                                       841,000              192,000
Current income tax liabilities                                                             --                305,000
Accrued liabilities                                                                   4,870,000            2,937,000
                                                                                   ------------         ------------

TOTAL CURRENT LIABILITIES                                                            15,192,000            9,801,000

LONG-TERM DEBT                                                                        7,280,000            5,013,000
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK                                       2,745,000                 --
                                                                                   ------------         ------------

TOTAL LIABILITIES                                                                    25,217,000           14,814,000
                                                                                   ------------         ------------

STOCKHOLDERS' EQUITY
Common stock                                                                            308,000              260,000
Common stock warrants                                                                 2,134,000              153,000
Additional paid-in capital                                                           13,344,000            9,940,000
Retained earnings (deficit)                                                             518,000           (1,187,000)
Less treasury stock, at cost                                                            (38,000)             (38,000)
                                                                                   ------------         ------------

TOTAL STOCKHOLDERS' EQUITY                                                           16,266,000            9,128,000
                                                                                   ------------         ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $ 41,483,000         $ 23,942,000
                                                                                   ============         ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>



                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
                      STATEMENTS OF CONSOLIDATED OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                FOR THE THREE MONTHS
                                                                                  ENDED OCTOBER 31,
                                                                          ---------------------------------
                                                                              2005                 2004
                                                                          ------------         ------------
<S>                                                                      <C>                  <C>
CONTRACT REVENUE                                                          $ 26,186,000         $ 18,903,000
CONTRACT COSTS                                                              22,071,000           16,024,000
                                                                          ------------         ------------

Gross margin                                                                 4,115,000            2,879,000

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                 2,436,000            1,676,000
GAIN ON SALE OF FIXED ASSETS                                                    10,000                 --
                                                                          ------------         ------------


Income from operations                                                       1,689,000            1,203,000

OTHER INCOME (EXPENSE):
Interest expense                                                              (114,000)            (104,000)
Interest expense for preferred dividends and accretion of discount            (242,000)                --
Equity in income (losses) of equity investment                                    --                 (8,000)
Interest and other income                                                        3,000                3,000
                                                                          ------------         ------------

                                                                              (353,000)            (109,000)
                                                                          ------------         ------------

Income before income taxes                                                   1,336,000            1,094,000

INCOME TAX PROVISION                                                          (331,000)             (88,000)
                                                                          ------------         ------------

NET INCOME                                                                $  1,005,000         $  1,006,000
                                                                          ============         ============

PER SHARE OF COMMON STOCK:

BASIC                                                                     $       0.07         $       0.09
                                                                          ============         ============

DILUTIVE                                                                  $       0.05         $       0.09
                                                                          ============         ============

AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING                                15,100,000           10,936,000

AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING                                                                  8,836,000              834,000
                                                                          ------------         ------------

AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION                                                           23,936,000           11,770,000
                                                                          ============         ============

</TABLE>



See accompanying notes to consolidated financial statements.



                                       4
<PAGE>




                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
                      STATEMENTS OF CONSOLIDATED OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                FOR THE NINE MONTHS
                                                                                  ENDED OCTOBER 31,
                                                                          ---------------------------------
                                                                              2005                 2004
                                                                          ------------         ------------
<S>                                                                      <C>                  <C>
CONTRACT REVENUE                                                          $ 56,457,000         $ 44,874,000
CONTRACT COSTS                                                              47,558,000           38,371,000
                                                                          ------------         ------------

Gross margin                                                                 8,899,000            6,503,000

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                 5,837,000            4,692,000
GAIN ON SALE OF FIXED ASSETS                                                    10,000              110,000
                                                                          ------------         ------------

Income from operations                                                       3,072,000            1,921,000

OTHER INCOME (EXPENSE):
Interest expense                                                              (310,000)            (286,000)
Interest expense for preferred dividends and accretion of discount            (322,000)                --
Gain on sale of equity investment                                               48,000                 --
Equity in income (losses) of equity investment                                   4,000              (24,000)
Interest and other income                                                       22,000                9,000
                                                                          ------------         ------------

                                                                              (558,000)            (301,000)
                                                                          ------------         ------------

Income before income taxes                                                   2,514,000            1,620,000

INCOME TAX PROVISION                                                          (809,000)            (130,000)
                                                                          ------------         ------------

NET INCOME                                                                $  1,705,000         $  1,490,000
                                                                          ============         ============

PER SHARE OF COMMON STOCK:

BASIC                                                                     $       0.12         $       0.14
                                                                          ============         ============

DILUTIVE                                                                  $       0.10         $       0.13
                                                                          ============         ============

AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING                                13,911,000           10,710,000

AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING                                                                  5,734,000            1,123,000
                                                                          ------------         ------------

AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION                                                           19,645,000           11,833,000
                                                                          ============         ============
</TABLE>

See accompanying notes to consolidated financial statements.



                                       5
<PAGE>



                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
                      STATEMENTS OF CONSOLIDATED CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   FOR THE NINE MONTHS
                                                                                    ENDED OCTOBER 31,
                                                                                 2005               2004
                                                                              -----------         -----------
<S>                                                                          <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                    $ 1,705,000         $ 1,490,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH:
    Depreciation and amortization                                                 666,000             507,000
    Interest expense for preferred dividends and accretion of discount            322,000                --
    Provision for allowance for doubtful accounts                                    --               150,000
    Gain on sale of fixed assets and equity investment                            (58,000)           (110,000)
    Stock based compensation                                                         --                 6,000
    Equity in (income) losses of equity investment                                 (4,000)             24,000
CHANGES IN ASSETS AND LIABILITIES
  OTHER THAN CASH:
    Accounts receivable                                                        (6,606,000)         (6,701,000)
    Costs and estimated earnings in excess of billings
      on uncompleted contracts                                                 (3,102,000)         (2,091,000)
    Inventory                                                                    (204,000)           (224,000)
    Prepaid income taxes                                                          (45,000)             14,000
    Other current assets                                                          633,000             633,000
    Accounts payable                                                            3,123,000           2,896,000
    Billings in excess of costs and estimated earnings
      on uncompleted contracts                                                     11,000           2,205,000
    Current income tax liabilities                                               (305,000)             51,000
    Accrued liabilities                                                         1,840,000           1,409,000
                                                                              -----------         -----------
TOTAL ADJUSTMENT                                                               (4,655,000)         (1,808,000)
                                                                              -----------         -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                               (2,024,000)            259,000

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property, plant and equipment                                  (1,004,000)           (740,000)
    Proceeds from sale of equity investment and fixed assets                       60,000             131,000
    Additional investment in joint venture                                        (18,000)            (15,000)
    Acquisition of businesses                                                  (5,339,000)           (121,000)
    Increase in other assets                                                      (62,000)            (26,000)
                                                                              -----------         -----------
NET CASH USED BY INVESTING ACTIVITIES                                          (6,363,000)           (771,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from private placement of common and preferred stock               7,160,000             448,000
    Proceeds from debt                                                          2,373,000           1,400,000
    Proceeds from exercise of stock options                                       272,000             117,000
    Redemption of preferred stock                                                    --               (13,000)
    Payment of accrued earnout liability                                         (294,000)            (69,000)
    Payment of premium financing                                                 (959,000)           (891,000)
    Principal payments on debt                                                   (215,000)           (492,000)
                                                                              -----------         -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                       8,337,000             500,000
                                                                              -----------         -----------

Change in Cash and Cash Equivalents                                               (50,000)            (12,000)
Cash and Cash Equivalents, Beginning of Period                                    333,000              36,000
                                                                              -----------         -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                      $   283,000         $    24,000
                                                                              ===========         ===========

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY:
INCREASE IN GOODWILL AND ACCRUED LIABILITIES FOR EARNOUT LIABILITY            $   387,000         $   457,000
                                                                              ===========         ===========
FINANCING OF ANNUAL INSURANCE PREMIUM                                         $   959,000         $   891,000
                                                                              ===========         ===========
</TABLE>

See accompanying notes to consolidated financial statements.



                                       6
<PAGE>


                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE NINE MONTHS ENDED OCTOBER 31, 2005
                                   (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

The consolidated financial statements include PDG Environmental, Inc. (the
"Corporation" or "Company") and its wholly-owned subsidiaries. In the quarter
ending April 30, 2002, the Corporation formed IAQ Training Institute ("IAQ
venture") a 50/50 joint venture to provide training in mold awareness and
remediation. The IAQ venture was accounted for by the equity method of
accounting whereby the Corporation records its proportionate share of the IAQ
venture's income or loss as a component of Other Income (Expense). The
Corporation sold its investment in IAQ venture in the quarter ended April 30,
2005.

The condensed consolidated financial statements as of and for the three and nine
month periods ended October 31, 2005 and 2004 are unaudited and are presented
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Accordingly, these condensed consolidated financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K, as
amended, for the year ended January 31, 2005 and the Company's Quarterly Reports
on Form 10-Q, as amended, for the quarters ended April 30, 2005 and July 31,
2005. In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (which are of a recurring nature)
necessary for the fair statement of the results for the interim periods.

Due to variations in the environmental and specialty contracting industry, the
results of operations for any interim period are not necessarily indicative of
the results expected for the full fiscal year.

Certain prior year amounts have been reclassified to conform to the current year
presentation.

NOTE 2 - FEDERAL INCOME TAXES

A federal income tax provision of $581,000 was provided for the nine-month
period ended October 31, 2005. The provision for federal income taxes reflects
the effect of $0.33 million benefit for the federal Research and Development tax
credit which was recently quantified for the income tax returns filed for the
years ended January 31, 2002 through January 31, 2005 resulting in the amendment
of the aforementioned returns. While the Corporation did not pay any federal
income taxes for fiscal 2002, 2003 and 2004, the effect of the credit was
carried forward to the fiscal 2005 return, resulting in a refund of federal
income taxes paid, with the remainder to be fully utilized in the fiscal 2006
period.

During the nine month period ended October 31, 2004, the Corporation made no
provision for federal income taxes due to the utilization of net operating loss
carryforwards for financial reporting purposes.

At October 31, 2005 a valuation allowance for deferred taxes of $482,000 has
been provided due to the uncertainty as to the future realization of those
deferred income tax assets. While the Company has recently been profitable, the
federal net operating loss carryforward was only fully utilized in the quarter
ended January 31, 2005 and the Company's operations are subject to a high degree
of volatility due to the nature of its business. Management still believes that
the allowance is reasonable and will evaluate it prospectively at the end of
each quarter.

State income tax provisions of $228,000 and $130,000 were made in the current
and prior year periods, respectively, due to income in the current and prior
year.

Income taxes paid by the Corporation for the nine months ended October 31, 2005
and 2004 totaled approximately $1,165,000 and $52,000, respectively.

NOTE 3 - TERM DEBT

On August 3, 2000, the Corporation closed on a $4.7 million credit facility with
Sky Bank, an Ohio banking association, consisting of a 3-year $3 million
revolving line of credit, a 5-year $1 million equipment note, a 15-year $0.4
million mortgage and a 5-year $0.3 million commitment for future equipment
financing. The new financing repaid all of the Company's existing debt.


                                       7
<PAGE>

The line of credit, equipment note and commitment for future equipment financing
were initially at an interest rate of prime plus 1%. The mortgage is at an
interest rate of 9.15% fixed for three years and is then adjusted to 2.75% above
the 3-year Treasury Index every three years.

In January 2004 Sky Bank approved a permanent $500,000 increase in the Company's
line of credit to $5.5 million and in July 2004 Sky Bank approved a permanent
$1,000,000 increase in the Company's line of credit to $6.5 million

In April 2004 Sky Bank extended the maturity date on the line of credit until
June 6, 2006.

In October 2004 and December 2004 Sky Bank approved a temporary $1,000,000 and
$500,000, respectively, increase in the Company's line of credit to $8.0 million
until June 30, 2005. The increase in the line of credit was required to fund the
increase in revenues generated by the hurricane recovery work beginning in the
third quarter of fiscal 2005.

On May 18, 2005 Sky Bank permanently increased the line of credit to $8 million
and extended the maturity date to June 6, 2007. Additionally, the interest rate
on the line of credit was lowered to prime plus 1/4% and the Chief Executive
Officer's limited personnel guarantee was removed.

On September 8, 2005 Sky Bank permanently increased the line of credit to $11
million. Additionally, the interest rate on the line of credit may be lowered
from the current prime plus 1/4% rate to a London Interbank Offer Rate ("LIBOR")
based pricing upon the attainment of certain operating leverage ratio. The
initial LIBOR rate would be LIBOR plus 2.75% but would decrease to LIBOR plus
2.25% upon the attainment of improved operating leverage ratios.

In May 2005 Sky Bank also approved an equipment financing note of a maximum of
$400,000 with a four year term and a 7.25% interest rate. As of October 31,
2005, $323,000 of equipment had been financed on this equipment note.

The majority of the Corporation's property and equipment are pledged as security
for the above obligations.

On October 31, 2005, the balance on the line of credit was $6,750,000 with an
unused availability of $4,250,000.

The Corporation paid interest costs totaling approximately $288,000 and $306,000
during the nine months ended October 31, 2005 and 2004, respectively.

NOTE 4 - PREFERRED STOCK

In March 2004 in conjunction with the private placement of the Company's common
stock, as discussed in Note 8, the remaining 6,000 shares of preferred stock
were converted into 24,000 shares Common Stock with the accrued but unpaid
dividends paid in cash.

NOTE 5 - NET EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                                  FOR THE THREE MONTHS
                                                                                    ENDED OCTOBER 31,
                                                                             ------------------------------
                                                                                2005               2004
                                                                             -----------        -----------
<S>                                                                         <C>                <C>
NUMERATOR:
Net Income - Numerator for basic earnings per share--income available
      to common stockholders                                                 $ 1,005,000        $ 1,006,000

Effect of dilutive securities:
      Preferred stock dividends and accretion of discount                        242,000               --
                                                                             -----------        -----------

Numerator for diluted earnings per share--income available to
      common stock after assumed conversions                                 $ 1,247,000        $ 1,006,000
                                                                             ===========        ===========
</TABLE>


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                                  FOR THE THREE MONTHS
                                                                                    ENDED OCTOBER 31,
                                                                             ------------------------------
                                                                                2005               2004
                                                                             -----------        -----------
<S>                                                                         <C>                <C>
DENOMINATOR:

Denominator for basic earnings per share--weighted average
    shares                                                                    15,100,000         10,936,000

Effect of dilutive securities:

     Convertible Preferred Stock and related accrued dividends                 5,610,000               --
     Warrants                                                                  2,117,000               --
     Employee Stock Options                                                    1,109,000            834,000
                                                                             -----------        -----------

                                                                               8,836,000            834,000
                                                                             -----------        -----------
  Denominator for diluted earnings per share--adjusted
  weighted-average shares and assumed conversions                             23,936,000         11,770,000
                                                                             ===========        ===========

   BASIC EARNINGS PER SHARE                                                  $      0.07        $      0.09

                                                                             ===========        ===========
   DILUTED EARNINGS PER SHARE                                                $      0.05        $      0.09
                                                                             ===========        ===========
</TABLE>

At October 31, 2005 and 2004; 40,000 and 415,000 options, and 0 and 3,500,000
warrants, respectively, were not included in the calculation of dilutive
earnings per share as their inclusion would have been antidilutive. The
conversion of the Series C Redeemable Convertible Preferred Stock was included
in the calculation of dilutive earnings per share as their inclusion was
dilutive.

<TABLE>
<CAPTION>
                                                                                 FOR THE NINE MONTHS
                                                                                   ENDED OCTOBER 31,
                                                                             ------------------------------
                                                                                2005               2004
                                                                             -----------        -----------
<S>                                                                         <C>                <C>
NUMERATOR:
Net Income - Numerator for basic earnings per share--income available
      to common stockholders                                                   1,705,000          1,490,000

Effect of dilutive securities:
      Preferred stock dividends and accretion of discount                        322,000               --
                                                                             -----------        -----------

Numerator for diluted earnings per share--income available to
      common stock after assumed conversions                                 $ 2,027,000        $ 1,490,000
                                                                             ===========        ===========

DENOMINATOR:

Denominator for basic earnings per share--weighted average
    shares                                                                    13,911,000         10,710,000

Effect of dilutive securities:

     Convertible Preferred Stock                                               3,814,000               --
     Warrants                                                                    936,000             94,000
     Employee Stock Options                                                      984,000          1,029,000
                                                                             -----------        -----------

                                                                               5,734,000          1,123,000
                                                                             -----------        -----------
  Denominator for diluted earnings per share--adjusted
        weighted-average shares and assumed conversions                       19,645,000         11,833,000
                                                                             ===========        ===========

   BASIC EARNINGS PER SHARE                                                  $      0.12        $      0.14
                                                                             ===========        ===========
   DILUTED EARNINGS PER SHARE                                                $      0.10        $      0.13
                                                                             ===========        ===========
</TABLE>

                                       9
<PAGE>


At October 31, 2005 and 2004; 290,000 and 210,000 options, and 2,000,000 and
2,000,000 warrants, respectively, were not included in the calculation of
dilutive earnings per share as their inclusion would have been antidilutive. The
conversion of the Series C Redeemable Convertible Preferred Stock was included
in the calculation of dilutive earnings per share as their inclusion was
dilutive.

NOTE 6 - STOCK OPTIONS

The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period.

<TABLE>
<CAPTION>
                                                                         FOR THE THREE MONTHS
                                                                           ENDED OCTOBER 31,
                                                                     ------------------------------
                                                                        2005                2004
                                                                     -----------        -----------
<S>                                                                 <C>                <C>
Net income, as reported                                              $ 1,005,000        $ 1,006,000
Deduct:  Total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects of a $43,000 benefit and -0- for 2005 and
2004, respectively                                                       (52,000)           (32,000)
                                                                     -----------        -----------

Pro forma net income                                                 $   953,000        $   974,000
                                                                     ===========        ===========

Earnings per share:

Basic-as reported                                                    $      0.07        $      0.09
                                                                     ===========        ===========
Basic-pro forma                                                      $      0.06        $      0.09
                                                                     ===========        ===========
Diluted-as reported                                                  $      0.05        $      0.09
                                                                     ===========        ===========
Diluted-pro forma                                                    $      0.05        $      0.08
                                                                     ===========        ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                         FOR THE NINE MONTHS
                                                                           ENDED OCTOBER 31,
                                                                     ------------------------------
                                                                        2005                2004
                                                                     -----------        -----------
<S>                                                                 <C>                <C>
Net income, as reported                                              $ 1,705,000        $ 1,490,000

Deduct:  Total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects of a $322,000 benefit and -0- for 2005 and
2004, respectively                                                      (389,000)           (32,000)
                                                                     -----------        -----------

Pro forma net income                                                 $ 1,316,000        $ 1,458,000
                                                                     ===========        ===========

Earnings per share:

Basic-as reported                                                    $      0.12        $      0.14
                                                                     ===========        ===========
Basic-pro forma                                                      $      0.09        $      0.14
                                                                     ===========        ===========
Diluted-as reported                                                  $      0.10        $      0.13
                                                                     ===========        ===========
Diluted-pro forma                                                    $      0.08        $      0.12
                                                                     ===========        ===========
</TABLE>


                                       10
<PAGE>

During the three months ended October 31, 2005, 40,000 stock options were issued
to the non-employee directors of the Company and 470,000 stock options were
issued to former employees of Flagship when they became employees on the
Company. The weighted average fair value of the stock options granted during the
three months ended October 31, 2005 was $0.75 per share.

During the three months ended April 30, 2005, 250,500 stock options were issued
to employees of the Corporation with the achievement of performance measures and
250,000 stock options were issued to the employee director of the Company in
conjunction with his execution of a new employment agreement. The weighted
average fair value of the stock options granted during the nine months ended
October 31, 2005 was $0.97 per share.

During the nine months ended October 31, 2004, 40,000 stock options were issued
to the non-employee directors of the Company. The weighted average fair value of
the stock options granted during the nine months ended October 31, 2004 was
$0.86 per share.

During the nine months ended October 31, 2005 and 2004, 532,000 and 289,600
shares, respectively, of the Corporation's common stock were issued due to the
exercise of stock options.

NOTE 7 - PRIVATE PLACEMENT OF SECURITIES - JULY 2005

COMMON PRIVATE PLACEMENT

SECURITIES PURCHASE AGREEMENT

On July 1, 2005, the Company executed a securities purchase agreement (the
"Common Purchase Agreement") with various institutional and accredited investors
(the "Common Investors") pursuant to which it agreed to sell in a private
placement transaction (the "Common Private Placement") for an aggregate purchase
price of $1,500,000 (a) 1,666,667 shares of the Company's Common Stock, par
value $0.02 per share (the "Common Shares"), (b) warrants to purchase 416,667
shares of the Company's Common Stock at an exercise price of $1.11 per share
("First Common Offering Warrants") and (c) warrants to purchase 416,667 shares
of the Company's Common Stock at an exercise price of $1.33 per share ("Second
Common Offering Warrants" and, together with the First Common Offering Warrants,
the "Common Offering Warrants"). The $0.90 purchase price per share for the
Common Shares approximately represents 80% of the average of the daily volume
weighted average price of the Common Stock for the 20 day period prior to the
execution of the Common Purchase Agreement. The Company closed the Common
Private Placement on July 6, 2005. On November 21, 2005 the Company's
registration statement covering the common stock, the common stock to be
received upon the conversion of the preferred stock and the common stock to be
received upon the exercise of the warrants for common stock was declared
effective by the U.S. Securities and Exchange Commission.

COMMON WARRANTS

The First Common Offering Warrants issued to each Common Investor provide such
Common Investor the right to purchase shares of the Company's Common Stock, in
aggregate, up to an additional 25% of the total number of Common Shares
purchased by such Common Investor in the Common Private Placement at an exercise
price of $1.11 per share. The First Common Offering Warrants contain a cashless
exercise provision, whereby if at any time after one year from the date of
issuance of this Warrant there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the Warrant
Shares by the Warrant Holder, then the Warrant may also be exercised at such
time by means of a "cashless exercise" in which the Warrant Holder shall be
entitled to receive common shares for the number of Warrant Shares equal to the
appreciation in the warrant above the exercise price at the time of the
exercise. The First Common Offering Warrants expire five years from the date of
issuance and contain adjustment provisions upon the occurrence of stock splits,
stock dividends, combinations, reclassifications or similar events of the
Company's capital stock, issuances of the Company's securities for consideration
below the exercise price and pro rata distributions of cash, property, assets or
securities to holders of the Company's Common Stock. If the First Common
Offering Warrants are exercised in full in cash, the Company would receive upon
such exercise aggregate proceeds of $462,500.

The Second Common Offering Warrant issued to each Common Investors provides such
Common Investor the right to purchase shares of the Company's Common Stock, in
aggregate, up to an additional 25% of the total


                                       11
<PAGE>

number of Common Shares purchased by such Common Investor in the Common Private
Placement at an exercise price of $1.33 per share. The Second Common Offering
Warrants contain a cashless exercise provision, whereby if at any time after one
year from the date of issuance of this Warrant there is no effective
Registration Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Warrant Holder, then the Warrant may also be
exercised at such time by means of a "cashless exercise" in which the Warrant
Holder shall be entitled to receive common shares for the number of Warrant
Shares equal to the appreciation in the warrant above the exercise price at the
time of the exercise. The Second Common Offering Warrants expire five years from
the date of issuance and contain adjustment provisions upon the occurrence of
stock splits, stock dividends, combinations, reclassifications or similar events
of the Company's capital stock, issuances of Company's securities for
consideration below the exercise price and pro rata distributions of cash,
property, assets or securities to holders of the Company's common stock. If the
Second Common Offering Warrants are exercised in full in cash, the Company would
receive upon such exercise aggregate proceeds of $554,167.

The net proceeds to the Corporation from the offering, after costs associated
with the Common Stock portion of the offering, of $1,366,000 have been allocated
among common stock and warrants based upon their relative fair values. The
Corporation used the Black-Scholes pricing model to determine the fair value of
the warrants to be $365,000.

PREFERRED PRIVATE PLACEMENT

SECURITIES PURCHASE AGREEMENT

On July 1, 2005, the Company executed a securities purchase agreement
("Preferred Purchase Agreement") with various institutional and accredited
investors (the "Preferred Investors") pursuant to which it agreed to sell in a
private placement transaction (the "Preferred Private Placement") for an
aggregate purchase price of $5,500,000 (a) 5,500 shares of the Company's Series
C Convertible Preferred Stock, stated value $1,000 per share (the "Preferred
Shares"), (b) warrants to purchase 1,375,000 shares of the Company's Common
Stock at an exercise price of $1.11 per share ("First Preferred Offering
Warrants"), (c) warrants to purchase 1,375,000 shares of the Company's Common
Stock at an exercise price of $1.33 per share ("Second Preferred Offering
Warrants" and, together with the First Preferred Offering Warrants," the
"Preferred Offering Warrants") and (d) warrants ("Over-Allotment Warrants") to
purchase (1) up to 1,375 shares of Series C Preferred Stock (the "Additional
Preferred Shares"), (2) warrants to purchase up to 343,750 shares of Common
Stock at $1.11 per share ("First Additional Warrants") and (3) warrants to
purchase up to 343,750 shares of Common Stock at $1.33 per share ("Second
Additional Warrants" and, together with the First Additional Warrants, the
"Additional Warrants"). The Preferred Private Placement closed on July 6, 2005.

Under the terms of the Preferred Purchase Agreement, the Company is required to
obtain stockholder approval to an amendment to its Certificate of Incorporation
(the "Certificate of Amendment") to increase the number of authorized shares of
Common Stock. Subject to certain permitted issuances under the Preferred
Purchase Agreement, the Company is also restricted from issuing additional
securities for a period of six (6) months following the effective date of the
Preferred Registration Statement without the prior written consent from the
holders of the Preferred Shares.

PREFERRED WARRANTS

The First Preferred Offering Warrants issued to each Preferred Investor provide
such Preferred Investor the right to purchase shares of the Company's Common
Stock, in aggregate, up to an additional 25% of the total number of shares of
Common Stock issuable upon the conversion of the Preferred Stock purchased by
such Preferred Investor in the Preferred Private Placement at an exercise price
of $1.11 per share. The First Preferred Offering Warrants contain a cashless
exercise provision, whereby at any time the Warrant may also be exercised at
such time by means of a "cashless exercise" in which the Warrant Holder shall be
entitled to receive common shares for the number of Warrant Shares equal to the
appreciation in the warrant above the exercise price at the time of the
exercise. The First Preferred Offering Warrants expire five years from the date
of issuance and contain adjustment provisions upon the occurrence of stock
splits, stock dividends, combinations, reclassifications or similar events of
the Company's capital stock, issuances of Common Stock for consideration below
the exercise price and pro rata distributions of cash, property, assets or
securities to holders of the Company's common stock. If the First



                                       12
<PAGE>

Preferred Offering Warrants are exercised in full in cash, the Company would
receive upon such exercise aggregate proceeds of $1,526,250.

The Second Preferred Offering Warrants issued to each Preferred Investor provide
such Preferred Investor the right to purchase shares of the Company's Common
Stock, in aggregate, up to an additional 25% of the total number of shares of
Common Stock issuable upon the conversion of the Preferred Stock purchased by
such Preferred Investor in the Preferred Private Placement at an exercise price
of $1.33 per share. The Second Preferred Offering Warrants contain a cashless
exercise provision, whereby at any time the Warrant may also be exercised at
such time by means of a "cashless exercise" in which the Warrant Holder shall be
entitled to receive common shares for the number of Warrant Shares equal to the
appreciation in the warrant above the exercise price at the time of the
exercise. The Second Preferred Offering Warrants expire five years from the date
of issuance and contain adjustment provisions upon the occurrence of stock
splits, stock dividends, combinations, reclassifications or similar events of
the Company's capital stock, issuances of the Company's securities for
consideration below the exercise price as well as pro rata distributions of
cash, property, assets or securities to holders of the Company's common stock.
If the Second Preferred Offering Warrants are exercised in full in cash, the
Company would receive upon such exercise aggregate proceeds of $1,828,750.

The net proceeds to the Corporation from the offering, after costs associated
with the Preferred Stock portion of the offering, of $4,962,000 have been
allocated among common stock and warrants based upon their relative fair values.
The Corporation used the Black-Scholes pricing model to determine the fair value
of the warrants to be $1,225,000.

TERMS OF THE PREFERRED STOCK

The rights and preferences of the Preferred Shares are set forth in the
Certificate of Designation, Preferences and Rights of Series C Preferred Stock
(the "Certificate of Designation"). The Preferred Shares have a face value of
$1,000 per share and are convertible at any time at the option of the holder
into shares of Common Stock ("Conversion Shares") at the initial conversion
price of $1.00 per share (the "Conversion Price"), subject to certain
adjustments including (a) stock splits, stock dividends, combinations,
reclassifications, mergers, consolidations, sales or transfers of the assets of
the Company, share exchanges or other similar events, (b) certain anti-dilution
adjustments. For a complete description of the terms of the Preferred Shares
please see the Certificate of Designation.

After valuing the warrants for the purchase of the Corporation's common stock
issued with the convertible Preferred Shares ($1,225,000), the beneficial
conversion contained in the Preferred Shares ($1,666,000) and the costs
associated with the Preferred Stock portion of the financing ($538,000) the
convertible preferred stock was valued at $2,071,000. The difference between
this initial value and the face value of the Preferred Stock of $3,429,000 will
be accreted back to the Preferred Stock as preferred dividends utilizing an
effective interest rate of 24.7%. The accretion period is the shorter of the
four-year term of the preferred or until the conversion of the preferred stock.
For the three and nine month periods ended October 31, 2005 the accretion of the
aforementioned discount was $132,000 and $176,000, respectively. In accordance
with FAS 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity," the accretion of the discount on the preferred
stock is classified as interest expense in the Statement of Consolidated
Operations.

A cumulative premium (dividend) accrues and is payable with respect to each of
the Preferred Shares equal to 8% of the stated value per annum. The premium is
payable upon the earlier of: (a) the time of conversion in such number of shares
of Common Stock determined by dividing the accrued premium by the Conversion
Price or (b) the time of redemption in cash by wire transfer of immediately
available funds. For the three and nine month periods ended October 31, 2005 the
accrued dividend was $110,000 and $146,000, respectively. In accordance with FAS
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," the accretion of the preferred stock dividend is
classified as interest expense in the Statement of Consolidated Operations.

The aforementioned private placement of common stock and preferred stock
initially resulted in a $4.256 million increase in the Company's Stockholders'
Equity for the amounts allocated to common stock, common stock warrants and
additional paid-in capital.


                                       13
<PAGE>

OVER-ALLOTMENT WARRANTS

The Over-Allotment Warrants issued to each Preferred Investor provides such
Preferred Investor the right to purchase at an exercise price of $1,000 per
share (a) Additional Preferred Shares, in aggregate, up to 25% of the total
number of shares of Series C Preferred Stock purchased by such Preferred
Investor in the Preferred Private Placement, (b) First Additional Warrants
exercisable for a number of shares of Common Stock in an amount, in aggregate,
up to 6.25% of the total number of shares of Common Stock issuable upon
conversion of the Series C Preferred Stock purchased by such Preferred Investor
in the Preferred Private Placement at an exercise price of $1.11 per share and
(c) Second Additional Warrants exercisable for a number of shares of Common
Stock in an amount, in aggregate, up to 6.25% of the total number of shares of
the Common Stock issuable upon conversion of the Series C Preferred purchased by
such Purchaser in the Preferred Private Placement at an exercise price of $1.33
per share. The Over-Allotment Warrants expire upon the later of (x) 90 days
after the effectiveness of the Preferred Registration Statement (as defined
below) and (y) the date upon which the Company obtains stockholder approval of
the Certificate of Amendment.

Late in October 2005, two holders of shares of our Series C Preferred exercised
their over-allotment warrants resulting in the issuance of (i) 875 shares of
Series C Preferred, (ii) warrants to purchase 218,750 shares of the Company's
Common Stock at an exercise price of $1.11 per shares and (iii) warrants to
purchase 218,750 shares of the Company's Common Stock at an exercise price of
$1.33 per share. The warrants expire five years from the date of issuance. The
exercise of the over-allotment warrants resulted in proceeds of $875,000 to the
Company.

After valuing the warrants for the purchase of the Corporation's common stock
issued with the convertible Preferred Shares ($205,000), the beneficial
conversion contained in the Preferred Shares ($275,000) and the costs associated
with the exercise of the over-allotment ($44,000) the convertible preferred
stock, issued in October 2005 from the exercise of the over-allotment option,
will initially be valued at $351,000. The difference between this initial value
and the face value of the Preferred Stock of $875,000 will be accreted back to
the Preferred Stock as preferred dividends utilizing an effective interest rate
of 25.1%. As the over-allotment option was exercised at the end of the October
31, 2005 quarter, there was no accretion in the current period.

In November and December 2005, seven holders of shares of our Series C Preferred
exercised their over-allotment warrants resulting in the issuance of (i) 500
shares of Series C Preferred, (ii) warrants to purchase 125,000 shares of the
Company's Common Stock at an exercise price of $1.11 per shares and (iii)
warrants to purchase 125,000 shares of the Company's Common Stock at an exercise
price of $1.33 per share. The warrants expire five years from the date of
issuance. The exercise of the over-allotment warrants resulted in proceeds of
$500,000 to the Company. Additionally, two holders voluntarily converted 70
shares of Series C Preferred Stock and received 72,333 shares of Common Stock.
The conversion resulted in 2,333 shares of Common Stock being issued relative to
accrued dividends on the Series C Preferred Stock. Furthermore, one warrant
holder of $1.11 per share exercise price warrants exercised for 190,625 shares
of the Company's common stock with proceeds of $211,594 to the Company. The
aforementioned conversion will result in a charge against income in the quarter
ending October 31, 2005 of approximately $41,000 for the related unamortized
discount relative to the converted shares.

NOTE 8 - PRIVATE PLACEMENT OF SECURITIES - MARCH 2004

On March 4, 2004 the Corporation closed on a private placement transaction
pursuant to which it sold 1,250,000 shares of Common Stock, (the "Shares"), to
Barron Partners, LP (the "Investor") for an aggregate purchase price of
$500,000. In addition, the Corporation issued two warrants to the Investor
exercisable for shares of its Common Stock (the "Warrants"). The Shares and the
Warrants were issued in a private placement transaction pursuant to Rule 506 of
Regulation D and Section 4(2) under the Securities Act of 1933, as amended.
Offset against the proceeds is $51,000 of costs incurred in conjunction with the
private placement transaction, primarily related to the cost of the registration
of the common stock and common stock underlying the warrants, as discussed in
the fourth paragraph of this note.

The First Warrant provided the Investor the right to purchase up to 1,500,000
shares of the Corporation's Common Stock. During the year ended January 31, 2005
Barron exercised the First Warrant in full at an exercise price of $0.80 per
share warrants resulting in proceeds of $1,200,000 to the Corporation.



                                       14
<PAGE>

The Second Warrant provides the Investor the right to purchase up to 2,000,000
shares of the Corporation's Common Stock. The Second Warrant has an exercise
price of $1.60 per share resulting in proceeds of $3,200,000 to the Corporation
upon its full exercise and expires five years from the date of issuance. The
Corporation may require the Investor to exercise the Second Warrant in full at
any time until December 4, 2005 if the average price of the Corporation's Common
Stock exceeds $2.40 for ten consecutive trading days and the Corporation has a
Registration Statement effective during the same ten consecutive trading days.
The warrant holder may exercise through a cashless net exercise procedure after
March 4, 2005, if the shares underlying the warrant are either not subject to an
effective registration statement or, if subject to a registration statement,
during a suspension of the registration statement. The Corporation has reserved
sufficient shares of its common stock to cover the issuance of shares relative
to the unexercised warrants held by the Investor.

In connection with these transactions, the Corporation and the Investor entered
into a Registration Rights Agreement. Under this agreement, the Corporation was
required to file within ninety (90) days of closing a registration statement
with the U.S. Securities and Exchange Commission for the purpose of registering
the resale of the Shares and the shares of Common Stock underlying the Warrants.
The Company's registration statement was declared effective by the U.S.
Securities and Exchange Commission on June 30, 2004. In the event that the
Investor is not permitted to sell its Shares pursuant to the registration
statement as a result of a permitted Black-Out Period (as defined in the
Registration Statement) being exceeded or otherwise, then the Company will be
obligated to pay the Investor liquidated damages equal to 18% of the Investor's
purchase price per annum.

The Corporation utilized the proceeds from the sale of its Common Stock for
general business purposes and to partially fund its acquisition strategy.

The Corporation granted the Investor the right of first refusal on certain
subsequent offerings of the Corporation's securities and has agreed to maintain
a listing of its common stock on the OTC Bulletin Board or another publicly
traded market and cause its common stock to continue to be registered under
Section 12 (b) or (g) of the Exchange Act of 1934.

The net proceeds to the Corporation from the offering, after costs associated
with the offering, of $449,000 have been allocated among common stock and
warrants based upon their relative fair values. The Corporation used the
Black-Scholes pricing model to determine the fair value of the warrants to be
$287,000.

NOTE 9 - ACQUISITION

On August 25, 2005, the Company, pursuant to an Asset Purchase Agreement, (the
"Agreement"), completed its acquisition of certain assets of Flagship Services,
Group, Inc., Flagship Reconstruction Partners, Ltd., Flagship Reconstruction
Associates - Commercial, Ltd., and Flagship Reconstruction Associates -
Residential, Ltd. ("Flagship"), for $5,250,000 in cash paid at closing, a
promissory note for $750,000 at an interest rate of 6% due one-year from the
closing, 236,027 shares of the Company's restricted common stock valued at
$250,000 ($1.06 per share), a warrant to purchase up to 250,000 shares of the
Company's restricted common stock at an exercise price of $1.00 and a warrant to
purchase up to 150,000 shares of the Company's restricted common stock at an
exercise price of $1.06. The warrants were valued at $186,000 in the aggregate.
The warrants expire five years from the date of closing. The Agreement also
includes earn-out provisions over the first eighteen-month period commencing on
the closing date, pursuant to which the Company is required to pay 35% of the
net earnings of the former Flagship operation in excess of $500,000. The owner
of Flagship entered into an eighteen-month employment and non-competition
agreement with the Company. The acquisition of Flagship greatly enhances the
Company's disaster response and restoration capabilities. The operations of the
former Flagship operation were included in the Company's operations subsequent
to August 19, 2005.

A preliminary allocation of the purchase price resulted in the allocation of the
purchase price as follows:

                                  Allocated Value          Amortization Period
                                  ---------------          -------------------
Fixed assets                        $    50,000               3 to 7 years
Covenant-not-to-compete               1,500,000               4 1/2years
Customer relationships                3,500,000               15 years
Subcontractor relationships             500,000               5 years
Trademark                               100,000               15 years
Goodwill                                875,000                  N/A



                                       15
<PAGE>

An independent valuation is in process and is expected to be completed by the
end of fiscal 2006.

For the three and nine-month periods ended October 31, 2005, amortization
expense of the aforemented intangibles was $112,000

The following unaudited pro forma condensed results of operations assume that
the acquisition was consummated on February 1, 2005 and 2004:


<TABLE>
<CAPTION>
                                             Nine months ended October 31,
                                            ------------------------------
                                               2005               2004
                                            -----------        -----------
<S>                                        <C>                <C>
Sales                                       $74,411,000        $59,338,000
                                            ===========        ===========
Net Income                                  $ 2,751,000        $ 1,219,000
                                            ===========        ===========

Net income per common shares:

Basic                                       $      0.18        $      0.10
                                            ===========        ===========
Dilutive                                    $      0.16        $      0.09
                                            ===========        ===========
Weighted average shares outstanding:
Basic                                        15,448,000         12,613,000
                                            ===========        ===========
Dilutive                                     21,182,000         13,736,000
                                            ===========        ===========
</TABLE>




<TABLE>
<CAPTION>
                                            Three months ended October 31,
                                               2005                2004
                                            -----------        -----------
<S>                                        <C>                <C>
Sales                                       $30,033,000        $23,725,000
                                            ===========        ===========
Net Income                                  $ 1,306,000        $   909,000
                                            ===========        ===========

Net income per common shares:

Basic                                       $      0.09        $      0.07
                                            ===========        ===========
Dilutive                                    $      0.06        $      0.06
                                            ===========        ===========
Weighted average shares outstanding:

Basic                                        15,218,000         12,839,000
                                            ===========        ===========
Dilutive                                     24,054,000         19,283,000
                                            ===========        ===========
</Table>

                                       16
<PAGE>

NOTE 10 - GOODWILL

At October 31, 2005 and January 31, 2005, the Corporation's goodwill was
$2,600,000 and $1,338,000, respectively. The increase in goodwill during the
current fiscal period was primarily attributable to the acquisition of Flagship
and a contingent earnout obligation related to an acquisition completed in
fiscal 2002.

SFAS No. 142 "Goodwill and Other Intangible Assets" prescribes a two-phase
process for impairment testing of goodwill, which is performed annually, absent
any indicators of impairment. The first phase screens for impairment, while the
second phase (if necessary) measures impairment. The Corporation has elected to
perform its annual analysis during the fourth quarter of each year based upon
goodwill balances as of the end of the third quarter. Although no indicators of
impairment have been identified during fiscal 2005, there can be no assurance
that future goodwill impairment tests will not result in a charge to earnings.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

The Corporation is party to litigation matters and claims that are in the
ordinary course of its operations, and while the results of such litigation and
claims cannot be predicted with certainty, management believes that the final
outcome of such matters will not have a material adverse effect on the
Corporation's consolidated financial statements.

In June 2001, the Corporation acquired the net assets of Tri-State Restorations,
Inc. The terms of the acquisition provide for an "Earnout Payment" payable in
cash based upon a calculation of net profits earned through May 2005. As of
October 31, 2005, $1,151,000 had been earned and accrued, of which $450,000 had
been paid under the agreement.

NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123R "Share-Based Payment" ("SFAS
123R"), a revision to SFAS No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123"), and superseding APB Opinion No. 25 "Accounting for Stock Issued to
Employees" and its related implementation guidance. SFAS 123R establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services, including obtaining employee services
in share-based payment transactions. SFAS 123R applies to all awards granted
after the required effective date and to awards modified, repurchased, or
cancelled after that date. Adoption of the provisions of SFAS 123R is effective
as of the beginning of the first annual reporting period that begins after June
15, 2005. Should the Corporation issue employee stock options after January 31,
2006 a charge against earnings would be required as provided by SFAS 123R. The
magnitude of the charge would depend upon the number of employee stock options
issues, the exercise price of the stock options and the volatility of the share
price of the Corporation's common stock on the date the employee stock options
are issued.

In September 2005, the Emerging Issues Task Force ("EITF") issued 05-08 "Income
Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion
Feature". If ratified, the EITF will require that a deferred tax liability for
the temporary difference resulting from the issuance of convertible debt with a
beneficial conversion feature be recorded The proposed EITF would be effective
for the first annual or quarterly fiscal period beginning after December 15,
2005. If the proposed EITF becomes effective, the Company will be required to
retroactively comply with the provisions during the first quarter of fiscal
2007.

NOTE 13 SUBSEQUENT EVENT

On November 18, 2005, the Company acquired certain assets, backlog and
operations of Lange America, Inc. a Los Angeles-based asbestos and mold
remediation company.



                                       17
<PAGE>



                                     ITEM 2.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in this Management's Discussion and Analysis of the
Consolidated Condensed Financial Statements and other sections of this Form 10-Q
that are not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation, statements regarding the
Corporation's or Corporation management's expectations, hopes, beliefs,
intentions or strategies regarding the future. These forward-looking statements
are based on the Corporation's current expectations, estimates and projections
about our industry, management's beliefs and certain assumptions made by
management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "may," and similar expressions are intended to
identify forward-looking statements. There can be no assurance that future
developments and actual actions or results affecting the Corporation will be
those that the Corporation has anticipated. These forward-looking statements
involve a number of risks, uncertainties (some of which are beyond the
Corporation's control) or other assumptions that may cause actual results or
performance to be materially different from those expressed or implied by such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the continuing validity of the underlying assumptions and estimates
of total forecasted project revenues, costs and profits and project schedules;
the outcomes of pending or future litigation, arbitration or other dispute
resolution proceedings; the availability of borrowed funds on terms acceptable
to the Corporation; the ability to retain certain members of management; the
ability to obtain surety bonds to secure the Corporation's performance under
certain construction contracts; possible labor disputes or work stoppages within
the construction industry; changes in federal and state appropriations for
infrastructure projects; possible changes or developments in worldwide or
domestic political, social, economic, business, industry, market and regulatory
conditions or circumstances; and actions taken or not taken by third parties
including the Corporation's customers, suppliers, business partners, and
competitors and legislative, regulatory, judicial and other governmental
authorities and officials; and other risks and uncertainties discussed under the
heading "Risk Factors" in the Corporation's Annual Report on Form 10-K, as
amended, for the year ended January 31, 2005 filed with the Securities and
Exchange Commission. The Corporation undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable securities laws.

OVERVIEW

We provide environmental and specialty contracting services including asbestos
and lead abatement, insulation, microbial remediation, disaster response, loss
mitigation and reconstruction, demolition and related services throughout the
United States. During the current fiscal quarter and nine-month period, the
Corporation derived the majority of its revenues from the abatement of asbestos
but has broadened its offering of services in recent years to include a number
of complementary services which utilize its existing infrastructure and
personnel. Cash flows from contracting services are primarily generated from
periodic progress billings on large contracts under which the Corporation
performs services and single project billings on small short duration projects.

The Corporation operates in a complex environment due to the nature of our
customers and our projects. Due to the size and nature of many of our contracts,
the estimation of overall risk, revenue and cost at completion is complicated
and subject to many variables. Depending on the contract, this poses challenges
to the Corporation's executive management team in overseeing contract
performance and in evaluating the timing of the recognition of revenues and
project costs, both initially and when there is a change in project status.
Thus, the Corporation's executive management team spends considerable time in
evaluating and structuring key contracts, in monitoring project performance, and
in assessing the financial status of our major contracts. Due to the complexity
in the revenue recognition for the Corporation's projects, executive financial
management is attentive to developments in individual contracts that may affect
the timing and measurement of contract costs and related revenues.

The Corporation continues to manage its projects to minimize risk and the
negative financial impact upon the Corporation. More information on risks and
the Corporation's efforts to manage risks is available in Item 1 under the
caption "Risk Factors" in the Corporation's Annual Report on Form 10-K, as
amended, for the year ended January 31, 2005, as amended, and supplemented
elsewhere in this report.


                                       18
<PAGE>

CRITICAL ACCOUNTING POLICIES

In general, there have been no significant changes in the Corporation's critical
accounting policies since January 31, 2005. For a detailed discussion of these
policies, please see Item 7 of the Corporation's Annual Report on Form 10-K, as
amended, for the year ended January 31, 2005.

RESULTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 2005

During the three months ended October 31, 2005 ("Fiscal 2006"), the
Corporation's contract revenues increased by 38.5% to $26.2 million compared to
$18.9 million in the three months ended October 31, 2004 ("Fiscal 2005"). The
increase was due to an increase in contract activity at our New York, Los
Angeles, Charlotte and Ft. Lauderdale offices as compared to the prior fiscal
quarter. Additionally, the newly acquired operations of the former Flagship
operation were included subsequent to its acquisition in late August 2005. Both
the fiscal 2006 and 2005 third quarter had a significant amount of disaster
response revenues.

The Corporation's gross margin increased to $4.12 million in the third quarter
of fiscal 2006 compared to $2.88 million in the third quarter of fiscal 2005.
Gross margin as a percentage of revenue increased to 15.7% for the current
quarter from 15.2 % for the prior year quarter. The increase in gross margin of
$1.24 million is due to a higher volume of work performed at a greater gross
margin percentage. The current fiscal quarter had no negative contract
adjustments. The prior fiscal quarter had negative contract adjustments of $0.6
million, due to cost overruns and unexpected conditions, primarily at our New
York, Pittsburgh and Seattle offices.

Selling, general and administrative expenses increased to $2.44 million in the
current fiscal quarter as compared to $1.68 million in the three months ended
October 31, 2004. This increase was due to personnel and salary increases in the
current fiscal year as compared to the prior fiscal year, an overall increase in
various operating expenses and the inclusion of the former Flagship operations
subsequent to its acquisition in August 2005. As a percentage of contract
revenues, selling, general and administrative expense increased by 0.4% to 9.3%
vs. 8.9% for the prior year fiscal quarter.

The Corporation reported income from operations of $1.7 million for the three
months ended October 31, 2005 compared to income from operations of $1.2 million
for the three months ended October 31, 2004, an increase of $0.49 million or
40.4%, as a direct result of the factors discussed above.

Interest expense increased slightly to $0.11 million in the current quarter as
compared to $0.10 million in the same quarter of a year ago as a result of an
increase in the prime rate of interest to which a majority of the Corporations
borrowings are tied.

Interest expense for preferred dividends and accretion of the discount relates
to the private placement in July 2005 of $5.5 million of redeemable convertible
preferred stock. As the preferred shares are mandatorily redeemable, the actual
dividend of $110,000 and the accretion of the discount associated with the
preferred stock of $132,000 are required to be reflected as interest expense.

During the quarter ended October 31, 2005, the Corporation made a $0.21 million
provision for federal income taxes and a $0.13 million provision for state
income taxes. The provision for federal income taxes reflects the effect of
$0.33 million benefit for the federal Research and Development tax credit which
was recently quantified for the income tax returns filed for the years ended
January 31, 2002 through January 31, 2005 resulting in the amendment of the
aforementioned returns. While the Corporation did not pay any federal income
taxes for fiscal 2002, 2003 and 2004, the effect of the credit was carried
forward to the fiscal 2005 return, resulting in a refund of federal income taxes
paid, with the remainder to be fully utilized in the fiscal 2006 period. During
the quarter ended October 31, 2004, the Corporation made no provision for
federal income taxes due to the utilization of net operating loss carryforwards
for financial reporting purposes and a state income tax provision of $0.09
million. At October 31, 2005 a valuation allowance for deferred taxes of $0.48
million had been provided due to the uncertainty as to the future realization of
those deferred income tax assets. While the Company has been profitable, the
federal net operating loss carryforward was only fully utilized in the quarter
ended January 31, 2005 and the Company's operations are subject to a high degree
of volatility due to the nature of its business. Management still believes that
the allowance is reasonable and will evaluate it prospectively at the end of
each quarter


                                       19
<PAGE>

NINE MONTHS ENDED OCTOBER 31, 2005

During the nine months ended October 31, 2005 ("Fiscal 2006"), the Corporation's
contract revenues increased by 25.8% to $56.5 million compared to $44.9 million
in the nine months ended October 31, 2004 ("Fiscal 2005"). The increase was due
to an increase in contract activity at our Charlotte, New York, Philadelphia,
Los Angeles and Ft. Lauderdale offices as compared to the prior fiscal period.
Additionally, the newly acquired operations of the former Flagship operation
were included subsequent to its acquisition in late August 2005. The increase
was attributable to an increase in volume of work placed under contract and
performed by these offices. Both fiscal periods had a significant amount of
disaster response revenues.

The Corporation's gross margin increased to $8.9 million in the first nine
months of fiscal 2006 compared to $6.5 million in the first nine months of
fiscal 2005. Gross margin as a percentage of revenue increased to 15.8% for the
current nine-month period from 14.5% for the prior year period. The increase in
gross margin of $2.4 million is due to a higher volume of work performed at a
greater gross margin percentage. The current fiscal period had no negative
contract adjustments. The prior fiscal period had negative contract adjustments
of $1.1 million, due to cost overruns and unexpected conditions, primarily at
our New York, Pittsburgh, Seattle and Los Angeles offices.

Selling, general and administrative expenses increased to $5.84 million in the
current fiscal period as compared to $4.69 million in the nine months ended
October 31, 2004. This increase was due to personnel and salary increases in the
current fiscal year as compared to the prior fiscal year, an overall increase in
various operating expenses and the inclusion of the former Flagship operations
subsequent to its acquisition in August 2005. As a percentage of contract
revenues, selling, general and administrative expense decreased by 0.2% to 10.3%
for the current fiscal period from 10.5% for the prior year fiscal period.

The Corporation reported income from operations of $3.07 million for the nine
months ended October 31, 2005 compared to income from operations of $1.92
million for the nine months ended October 31, 2004, an increase of $1.15 million
or 60%, as a direct result of the factors discussed above.

Interest expense increased to $0.31 million in the current period as compared to
$0.29 million in the same period of a year ago as a result of an increase in the
prime rate of interest, to which a majority of the Corporations borrowings are
tied, which more than offset the decrease in the balance outstanding on the line
of credit.

Interest expense for preferred dividends and accretion of the discount relates
to the private placement in July 2005 of $5.5 million of redeemable convertible
preferred stock. As the preferred shares are mandatorily redeemable, the actual
dividend of $147,000 and the accretion of the discount associated with the
preferred stock of $175,000 are required to be reflected as interest expense.

The Corporation's other income for the nine-month period ended October 31, 2005
included a $0.05 million gain from the Company's sale of its 50% interest in the
IAQ venture, which had been accounted for under the equity method of accounting.

During the nine-month period ended October 31, 2005, the Corporation made a
$0.58 million provision for federal income taxes and a $0.23 million for state
income taxes. The provision for federal income taxes reflects the effect of
$0.33 million benefit for the federal Research and Development tax credit which
was recently quantified for the income tax returns filed for the years ended
January 31, 2002 through January 31, 2005 resulting in the amendment of the
aforementioned returns. While the Corporation did not pay any federal income
taxes for fiscal 2002, 2003 and 2004, the effect of the credit was carried
forward to the fiscal 2005 return, resulting in a refund of federal income taxes
paid, with the remainder to be fully utilized in the fiscal 2006 period. During
the nine months ended October 31, 2004, the Corporation made no provision for
federal income taxes due to the utilization of net operating loss carryforwards
for financial reporting purposes and a state income tax provision of $0.13
million. At October 31, 2005 a valuation allowance for deferred taxes of $0.48
million had been provided due to the uncertainty as to the future realization of
those deferred income tax assets. While the Company has been profitable, the
federal net operating loss carryforward was only fully utilized in the quarter
ended January 31, 2005 and the Company's operations are subject to a high degree
of volatility due to the nature of its business. Management still believes that
the allowance is reasonable and will evaluate it prospectively at the end of
each quarter



                                       20
<PAGE>

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended October 31, 2005, the Corporation's cash decreased
by $0.05 million to $0.28 million.

The decrease in cash and short-term investments during the first nine months of
fiscal 2006 is attributable to cash outflows from operations of $2.02 million
and cash outflows of $6.36 million associated with investing activities. These
cash outflows were partially offset by $8.34 million of cash inflows associated
with financing activities.

Cash utilized by operating activities totaled $2.02 million in the nine months
ended October 31, 2005. Cash outflows included, a $6.61 million increase in
accounts receivable caused by the significant increase in billings, a $3.10
million increase in costs and estimated earnings in excess of billings on
uncompleted contracts, a $0.20 million increase in inventories, a $0.05 million
increase in prepaid income taxes and a $0.31 million decrease in current income
tax liabilities. These cash outflows were partially offset by cash inflows
including $1.71 million of net income in the current fiscal period, $0.32
million of preferred stock dividends and accretion of the discount on the
related preferred stock which are non-cash in nature as the dividends on the
preferred stock accumulate until conversion or maturity, a $0.63 million
decrease in other current assets, a $3.12 million increase in accounts payable,
a $1.84 million increase in accrued liabilities related to the timing of
payments and $0.67 million of depreciation and amortization.

Investing activities cash outflows included $5.34 million for the acquisition of
the Flagship operation in August 2005, $1.0 million for the purchase of
property, plant and equipment, a $0.06 million increase in other assets and the
$0.02 million of capital contributions in the IAQ joint venture prior to the
sale of its interest by the Company. These cash outflows were partially offset
by $0.06 million of proceeds from the sale of the Company's equity investment in
the IAQ joint venture.

Financing activities cash inflows consisted of $7.16 million from the private
placement of the Company's common and convertible preferred stock in July 2005
and the subsequent exercise of the over-allotment option provided to preferred
shareholders (which was net of $0.72 million of costs associated with the
private placement and the exercise of the over-allotment option), $2.05 million
net borrowing on the line of credit, $0.32 million of proceeds from a $0.4
million equipment line provided by the Company's bank and $0.27 million from the
exercise of employee stock options. These cash inflows were partially offset by
$1.17 million for the repayment of debt and insurance premium financing and
$0.29 million of earnout payments related to the acquisition of businesses
acquired in prior years.

At October 31, 2005, the Corporation's backlog totaled $37.2 million ($20.4
million on fixed fee contracts and $16.8 million on time and materials or unit
price contracts).

During the nine months ended October 31, 2004, the Corporation's cash decreased
by $0.01 million to $0.02 million.

The decrease in cash and short-term investments during the first nine months of
fiscal 2005 is attributable to cash outflows of $0.71 million associated with
investing activities. These cash outflows were partially offset by cash inflows
from operations of $0.26 million and $0.5 million of cash inflows from financing
activities.

Cash provided by operating activities totaled $0.26 million in the nine months
ended October 31, 2004. Cash inflows including $1.49 million of net income in
the current fiscal period, a $0.63 million decrease in other current assets, a
$2.9 million increase in accounts payable, a $2.2 million increase in billings
in excess of costs and estimated earnings on uncompleted contracts, a $1.4
million increase in accrued liabilities related to the timing of payments, a
$0.15 million provision for doubtful accounts and $0.51 million of depreciation
and amortization. These cash inflows were partially offset by cash outflows
included the $0.11 million gain on the sale of fixed assets, a $6.7 million
increase in accounts receivable caused by the significant increase in billings
in the second and third quarters, a $2.1 million increase in costs and estimated
earnings in excess of billings on uncompleted contracts and a $0.22 million
increase in inventories.


                                       21
<PAGE>

Investing activities cash outflows included $0.74 million for the purchase of
property, plant and equipment, a $0.02 million additional investment in the IAQ
venture and $0.12 million of payments related to the acquisition of businesses.
These cash outflows were partially offset by $0.13 million of proceeds from the
sale of fixed assets.

Financing activities cash inflows consisted of $0.45 million from the private
placement of the Company's common stock (which was net of $0.05 million of costs
associated with registering the Company's common stock related to the private
placement), $1.4 million of proceeds from debt consisting of net borrowings on
the line of credit and $0.12 million from the exercise of employee stock
options. These cash inflows were partially offset by $1.38 million for the
repayment of debt and insurance premium financing and $0.07 million of earnout
payments related to the acquisition of businesses acquired in prior years.

The Corporation believes funds generated by operations, amounts available under
existing credit facilities and external sources of liquidity, such as the
issuance of debt and equity instruments, will be sufficient to finance capital
expenditures, the settlement of earnout obligations, the settlement of
commitments and contingencies (as fully described in Note 11 to the
Corporation's consolidated financial statements.) and working capital needs for
the foreseeable future. However, there can be no assurance that such funding
will be available, as our ability to generate cash flows from operations and our
ability to access funding under the revolving credit facilities may be impacted
by a variety of business, economic, legislative, financial and other factors
which may be outside the Corporation's control. Additionally, while the
Corporation currently has significant, uncommitted bonding facilities, primarily
to support various commercial provisions in the Corporation's contracts, a
termination or reduction of these bonding facilities could result in the
utilization of letters of credit in lieu of performance bonds, thereby reducing
the Corporation's available capacity under the revolving credit facilities.
There can be no assurance that such facilities will be available at reasonable
terms to service the Corporation's ordinary course obligations.

ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The only market risk, as defined, that the Company is exposed to is interest
rate sensitivity. The interest rate on the equipment notes and revolving line of
credit fluctuate based upon changes in the prime rate. Each 1% change in the
prime rate will result in a $71,000 change in borrowing costs based upon the
balance outstanding at October 31, 2005

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to provide
reasonable assurance that the information required to be disclosed by us in
reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and that such information required to be disclosed in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our chief financial officer and chief executive officer,
to allow timely decisions regarding required disclosures.

In connection with the year end audit of the Company's consolidated financial
statements for the year ended January 31, 2005, our external auditors notified
our management and Audit Committee of the existence of "material weaknesses" in
our internal controls relating to changes in the rules associated with the
advent of the Public Company Accounting Oversight Board ("PCAOB"). Specifically
our external auditors noted the following: (a) our period-end cut-off procedures
were inadequate to ensure that all Company revenues liabilities were reflected
in the proper accounting period ; (b) our controls over the documentation and
selection of accounting principles were inadequate due to the incomplete
documentation relating to the selection and application of applicable accounting
policies and (c) our controls over non-routine and non-systematic transactions
were not properly documented so that the proper recording of these transactions
could be considered likely to be effective. Our Chief Executive Officer and
Chief Financial Officer concluded that the material weaknesses cited did not
compromise the financial reporting process.

Our management has discussed these material weaknesses with the Audit Committee.
Our management is working with the Audit Committee to identify and remediate
control deficiencies as part of its efforts to complete the documentation and
testing of its internal controls over financial reporting as required by Section
404 of the Sarbanes-Oxley Act of 2002 and applicable rules of the Securities and
Exchange Commission and the PCAOB.


                                       22
<PAGE>

This process only recently commenced. Specifically, we are implementing the
following measures: (a) we have instituted a new corporate wide cut-off policy
including an extension of time of the cut-off period and written confirmation
from our branch offices that all liabilities that they are aware of have been
properly recorded, (b) we are proceeding with the documentation of all of our
accounting policies and the rationale behind the selection of each policy where
various alternatives exist and (c) as part of our Sarbanes-Oxley 404 internal
control project, we are documenting our controls over non-routine and
non-systematic transactions. Our analysis is continuing and we plan to complete
the project before the end of the initial assessment-reporting period ending
January 31, 2007. Our external auditors for the year ended January 31, 2005 have
not confirmed our remediation steps due to their resignation as our auditors as
disclosed in our Current Report on Form 8-K dated June 20, 2005 and the
selection of new external auditors as disclosed in our Current Report on Form
8-K dated July 13, 2005.

After considering the aforementioned, the Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on such evaluation, our CEO and CFO have concluded that as of the end of such
period, our disclosure controls and procedures have been designed to provide
reasonable assurance of achieving their objectives and our disclosure controls
and procedures are effective at that reasonable assurance level.

There have not been any changes in our internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended) during our most recent fiscal quarter that has materially
affected or is reasonably likely to materially affect, our internal control over
financial reporting.

Our management, including the Chief Executive Officer and the Chief Financial
Officer, does not expect that our disclosure controls or our internal control
over financial reporting will prevent all errors and all fraud. A control
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control systems are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple errors or mistakes.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with policies or
procedures. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.



                                       23
<PAGE>



                           PART II-- OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

The Company is subject to dispute and litigation in the ordinary course of
business. None of these matters, in the opinion of management, is likely to
result in a material effect on the Registrant based upon information available
at this time.

ITEM 1A.  RISK FACTORS

Investing in our common stock is subject to a number of risks and
uncertainties. We have updated the following risk factors to reflects changes
relating to the closing of our July 2005 private placement which we believe to
be material to the risk factors set forth in our Annual Report of Form 10-K, as
amended, for the fiscal year ended January 31, 2005 filed with the Securities
and Exchange Commission. The risks and uncertainties described below are not
the only ones that we face and are more fully described in our Annual Report of
Form 10-K, as amended, and in our other filings with the Securities and
Exchange Commission. Additional risks and uncertainties not presently known to
us or that we currently believe are immaterial also may negatively impact our
business.

A SIGNIFICANT PORTION OF OUR REVENUE IN FISCAL 2005 WAS DERIVED FROM EMERGENCY
RESPONSE WORK RELATIVE TO THE HURRICANES THAT HIT THE UNITED STATES. FOR FISCAL
2006 WE AGAIN EXPECT TO DERIVE A SIGNIFICANT AMOUNT OF REVENUE FROM OUR
EMERGENCY RESPONSE AND RESTORATION WORK RELATIVE TO HURRICANE KATRINA. EMERGENCY
RESPONSE AND RESTORATION CONTRACTS RELATIVE TO HURRICANES PRESENT MANY UNIQUE
CHALLENGES.

In fiscal 2005 approximately 25% of our revenues were derived from emergency
response work relative to the four hurricanes that hit the southeastern United
States. For fiscal 2006 we again expect to derive a significant amount of
revenue from our emergency response and restoration work relative to Hurricane
Katrina. There can be no assurance that the magnitude of revenues generated in
fiscal 2006 will be of the magnitude of the revenues realized in 2005 or that
the emergency response and restoration contracts will be profitable or as
profitable as those in fiscal 2005. The infrastructure of New Orleans and the
Gulf Coast was extensively damages by Hurricane Katrina, which will present many
unique challenges to our personnel as they attempt to complete the projects that
we have received.

AS OF JANUARY 31, 2005, WE HAD A MATERIAL WEAKNESS IN OUR INTERNAL CONTROL OVER
FINANCIAL REPORTING.

We have been advised of a material weakness in our internal controls relating to
the accuracy and timeliness of our financial reporting. In connection with the
audit of our financial statements for the fiscal year ended January 31, 2005,
our auditors notified our management and Audit Committee of the existence of
"material weaknesses" in our internal controls relating to changes in the rules
associated with the advent of the Public Company Accounting Oversight Board
("PCAOB"). A material weakness is defined as a reportable condition in which the
design or operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements caused by error or
fraud in amounts that would be material in relation to the financial statements
being audited may occur and not be detected within a timely period by employees
in the normal course of performing their assigned functions.

Although we have identified remedial measures we will take to address the
material weaknesses in our internal controls described above, our independent
auditors have not formally evaluated these measures. Any failure to remediate
the material weaknesses reported by our independent auditors or to implement
required new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations subject us to increased risk of errors and fraud related
to our financial statements or result in material misstatements in our financial
statements. Any such failure also could adversely affect the results of the
periodic management evaluations and annual auditor attestation reports regarding
the effectiveness of our "internal control over financial reporting" that will
be required when the Securities and Exchange Commission's rules under Section
404 of the Sarbanes-Oxley Act of 2002 become applicable to us beginning with our
Annual Report on Form 10-K for the year ending January 31, 2007 to be filed in
early 2007. Inadequate internal controls could also cause investors to lose
confidence in our reported financial information, which could have a negative
effect on the trading price of our stock.

EVEN IF OUR INTERNAL CONTROLS OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS
ARE EFFECTIVE, THEY MAY NOT PREVENT ALL INSTANCES OF ACCOUNTING FRAUD.


                                       24

<PAGE>


Although we evaluate our disclosure controls and procedures as of the end of
each fiscal quarter, we may not be able to prevent all instances of accounting
errors or fraud in the future. Controls and procedures do not provide absolute
assurance that all deficiencies in design or operation of these control systems,
or all instances of errors or fraud, will be prevented or detected. These
control systems are designed to provide reasonable assurance of achieving the
goals of these systems in light of legal requirements, company resources and the
nature of our business operations. However, these control systems remain subject
to risks of human error and the risk that controls can be circumvented for
wrongful purposes by one or more individuals in management or non-management
positions. The Company's business could be seriously harmed by any material
failure of these control systems.

WE CANNOT GIVE ANY ASSURANCE THAT WE WILL BE ABLE TO SECURE ADDITIONAL FINANCING
TO MEET ITS FUTURE CAPITAL NEEDS.

Our long-term capital requirements will depend on many factors, including, but
not limited to, cash flow from operations, the level of capital expenditures,
working capital requirements and the growth of our business. We may need to
incur additional indebtedness or raise additional capital to fund the capital
needs of its operations or related to growth. To the extent additional debt
financing cannot be raised on acceptable terms, we may need to raise additional
funds through public or private equity financings. No assurance can be given
that additional debt or equity financing will be available or that, if either or
such financing is available, the terms of such financing will be favorable to us
or to our stockholders. If adequate funds are not available, we may be required
to curtail its future operations significantly or to forego expansion
opportunities.

HOLDERS OF THE SERIES C PREFERRED HAVE SUBSTANTIAL RIGHTS THAT COULD ALLOW THEM
TO SIGNIFICANTLY INFLUENCE THE MANAGEMENT AND DIRECTION OF THE COMPANY, AND SUCH
HOLDERS MAY HAVE INTERESTS THAT DIFFER FROM THOSE OF THE OTHER STOCKHOLDERS.

Holders of the Series C Preferred have no voting rights, except as required by
law. However, as long as any shares of Series C Preferred remain outstanding, we
cannot take the following corporate actions without the separate class vote or
written consent of a majority of the then outstanding Series C Preferred: (i)
alter the rights or preferences or privileges of the Series C Preferred, or
increase the authorized number of shares of Series C Preferred, (ii) issue any
shares of Series C Preferred or warrants to purchase additional shares of common
stock at specified exercise prices other than pursuant to the Securities
Purchase Agreement with Preferred Stockholders, (iii) redeem, repurchase or
otherwise acquire, or declare or pay any cash dividend or distribution on, any
class of stock ranking junior to the Series C Preferred with respect to
liquidation, (iv) increase the par value of the common stock or (v) cause or
authorize any subsidiary of us to engage in any of the foregoing actions. In
addition, as long as 250 shares of Series C Convertible Series C Preferred
remain outstanding, we cannot take the following corporate actions without the
separate class vote or written consent of a majority of the then outstanding
Series C Preferred: (i) alter the rights, preferences or privileges of any
capital stock of us so as to affect adversely the Series C Preferred, (ii)
create or issue any class of stock ranking senior to, or on equal basis with,
the Series C Preferred with respect to liquidation, (iii) issue any debt
securities or incur any indebtedness that would have any preferences over the
Series C Preferred upon liquidation of us, or redeem, repurchase, prepay or
otherwise acquire any outstanding debt securities or indebtedness of us (subject
to certain exceptions), (iv) sell or otherwise transfer 10% or more of our
assets (subject to certain exceptions), (v) enter into any agreement,
commitment, understanding or other arrangement to take any of the foregoing
actions or (vi) cause or authorize any subsidiary of us to engage in any of the
foregoing actions.

Additionally, the holders of the Series C Preferred Stock have other significant
rights relating to, among other things, liquidation, redemption, conversion and
payments of premium. As a result of such rights, one or more of our preferred
stockholders could substantially influence our management and policies and the
outcome of any corporate transaction or other matters. From time to time, such
preferred stockholders may have interests that differ from those of our other
stockholders.


WE ARE REQUIRED TO KEEP EFFECTIVE A SHELF REGISTRATION STATEMENT FOR
STOCKHOLDERS AND IF WE ARE UNABLE TO DO SO FOR THE REQUIRED PERIOD WE MAY BE
REQUIRED TO MAKE ADDITIONAL PAYMENTS TO THE HOLDERS OF THE SERIES C PREFERRED.


                                       25
<PAGE>
In connection with the private placements, we entered into registration rights
agreements with the Common Stockholders and Preferred Stockholders. Under these
registration rights agreements, we agreed to file this registration statement
for the purpose of registering the resale of the common stock and the shares of
common stock underlying the convertible securities we issued in the private
placements. The registration rights agreements require us to keep the
registration statement effective for a specified period of time. In the event
that the registration statement is not effective for any period exceeding a
permitted Black-Out Period, then we will be obligated to pay the Common
Stockholders up to 12% of their purchase price per annum.


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

On September 30, 2005, the Annual Meeting of the Stockholders of PDG
Environmental, Inc was held in Pittsburgh. PA.

At the meeting all of the management's nominees were elected directors of the
Corporation with the following votes:


John C. Regan           Votes For    13,352,297       Votes Against    127,205
Richard A. Bendis       Votes For    13,418,269       Votes Against     61,233
Edgar Berkey            Votes For    13,425,130       Votes Against     54,372
James D. Chiafullo      Votes For    13,417,669       Votes Against     61,833
Edwin J. Kilpela        Votes For    13,418,705       Votes Against     60,797


Approval of the amendment of the PDG Environmental, Inc. Incentive Stock Option
Plan to increase authorized shares by 700,000 to 4,000,000 was as follows:

              Votes For                                              7,709,036
              Votes Against                                            372,339
              Abstained                                                 16,407
              Not Voted                                              3,406,040

Approval of the amendment of the PDG Environmental, Inc. 1990 Stock Option Plan
for Employee Directors to increase authorized shares by 250,000 to 500,000 was
as follows:

              Votes For                                              7,648,243
              Votes Against                                            388,207
              Abstained                                                 61,332
              Not Voted                                              3,406,040

Approval of the amendment to Certificate of Incorporation to increase authorized
shares by 30,000,000 to 60,000,000 was as follows:

              Votes For                                             13,262,264
              Votes Against                                            125,469
              Abstained                                                 91,608


Malin Bergquist & Company, LLP was ratified as the Corporation's independent
auditors for 2006 as follows:

              Votes For                                             13,442,502
              Votes Against                                             19,530
              Abstained                                                 16,470


                                       26
<PAGE>

ITEM 6.  EXHIBITS

(a)     Exhibits:
<TABLE>
<CAPTION>
                                         EXHIBIT INDEX                           PAGES OF SEQUENTIAL
                                 EXHIBIT NO. AND DESCRIPTION                      NUMBERING SYSTEM
<S>             <C>                                                              <C>
Exhibit 31.1    Certification Pursuant to Rule 13a-14(a) of the Securities
                Act of 1934, as amended, and Section 302 Of The Sarbanes-Oxley
                Act of 2002

Exhibit 31.2    Certification Pursuant to Rule 13a-14(a) of the Securities
                Act of 1934, as amended, and Section 302 Of The Sarbanes-Oxley
                Act of 2002

Exhibit 32.1    Certification Pursuant To 18 U.S.C. Section 1350, As Amended
                Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002

Exhibit 32.2    Certification Pursuant To 18 U.S.C. Section 1350, As Amended
                Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002

</Table>


                                       27
<PAGE>


                                   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.




                                          PDG ENVIRONMENTAL, INC.




                                          By  /s/John C. Regan
                                             ------------------------------
                                          John C. Regan
                                          Chairman and Chief Executive Officer

                                          By  /s/Todd B. Fortier
                                             ------------------------------
                                          Todd B. Fortier
                                          Chief Financial Officer

Date:  December 14, 2005


                                       28