##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended October 31, 2008
 OR
 o
    
    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.
  
 Delaware
    
    22-2677298(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1386 Beulah Road, Building 801Pittsburgh, Pennsylvania
    
    15235(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code 412) 243-3200
 
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




---



##### 



PDG Environmental, Inc. and Subsidiaries
 INDEX
 PagePart I. Financial InformationItem 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements(a) Condensed Consolidated Balance Sheets as of October 31, 2008 (unaudited) and January 31, 2008
    
    
    3(b) Consolidated Statements of Operations for the Three Months Ended October 31, 2008 and 2007 (unaudited)
    
    
    4(c) Consolidated Statements of Operations for the Nine Months Ended October 31, 2008 and 2007 (unaudited)
    
    
    5(d) Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2008 and 2007 (unaudited)
    
    
    6(e) Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20Part II. Other InformationItem 1. Legal Proceedings
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit Index
    
    
    23EX-31.1EX-31.2EX-32
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 PDG ENVIRONMENTAL, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 October 31,
    
    
    January 31,2008
    
    
    2008(unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    74,000
    
    
    $
    90,000Contracts Receivable, Net
    
    
    29,032,000
    
    
    
    22,154,000Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
    
    
    5,120,000
    
    
    
    3,325,000Inventories
    
    
    635,000
    
    
    
    689,000Deferred Income Tax Asset
    
    
    1,257,000
    
    
    
    1,111,000Other Current Assets
    
    
    390,000
    
    
    
    94,000Total Current Assets
    
    
    36,508,000
    
    
    
    27,463,000Property, Plant and Equipment
    
    
    12,464,000
    
    
    
    12,201,000Less: Accumulated Depreciation
    
    
    (10,606,000
    )
    
    
    (9,859,000
    )1,858,000
    
    
    
    2,342,000Intangible Assets
    
    
    4,235,000
    
    
    
    4,718,000Goodwill
    
    
    2,489,000
    
    
    
    2,614,000Deferred Income Tax Asset
    
    
    3,049,000
    
    
    
    2,804,000Contracts Receivable, Non Current
    
    
    677,000
    
    
    
    677,000Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts, Non Current
    
    
    3,327,000
    
    
    
    3,327,000Other Assets
    
    
    313,000
    
    
    
    300,000Total Assets
    
    $
    52,456,000
    
    
    $
    44,245,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    $12,567,000
    
    
    $
    9,729,000Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
    
    
    3,152,000
    
    
    
    1,832,000Accrued Income Taxes
    
    
    6,000
    
    
    
    255,000Accrued Liabilities
    
    
    4,391,000
    
    
    
    4,921,000Current Portion of Long-Term Debt
    
    
    353,000
    
    
    
    412,000Mandatorily Redeemable Cumulative Convertible Series C Preferred Stock
    
    
    4,225,000
    
    
    
    Total Current Liabilities
    
    
    24,694,000
    
    
    
    17,149,000Long-Term Debt
    
    
    16,010,000
    
    
    
    10,679,000Mandatorily Redeemable Cumulative Convertible Series C Preferred Stock
    
    
    
    
    
    
    3,446,000Total Liabilities
    
    
    40,704,000
    
    
    
    31,274,000Stockholders EquityCommon Stock
    
    
    418,000
    
    
    
    418,000Common Stock Warrants
    
    
    1,628,000
    
    
    
    1,628,000Paid-In Capital
    
    
    20,042,000
    
    
    
    19,728,000Accumulated Deficit
    
    
    (10,298,000
    )
    
    
    (8,765,000
    )Treasury Stock, at Cost
    
    
    (38,000
    )
    
    
    (38,000
    )Total Stockholders Equity
    
    
    11,752,000
    
    
    
    12,971,000Total Liabilities and Stockholders Equity
    
    $
    52,456,000
    
    
    $
    44,245,000
 See accompanying notes to consolidated financial statements.
 3




---



##### Table of Contents



PDG ENVIRONMENTAL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 For the Three Months Ended October 31,2008
    
    
    2007Contract Revenues
    
    $
    28,134,000
    
    
    $
    26,616,000Contract Costs
    
    
    23,770,000
    
    
    
    23,874,000Gross Margin
    
    
    4,364,000
    
    
    
    2,742,000Selling, General and Administrative Expenses
    
    
    3,180,000
    
    
    
    3,594,000Income (Loss) from Operations
    
    
    1,184,000
    
    
    
    (852,000
    )Other Income (Expense):Interest Expense
    
    
    (232,000
    )
    
    
    (303,000
    )Non-Cash Interest Expense for Preferred Dividends and Accretion of Discount
    
    
    (271,000
    )
    
    
    (229,000
    )Interest and Other Income
    
    
    24,000
    
    
    
    163,000(479,000
    )
    
    
    (369,000
    )Income (Loss) Before Income Taxes
    
    
    705,000
    
    
    
    (1,221,000
    )Income Tax (Benefit) Provision
    
    
    363,000
    
    
    
    (221,000
    )Net Income (Loss)
    
    $
    342,000
    
    
    $
    (1,000,000
    )Earnings (Loss) Per Common Share  Basic:
    
    $
    0.02
    
    
    $
    (0.05
    )Earnings (Loss) Per Common Share  Diluted:
    
    $
    0.02
    
    
    $
    (0.05
    )Average Common Shares Outstanding
    
    
    20,826,000
    
    
    
    20,749,000Average Dilutive Common Stock Equivalents Outstanding
    
    
    30,000
    
    
    
    Average Common Shares and Dilutive Common Stock
Equivalents Outstanding
    
    
    20,856,000
    
    
    
    20,749,000
 See accompanying notes to consolidated financial statements.
 4




---



##### Table of Contents



PDG ENVIRONMENTAL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 For the Nine Months Ended October 31,2008
    
    
    2007Contract Revenues
    
    $
    69,056,000
    
    
    $
    74,954,000Contract Costs
    
    
    59,405,000
    
    
    
    64,478,000Gross Margin
    
    
    9,651,000
    
    
    
    10,476,000Loss on Sale of Fixed Assets
    
    
    (6,000
    )
    
    
    Selling, General and Administrative Expenses
    
    
    10,255,000
    
    
    
    9,399,000Income (Loss) from Operations
    
    
    (610,000
    )
    
    
    1,077,000Other Income (Expense):Interest Expense
    
    
    (636,000
    )
    
    
    (883,000
    )Non-Cash Interest Expense for Preferred Dividends and Accretion of Discount
    
    
    (779,000
    )
    
    
    (658,000
    )Interest and Other Income
    
    
    61,000
    
    
    
    315,000(1,354,000
    )
    
    
    (1,226,000
    )Income (Loss) Before Income Taxes
    
    
    (1,964,000
    )
    
    
    (149,000
    )Income Tax (Benefit) Provision
    
    
    (431,000
    )
    
    
    32,000Net Income (Loss)
    
    $
    (1,533,000
    )
    
    $
    (181,000
    )Earnings (Loss) Per Common Share  Basic:
    
    $
    (0.07
    )
    
    $
    (0.01
    )Earnings (Loss) Per Common Share  Diluted:
    
    $
    (0.07
    )
    
    $
    (0.01
    )Average Common Shares Outstanding
    
    
    20,821,000
    
    
    
    20,614,000Average Dilutive Common Stock Equivalents Outstanding
    
    
    
    
    
    
    Average Common Shares and Dilutive Common Stock
Equivalents Outstanding
    
    
    20,821,000
    
    
    
    20,614,000
 See accompanying notes to consolidated financial statements.
 5




---



##### Table of Contents



PDG ENVIRONMENTAL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 For the Nine Months Ended October 31,2008
    
    
    2007Cash Flows from Operating Activities:Net (Loss)
    
    $
    (1,533,000
    )
    
    $
    (181,000
    )Adjustments to Reconcile Net (Loss) to Cash Provided by (Used in) Operating Activities:Depreciation and Amortization
    
    
    1,353,000
    
    
    
    1,403,000Deferred Income Tax Benefit
    
    
    (391,000
    )
    
    
    (177,000
    )Interest Expense for Series C Preferred Stock Dividends and Accretion of Discount
    
    
    779,000
    
    
    
    657,000Stock Based Compensation
    
    
    312,000
    
    
    
    224,000Loss on Sale of Fixed Assets
    
    
    6,000
    
    
    
    Provision for Receivable Allowance
    
    
    1,307,000
    
    
    
    11,0001,833,000
    
    
    
    1,937,000Changes in Current Assets and Liabilities:Contracts Receivable
    
    
    (8,185,000
    )
    
    
    (4,004,000
    )Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
    
    
    (1,795,000
    )
    
    
    (1,146,000
    )Inventories
    
    
    54,000
    
    
    
    (107,000
    )Accrued Income Taxes
    
    
    (249,000
    )
    
    
    373,000Other Current Assets (Prepaid Insurance)
    
    
    1,017,000
    
    
    
    1,113,000Accounts Payable
    
    
    2,838,000
    
    
    
    2,676,000Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
    
    
    1,320,000
    
    
    
    (1,586,000
    )Accrued Liabilities
    
    
    (528,000
    )
    
    
    1,612,000Total Changes
    
    
    (5,528,000
    )
    
    
    (1,069,000
    )Net Cash Provided by (Used in) Operating Activities
    
    
    (3,695,000
    )
    
    
    868,000Cash Flows From Investing Activities:Purchase of Property, Plant and Equipment
    
    
    (275,000
    )
    
    
    (528,000
    )Proceeds from Sale of Fixed Assets
    
    
    4,000
    
    
    
    Payment of Accrued Earnout Liability
    
    
    (100,000
    )
    
    
    Changes in Other Assets
    
    
    (107,000
    )
    
    
    (66,000
    )Net Cash Used in Investing Activities
    
    
    (478,000
    )
    
    
    (594,000
    )Cash Flows From Financing Activities:Proceeds from Debt
    
    
    5,549,000
    
    
    
    730,000Proceeds from Exercise of Stock Options and Warrants
    
    
    2,000
    
    
    
    145,000Payment of Premium Financing Liability
    
    
    (1,090,000
    )
    
    
    (882,000
    )Principal Payments on Debt
    
    
    (304,000
    )
    
    
    (282,000
    )Net Cash Provided by (Used in) Financing Activities
    
    
    4,157,000
    
    
    
    (289,000
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (16,000
    )
    
    
    (15,000
    )Cash and Cash Equivalents, Beginning of Year
    
    
    90,000
    
    
    
    158,000Cash and Cash Equivalents, End of Period
    
    $
    74,000
    
    
    $
    143,000Supplementary Disclosure of Non-Cash Investing and Financing Activity:Decrease in Goodwill and Accrued Liabilities for Earnout Liability
    
    $
    (126,000
    )
    
    $
    (32,000
    )Financing of Annual Insurance Premium
    
    $
    1,313,000
    
    
    $
    983,000Non-Cash Purchase of Fixed Assets Financed Through Capital Leases
    
    $
    27,000
    
    
    $
    197,000
 See accompanying notes to consolidated financial statements.
 6




---



##### Table of Contents



PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 AS OF AND FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 2008
 (UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
    NOTE 2  CONTRACTS RECEIVABLE
  October 31, 2008
    
    
    January 31, 2008Billed Completed Contracts
    
    $
    4,910,000
    
    
    $
    6,026,000Contracts in Progress
    
    
    26,554,000
    
    
    
    18,091,00031,464,000
    
    
    
    24,117,000Less Allowance for Contracts Receivable
    
    
    (1,755,000
    )
    
    
    (1,286,000
    )Net Contracts Receivables
    
    $
    29.709,000
    
    
    $
    22,831,000
    NOTE 3  INCOME TAXES
    7




---



##### Table of Contents



NOTE 4  TERM DEBT
      NOTE 5  NET EARNINGS PER SHARE
  For the Three MonthsEnded October 31,2008
    
    
    2007Numerator:Net Income (Loss)  Numerator for basic earnings per share  income
available to common stockholders
    
    $
    342,000
    
    
    $
    (1,000,000
    )Effect of dilutive securities:Preferred stock dividends and accretion of discount
    
    
    
    
    
    
    Numerator for diluted earnings per share  income available to
common stock after assumed conversions
    
    $
    342,000
    
    
    $
    (1,000,000
    )Denominator:Denominator for basic earnings per share  weighted average shares
    
    $
    20,826,000
    
    
    $
    20,749,000Effect of dilutive securities:Convertible Preferred Stock and related accrued dividends
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Employee Stock Options
    
    
    30,000
    
    
    
    Denominator for diluted earnings per share  adjusted
weighted-average shares and assumed conversions
    
    $
    20,856,000
    
    
    $
    20,749,000Basic earnings (loss) per share
    
    $
    0.02
    
    
    $
    (0.05
    )Diluted earnings (loss) per share
    
    $
    0.02
    
    
    $
    (0.05
    )
 8




---



##### Table of Contents



For the Nine MonthsEnded October 31,2008
    
    
    2007Numerator:Net Income (Loss)  Numerator for basic earnings per share  income
available to common stockholders
    
    $
    (1,533,000
    )
    
    $
    (181,000
    )Effect of dilutive securities:Preferred stock dividends and accretion of discount
    
    
    
    
    
    
    Numerator for diluted earnings per share  income available to
common stock after assumed conversions
    
    $
    (1,533,000
    )
    
    $
    (181,000
    )Denominator:Denominator for basic earnings per share  weighted average shares
    
    $
    20,821,000
    
    
    $
    20,614,000Effect of dilutive securities:Convertible Preferred Stock and related accrued dividends
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Employee Stock Options
    
    
    
    
    
    
    Denominator for diluted earnings per share  adjusted
weighted-average shares and assumed conversions
    
    $
    20,821,000
    
    
    $
    20,614,000Basic (loss) per share
    
    $
    (0.07
    )
    
    $
    (0.01
    )Diluted (loss) per share
    
    $
    (0.07
    )
    
    $
    (0.01
    )
  NOTE 6  STOCK OPTIONS
  9




---



##### Table of Contents



Risk free interest rate
    
    
    3.78% - 3.84%Expected dividend yield
    
    
    0.00%Expected life of options
    
    
    6.0 - 10.0 yrsExpected volatility rate
    
    
    98.16% - 98.66%Weighted average fair value of options granted
during the nine months ended October 31, 2008
    
    
    $0.37
  NOTE 7  PRIVATE PLACEMENT OF SECURITIES  JULY 2005
 Common Private Placement
 Securities Purchase Agreement
  Common Warrants
   10




---



##### Table of Contents



Preferred Private Placement
 Securities Purchase Agreement
    Preferred Warrants
   11




---



##### Table of Contents



Terms of the Preferred Stock
       12




---



##### Table of Contents



Over-Allotment Warrants
    Registration Rights Agreements
  Warrant Derivative Liability
  13




---



##### Table of Contents



Conversion of Preferred Stock to Common Stock
  Exercise of Warrants for Common Stock
  NOTE 8  GOODWILL AND OTHER INTANGIBLE ASSETS
    NOTE 9  NEW ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Post Retirement Plans Employers Accounting for Pension, Employers Accounting for Postretirement Benefits Other Than Pensions
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 14




---



##### Table of Contents



Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements
 Disclosures about Derivative Instruments and
Hedging Activities  an Amendment of FASB Statement No. 133
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.
 Accounting for Financial Guarantee Insurance Contracts -
An Interpretation of FASB Statement No. 60.
 15




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
    CRITICAL ACCOUNTING POLICIES
  16




---



##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended October 31, 2008 Compared to Three Months Ended October 31, 2007
        Nine Months Ended October 31, 2008 Compared to Nine Months Ended October 31, 2007
  17




---



##### Table of Contents



FINANCIAL CONDITION
 Liquidity and Capital Resources
      18




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  19




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   20




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
  ExhibitsNumber
    
    Description31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,
and Section 302 of The Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,
and Section 302 of The Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as amended Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002
 21




---



##### Table of Contents



PDG ENVIRONMENTAL, INC.By
    
    /s/ John C. ReganJohn C. ReganChairman and Chief Executive OfficerBy
    
    /s/ Nicola BattagliaNicola BattagliaChief Financial Officer
  22




---



##### Table of Contents



EXHIBIT INDEX
Exhibit No. and Description
 Exhibit 31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of The
Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of The
Sarbanes-Oxley Act of 2002Exhibit 32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as amended Pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002
 23