##### Table of Contents



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 QUARTERLY PERIOD ENDED April 30, 2007
 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
(State or other jurisdiction of incorporation 
or organization)
    
    22-2677298
(I.R.S. Employer
Identification No.)1386 Beulah Road, Building 801
Pittsburgh, Pennsylvania
(Address of principal executive offices)
    
    15235
(Zip Code)
 412-243-3200
 þ o
  o o þ
 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 April 30, 2007 (unaudited) and January 31, 2007
    
    
    3(b)  Consolidated Statements of Operations for the Three Months Ended April 30, 2007 and 2006 (unaudited)
    
    
    4(c)  Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2007 and 2006 (unaudited)
    
    
    5(d)  Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 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
    
    
    19Part
II. Other InformationItem 1.  Legal Proceedings
    
    
    21Item 1A.  Risk Factors
    
    
    21Item 6.  Exhibits
    
    
    21Signature and Certification
    
    
    22EX-31.1EX-31.2EX-32.1
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 April 30,
    
    
    January 31,2007
    
    
    2007(unaudited)AssetsCurrent AssetsCash and cash equivalents
    
    $
    70,000
    
    
    $
    158,000Contracts receivable, net
    
    
    23,202,000
    
    
    
    21,257,000Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    5,549,000
    
    
    
    5,607,000Inventories
    
    
    588,000
    
    
    
    553,000Prepaid income taxes
    
    
    41,000
    
    
    
    271,000Deferred income tax asset
    
    
    915,000
    
    
    
    915,000Other current assets
    
    
    933,000
    
    
    
    534,000Total Current Assets
    
    
    31,298,000
    
    
    
    29,295,000Property, Plant and Equipment
    
    
    11,523,000
    
    
    
    11,352,000Less: accumulated depreciation
    
    
    9,063,000
    
    
    
    8,795,0002,460,000
    
    
    
    2,557,000Goodwill
    
    
    2,619,000
    
    
    
    2,651,000Deferred Income Tax Asset
    
    
    2,498,000
    
    
    
    2,565,000Contracts Receivable, Non Current
    
    
    500,000
    
    
    
    500,000Intangible and Other Assets
    
    
    5,522,000
    
    
    
    5,686,000Total Assets
    
    $
    44,897,000
    
    
    $
    43,254,000Liabilities and Stockholders EquityCurrent LiabilitiesAccounts payable
    
    $
    7,944,000
    
    
    $
    7,403,000Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    2,915,000
    
    
    
    3,421,000Current portion of long-term debt
    
    
    331,000
    
    
    
    322,000Accrued liabilities
    
    
    4,377,000
    
    
    
    4,007,000Total Current Liabilities
    
    
    15,567,000
    
    
    
    15,153,000Long-Term Debt
    
    
    12,813,000
    
    
    
    12,161,000Series C Redeemable Convertible Preferred Stock
    
    
    2,760,000
    
    
    
    2,550,000Total Liabilities
    
    
    31,140,000
    
    
    
    29,864,000Stockholders EquityCommon stock
    
    
    411,000
    
    
    
    411,000Common stock warrants
    
    
    1,628,000
    
    
    
    1,628,000Additional paid-in capital
    
    
    19,298,000
    
    
    
    19,245,000Retained earnings (deficit)
    
    
    (7,542,000
    )
    
    
    (7,856,000
    )Less treasury stock, at cost
    
    
    (38,000
    )
    
    
    (38,000
    )Total Stockholders Equity
    
    
    13,757,000
    
    
    
    13,390,000Total Liabilities and Stockholders Equity
    
    $
    44,897,000
    
    
    $
    43,254,000
 See accompanying notes to consolidated financial statements.
 3




---



##### Table of Contents



PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
 For the Three MonthsEnded April 30,2007
    
    

2006(Restated)Contract revenues
    
    $
    21,700,000
    
    
    $
    16,368,000Contract costs
    
    
    18,007,000
    
    
    
    15,222,000Gross margin
    
    
    3,693,000
    
    
    
    1,146,000Selling, general and administrative expenses
    
    
    2,814,000
    
    
    
    2,932,000Income (loss) from operations
    
    
    879,000
    
    
    
    (1,786,000
    )Other income (expense):Interest expense
    
    
    (271,000
    )
    
    
    (219,000
    )Non-cash interest expense for preferred dividends and accretion of discount
    
    
    (210,000
    )
    
    
    (784,000
    )Non-recurring charge for employee fraud
    
    
    
    
    
    
    (347,000
    )Interest and other income
    
    
    5,000
    
    
    
    (476,000
    )
    
    
    (1,350,000
    )Income (loss) before income taxes
    
    
    403,000
    
    
    
    (3,136,000
    )Income tax provision (benefit)
    
    
    89,000
    
    
    
    (976,000
    )Net income (loss)
    
    $
    314,000
    
    
    $
    (2,160,000
    )Per share of common stock:Basic
    
    $
    0.02
    
    
    $
    (0.12
    )Dilutive
    
    $
    0.01
    
    
    $
    (0.12
    )Average common share equivalents outstanding
    
    
    20,502,191
    
    
    
    18,268,000Average dilutive common share equivalents
outstanding
    
    
    495,216
    
    
    
    Average common shares and dilutive common equivalents
outstanding for earnings per
share calculation
    
    
    20,997,407
    
    
    
    18,268,000
 See accompanying notes to consolidated financial statements.
 4




---



##### Table of Contents



PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
 For the Three MonthsEnded April 30,2007
    
    
    2006(Restated)Cash Flows from Operating Activities:Net income (loss)
    
    $
    314,000
    
    
    $
    (2,160,000
    )Adjustments to Reconcile Net Income to Cash:Depreciation and amortization
    
    
    461,000
    
    
    
    426,000Deferred income taxes
    
    
    67,000
    
    
    
    (383,000
    )Interest expense for preferred dividends and accretion of discount
    
    
    210,000
    
    
    
    784,000Loss on sale of equity investment and fixed assets
    
    
    
    
    
    
    5,000Stock based compensation
    
    
    53,000
    
    
    
    73,000Provision for uncollectible accounts
    
    
    (40,000
    )
    
    
    Changes in Assets and Liabilities Other than CashContracts receivable
    
    
    (1,905,000
    )
    
    
    333,000Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    58,000
    
    
    
    (694,000
    )Inventories
    
    
    (35,000
    )
    
    
    (50,000
    )Prepaid income taxes
    
    
    230,000
    
    
    
    (196,000
    )Other current assets
    
    
    584,000
    
    
    
    214,000Accounts payable
    
    
    541,000
    
    
    
    227,000Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    (506,000
    )
    
    
    551,000Current income tax liabilities
    
    
    
    
    
    
    Accrued liabilities
    
    
    (292,000
    )
    
    
    (595,000
    )Total Changes in Assets and Liabilities Other than Cash
    
    
    (1,325,000
    )
    
    
    (210,000
    )Net Cash Used by Operating Activities
    
    
    (260,000
    )
    
    
    (1,465,000
    )Cash Flows from Investing Activities:Purchase of property, plant and equipment
    
    
    (137,000
    )
    
    
    (179,000
    )Proceeds from sale of equity investment and fixed assets
    
    
    
    
    
    
    15,000Increase in other assets
    
    
    (25,000
    )
    
    
    (12,000
    )Net Cash Used by Investing Activities
    
    
    (162,000
    )
    
    
    (176,000
    )Cash Flows from Financing Activities:Proceeds from debt
    
    
    705,000
    
    
    
    1,500,000Proceeds from exercise of stock options and warrants
    
    
    
    
    
    
    708,000Payment of insurance premium financing
    
    
    (289,000
    )
    
    
    (340,000
    )Principal payments on debt
    
    
    (82,000
    )
    
    
    (36,000
    )Net Cash Provided by Financing Activities
    
    
    334,000
    
    
    
    1,832,000Change in Cash and Cash Equivalents
    
    
    (88,000
    )
    
    
    191,000Cash and Cash Equivalents, Beginning of Period
    
    
    158,000
    
    
    
    230,000Cash and Cash Equivalents, End of Period
    
    $
    70,000
    
    
    $
    421,000Supplementary disclosure of non-cash Investing and Financing Activity:Increase (Decrease) in goodwill and accrued liabilities for contingent payment
    
    $
    (32,000
    )
    
    $
    118,000Financing of annual insurance premium
    
    $
    983,000
    
    
    $
    1,157,000Non-cash purchase of fixed assets financed through capital lease
    
    $
    38,000
    
    
    $
    
 See accompanying notes to consolidated financial statements.
 5




---



##### Table of Contents



PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 30, 2007
(UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
     NOTE 2  CONTRACTS RECEIVABLE
  April 30, 2007
    
    
    January 31, 2007Billed completed contracts
    
    $
    14,859,000
    
    
    $
    13,989,000Contracts in Progress
    
    
    10,093,000
    
    
    
    9,058,00024,952,000
    
    
    
    23,047,000Less allowance for Uncollectible Accounts
    
    
    (1,250,000
    )
    
    
    (1,290,000
    )Net Contracts Receivables
    
    $
    23,702,000
    
    
    $
    21,757,000
   6




---



##### Table of Contents



NOTE 3  INCOME TAXES
      NOTE 4  TERM DEBT
     NOTE 5  NET EARNINGS PER SHARE
  For the Three MonthsEnded April 30,2007
    
    
    2006(Restated)Numerator:Net Income (loss)- Numerator for basic earnings per shareincome
available to common stockholders
    
    $
    314,000
    
    
    $
    (2,160,000
    )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
    
    $
    314,000
    
    
    $
    (2,160,000
    )
 7




---



##### Table of Contents



For the Three MonthsEnded April 30,2007
    
    
    2006Denominator:Denominator for basic earnings per shareweighted average
shares
    
    
    20,502,191
    
    
    
    18,268,000Effect of dilutive securities:Convertible Preferred Stock and related accrued dividends
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Employee Stock Options
    
    
    495,216
    
    
    
    
    
    
    
    Denominator for diluted earnings per shareadjusted
weighted-average shares and assumed conversions
    
    
    20,997,407
    
    
    
    18,268,000Basic earnings per share
    
    $
    0.02
    
    
    $
    (0.12
    )Diluted earnings per share
    
    $
    0.01
    
    
    $
    (0.12
    )
  NOTE 6  STOCK OPTIONS
     NOTE 7  PRIVATE PLACEMENT OF SECURITIES  JULY 2005
 Common Private Placement
 Securities Purchase Agreement
  8




---



##### Table of Contents



Common Warrants
    Preferred Private Placement
 Securities Purchase Agreement
  9




---



##### Table of Contents



Preferred Warrants
    Terms of the Preferred Stock
   10




---



##### Table of Contents



Over-Allotment Warrants
    Warrant Derivative Liability
  11




---



##### Table of Contents



Conversion of Preferred Stock to Common Stock
     Exercise of Warrants for Common Stock
    NOTE 8  ACQUISITION
  12




---



##### Table of Contents



Allocated Value
    
    Amortization PeriodFixed assets
    
    $
    50,000
    
    
    
    3 to 7 yearsCovenant-not-to-compete
    
    
    78,000
    
    
    4 1/2 yearsCustomer relationships
    
    
    5,766,000
    
    
    10 yearsSubcontractor relationships
    
    
    530,000
    
    
    5 yearsGoodwill
    
    
    160,000
    
    
    
    N/A
  NOTE 9  GOODWILL
   NOTE 10  EMPLOYEE FRAUD
   13




---



##### Table of Contents



NOTE 11  NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109
   The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115
 14




---



##### Table of Contents



15




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
    16




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS
 Three Months Ended April 30, 2007
         17




---



##### Table of Contents



FINANCIAL CONDITION
 Liquidity and Capital Resources
             18




---



##### Table of Contents



ITEM 3. QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  19




---



##### Table of Contents



20




---



##### Table of Contents



PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 (a)
    
    The following exhibits are being filed with this report:
 ExhibitsNumber
    
    DescriptionEXHIBIT INDEX 
Exhibit No. and DescriptionExhibit 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 2002Exhibit 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 2002Exhibit 32.1
    
    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



SIGNATURES
  PDG ENVIRONMENTAL, INC.By

/s/ John C. ReganJohn C. ReganChairman and Chief Executive OfficerBy

/s/ Nicola BattagliaNicola BattagliaChief Financial Officer  22