##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2006
 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
    
    (I.R.S. Employeror organization)
    
    Identification No.)
 1386 Beulah Road, Building 801Pittsburgh, Pennsylvania
    
    15235(Address of principal executive offices)
    
    (Zip Code)
 412-243-3200
 þ o
  o o þ
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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, 2006 (unaudited) and January 31, 2006
    
    
    4(b) Consolidated Statements of Operations for the Three Months Ended April 30, 2006 and 2005 (unaudited)
    
    
    5(c) Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2006 and 2005 (unaudited)
    
    
    6(d) Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23Part II. Other InformationItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 6. Exhibits
    
    
    25Signature and Certification
    
    
    26EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 April 30,
    
    
    January 31,2006
    
    
    2006(Restated)
    
    
    (Restated)(unaudited)AssetsCurrent AssetsCash and cash equivalents
    
    $
    421,000
    
    
    $
    230,000Contracts receivable
    
    
    23,570,000
    
    
    
    23,903,000Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    5,868,000
    
    
    
    5,174,000Inventories
    
    
    646,000
    
    
    
    596,000Prepaid income taxes
    
    
    930,000
    
    
    
    734,000Deferred income tax asset
    
    
    494,000
    
    
    
    470,000Other current assets
    
    
    1,074,000
    
    
    
    131,000Total Current Assets
    
    
    33,003,000
    
    
    
    31,238,000Property, Plant and Equipment
    
    
    10,281,000
    
    
    
    10,137,000Less: accumulated depreciation
    
    
    (8,043,000
    )
    
    
    (7,838,000
    )2,238,000
    
    
    
    2,299,000Goodwill
    
    
    2,438,000
    
    
    
    2,316,000Deferred Income Tax Asset
    
    
    575,000
    
    
    
    216,000Intangible and Other Assets
    
    
    6,220,000
    
    
    
    6,423,000Total Assets
    
    $
    44,474,000
    
    
    $
    42,492,000Liabilities and Stockholders EquityCurrent LiabilitiesAccounts payable
    
    $
    6,715,000
    
    
    $
    6,488,000Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    2,595,000
    
    
    
    2,044,000Current portion of long-term debt
    
    
    515,000
    
    
    
    513,000Accrued liabilities
    
    
    4,834,000
    
    
    
    4,494,000Total Current Liabilities
    
    
    14,659,000
    
    
    
    13,539,000Long-Term Debt
    
    
    10,521,000
    
    
    
    9,059,000Series C Redeemable Convertible Preferred Stock
    
    
    2,618,000
    
    
    
    2,803,000Total Liabilities
    
    
    27,798,000
    
    
    
    25,401,000Stockholders EquityCommon stock
    
    
    378,000
    
    
    
    345,000Common stock warrants
    
    
    1,628,000
    
    
    
    1,881,000Additional paid-in capital
    
    
    17,547,000
    
    
    
    15,582,000Retained earnings (deficit)
    
    
    (2,839,000
    )
    
    
    (679,000
    )Less treasury stock, at cost
    
    
    (38,000
    )
    
    
    (38,000
    )Total Stockholders Equity
    
    
    16,676,000
    
    
    
    17,091,000Total Liabilities and Stockholders Equity
    
    $
    44,474,000
    
    
    $
    42,492,000
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
 For the Three MonthsEnded April 30,2006
    
    
    2005(Restated)Contract revenues
    
    $
    16,368,000
    
    
    $
    13,951,000Contract costs
    
    
    15,222,000
    
    
    
    11,651,000Gross margin
    
    
    1,146,000
    
    
    
    2,300,000Selling, general and administrative expenses
    
    
    2,932,000
    
    
    
    1,737,000Income (loss) from operations
    
    
    (1,786,000
    )
    
    
    563,000Other income (expense):Interest expense
    
    
    (219,000
    )
    
    
    (100,000
    )Non-cash interest expense for preferred dividends and accretion of discount
    
    
    (784,000
    )
    
    
    Non-recurring charge for employee fraud
    
    
    (347,000
    )
    
    
    Gain on sale of equity investment
    
    
    
    
    
    
    48,000Equity in income of equity investment
    
    
    
    
    
    
    4,000Interest and other income
    
    
    
    
    
    
    14,000(1,350,000
    )
    
    
    (34,000
    )Income (loss) before income taxes
    
    
    (3,136,000
    )
    
    
    529,000Income tax provision (benefit)
    
    
    (976,000
    )
    
    
    203,000Net income (loss)
    
    $
    (2,160,000
    )
    
    $
    326,000Per share of common stock:Basic
    
    $
    (0.12
    )
    
    $
    0.03Dilutive
    
    $
    (0.12
    )
    
    $
    0.02Average common share equivalents outstanding
    
    
    18,268,000
    
    
    
    12,983,000Average dilutive common share equivalents
outstanding
    
    
    
    
    
    
    1,198,000Average common shares and dilutive common equivalents
outstanding for earnings per
share calculation
    
    
    18,268,000
    
    
    
    14,181,000
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
 For the Three MonthsEnded April 30,2006
    
    
    2005(Restated)Cash Flows from Operating Activities:Net income (loss)
    
    $
    (2,160,000
    )
    
    $
    326,000Adjustments to Reconcile Net Income to Cash:Depreciation and amortization
    
    
    426,000
    
    
    
    176,000Deferred income taxes
    
    
    (383,000
    )
    
    
    Interest expense for preferred dividends and accretion of discount
    
    
    784,000
    
    
    
    (Gain) loss on sale of equity investment and fixed assets
    
    
    5,000
    
    
    
    (48,000
    )Stock based compensation
    
    
    73,000
    
    
    
    Equity in (income) of equity investment
    
    
    
    
    
    
    (4,000
    )Changes in Assets and Liabilities
Other than Cash:Contracts receivable
    
    
    333,000
    
    
    
    (1,515,000
    )Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    (694,000
    )
    
    
    857,000Inventories
    
    
    (50,000
    )
    
    
    (39,000
    )Prepaid income taxes
    
    
    (196,000
    )
    
    
    Other current assets
    
    
    214,000
    
    
    
    42,000Accounts payable
    
    
    227,000
    
    
    
    210,000Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    551,000
    
    
    
    (307,000
    )Current income tax liabilities
    
    
    
    
    
    
    (172,000
    )Accrued liabilities
    
    
    (595,000
    )
    
    
    (948,000
    )Total Adjustment
    
    
    (210,000
    )
    
    
    (1,872,000
    )Net Cash Used by Operating Activities
    
    
    (1,465,000
    )
    
    
    (1,422,000
    )Cash Flows from Investing Activities:Purchase of property, plant and equipment
    
    
    (179,000
    )
    
    
    (162,000
    )Proceeds from sale of equity investment and fixed assets
    
    
    15,000
    
    
    
    50,000Additional investment in joint venture
    
    
    
    
    
    
    (18,000
    )Increase in other assets
    
    
    (12,000
    )
    
    
    (28,000
    )Net Cash Used by Investing Activities
    
    
    (176,000
    )
    
    
    (158,000
    )Cash Flows from Financing Activities:Proceeds from debt
    
    
    1,500,000
    
    
    
    2,000,000Proceeds from exercise of stock options and warrants
    
    
    708,000
    
    
    
    28,000Payment of accrued earnout liability
    
    
    
    
    
    
    (150,000
    )Payment of insurance premium financing
    
    
    (340,000
    )
    
    
    (300,000
    )Principal payments on debt
    
    
    (36,000
    )
    
    
    (81,000
    )Net Cash Provided by Financing Activities
    
    
    1,832,000
    
    
    
    1,497,000Change in Cash and Cash Equivalents
    
    
    191,000
    
    
    
    (83,000
    )Cash and Cash Equivalents, Beginning of Period
    
    
    230,000
    
    
    
    333,000Cash and Cash Equivalents, End of Period
    
    $
    421,000
    
    
    $
    250,000Supplementary disclosure of non-cash Investing and Financing Activity:Increase in goodwill and accrued liabilities for contingent payment
liability
    
    $
    118,000
    
    
    $
    154,000Financing of annual insurance premium
    
    $
    1,157,000
    
    
    $
    959,000
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED APRIL 30, 2006
(UNAUDITED)
 NOTE 1  EMPLOYEE FRAUD
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Three Months EndedApril 30,
2006
 Previously reported earnings per common share was as follows:Basic


    (0.11)Diluted

(0.11)
  Basic

(0.01)Diluted

(0.01)
 Restated earnings per common share is as follows:Basic

(0.12)Diluted

(0.12)
  Income Statement effects:
 For the Three MonthsEnded April 30, 2006As PreviouslyReported(1)
    
    
    As RestatedConsolidated Statements of Operations:Contract revenues
    
    $
    16,744,000
    
    
    $
    16,368,000Contract costs
    
    
    15,556,000
    
    
    
    15,222,000Gross margin
    
    
    1,188,000
    
    
    
    1,146,000Operating income (loss)
    
    
    (1,744,000
    )
    
    
    (1,786,000
    )Non-recurring charge for employee fraud
    
    
    
    
    
    
    (347,000
    )Income (loss) before income taxes
    
    
    (2,747,000
    )
    
    
    (3,136,000
    )Income tax
provision (benefit)
    
    
    (816,000
    )
    
    
    (976,000
    )Net income (loss)
    
    
    (1,931,000
    )
    
    
    (2,160,000
    )Per share of common stock  Basic
    
    $
    (0.11
    )
    
    $
    (0.12
    )Per share of common stock  Diluted
    
    $
    (0.11
    )
    
    $
    (0.12
    )
 As of April 30, 2006As PreviouslyReported(1)
    
    
    As RestatedBalance Sheet:Contract Receivables
    
    $
    24,546,000
    
    
    $
    23,570,000Inventory
    
    
    683,000
    
    
    
    646,000Prepaid Income Taxes
    
    
    662,000
    
    
    
    930,000Deferred Income Tax Asset  Short Term
    
    
    457,000
    
    
    
    494,000Total Current Assets
    
    
    33,711,000
    
    
    
    33,003,000Deferred Income Tax Asset  Long Term
    
    
    449,000
    
    
    
    575,000Total Assets
    
    
    45,056,000
    
    
    
    44,474,000Accrued Liabilities
    
    
    4,799,000
    
    
    
    4,834,000Total Current Liabilities
    
    
    14,624,000
    
    
    
    14,659,000Total Stockholders; Equity
    
    
    17,293,000
    
    
    
    16,676,000Total Liabilities and Stockholders Equity
    
    
    45,056,000
    
    
    
    44,474,000
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As of January 31, 2006As PreviouslyReported(1)
    
    
    As RestatedBalance Sheet:Contract Receivables
    
    $
    24,471,000
    
    
    $
    23,903,000Inventory
    
    
    669,000
    
    
    
    596,000Prepaid Income Taxes
    
    
    560,000
    
    
    
    734,000Deferred Income Tax Asset  Short Term
    
    
    373,000
    
    
    
    470,000Total Current Assets
    
    
    31,608,000
    
    
    
    31,238,000Total Assets
    
    
    42,862,000
    
    
    
    42,492,000Accounts Payable
    
    
    6,537,000
    
    
    
    6,488,000Billing in excess of costs and estimated
earnings on uncompleted
Contracts
    
    
    2,012,000
    
    
    
    2,044,000Accrued Liabilities
    
    
    4,459,000
    
    
    
    4,494,000Retained Earnings (Deficit)
    
    
    (291,000
    )
    
    
    (679,000
    )Total Stockholders; Equity
    
    
    17,479,000
    
    
    
    17,091,000Total Liabilities and Stockholders Equity
    
    
    42,862,000
    
    
    
    42,492,000
 As of April 30, 2006As PreviouslyReported(1)
    
    
    As RestatedStatement of Cash Flows effects:Net income (loss)
    
    $
    (1,931,000
    )
    
    $
    (2,160,000
    )Deferred taxes
    
    
    (317,000
    )
    
    
    (383,000
    )Contract receivables
    
    
    (75,000
    )
    
    
    333,000Inventory
    
    
    (14,000
    )
    
    
    (50,000
    )Prepaid income taxes
    
    
    (102,000
    )
    
    
    (196,000
    )Accounts Payable
    
    
    178,000
    
    
    
    227,000Billing in excess of costs and estimated earnings on uncompleted
Contracts
    
    
    583,000
    
    
    
    551,000Total Adjustments
    
    
    (505,000
    )
    
    
    (210,000
    )
 (1) As previously reported on Form 10-Q filed on June 14, 2006.
 NOTE 2  BASIS OF PRESENTATION
    NOTE 3  FEDERAL INCOME TAXES
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NOTE 4  TERM DEBT
  1 4
 1 4
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NOTE 5  NET EARNINGS PER SHARE
  For the Three MonthsEnded April 30,2006
    
    
    2005(Restated)Numerator:Net Income (loss)- Numerator for basic earnings per shareincome
available to common stockholders
    
    
    
    
    
    $
    (2,160,000
    )
    
    $
    326,000Effect of dilutive securities:Preferred stock dividends and accretion of discount
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted earnings per shareincome available to
common stock after assumed conversions
    
    
    
    
    
    $
    (2,160,000
    )
    
    $
    326,000Denominator:Denominator for basic earnings per shareweighted average
shares
    
    
    
    
    
    
    18,268,000
    
    
    
    12,983,000Effect of dilutive securities:Convertible Preferred Stock and related accrued dividends
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    Employee
Stock Options
    
    
    
    
    
    
    
    
    
    
    1,198,000
    
    
    
    1,198,000Denominator
for diluted earnings per shareadjusted
weighted-average shares and assumed conversions
    
    
    
    
    
    
    18,268,000
    
    
    
    14,181,000Basic earnings per share
    

    
    
    
    
    $
    (0.12
    )
    
    $
    0.03Diluted
earnings per share
    

    
    
    

    
    $
    (0.12
    )
    
    $
    0.02
  NOTE 6  STOCK OPTIONS
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For the Three MonthsEnded April 30,2005Net income, as reported
    
    $
    326,000Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects of a $203,000 benefit
    
    
    (407,000
    )Pro forma net income (loss)
    
    $
    (81,000
    )Earnings per share:Basic-as reported
    
    $
    0.03Basic-pro forma
    
    $
    (0.01
    )Diluted-as reported
    
    $
    0.02Diluted-pro forma
    
    $
    (0.01
    )
     NOTE 7  PRIVATE PLACEMENT OF SECURITIES  JULY 2005
 Common Private Placement
 Securities Purchase Agreement
  Common Warrants
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Preferred Private Placement
 Securities Purchase Agreement
  Preferred Warrants
  13




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Terms of the Preferred Stock
    14




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Over-Allotment Warrants
    Warrant Derivative Liability
  Conversion of Preferred Stock to Common Stock
    15




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Exercise of Warrants for Common Stock
   Subsequent Events
  NOTE 8  ACQUISITION
   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
  16




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Three months endedApril 30, 2005Sales
    
    $
    20,784,000Net Income
    
    $
    664,000Net income per common shares:Basic
    
    $
    0.04Dilutive
    
    $
    0.04Weighted average
shares outstanding:Basic
    
    
    14,886,000Dilutive
    
    
    16,084,000
 NOTE 9  GOODWILL
   NOTE 10  NEW ACCOUNTING PRONOUNCEMENTS
  17




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NOTE 11  SUBSEQUENT EVENT
  18




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
    19




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CRITICAL ACCOUNTING POLICIES
   RESTATEMENT
       20




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RESULTS OF OPERATIONS
 Three Months Ended April 30, 2006
         21




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FINANCIAL CONDITION
 Liquidity and Capital Resources
            22




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ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
   23




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PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
  EXHIBIT INDEX
    
    Pages of SequentialExhibit No. and Description
    
    Numbering System
 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 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
2002Exhibit 32.2
    
    Certification Pursuant To 18 U.S.C. Section 1350, As Amended Pursuant To Section 906 Of The Sarbanes-Oxley Act of
2002
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SIGNATURES
  PDG ENVIRONMENTAL, INC.By

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

/s/ Todd B. FortierTodd B. FortierChief Financial Officer  26