<PAGE>   1
                                                                     (conformed)

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB


[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998 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.)


   300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA                     15146
    (Address of principal executive offices)                     (Zip Code)


                                  412-856-2200
              (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
                                      -----   -----


As of December 4, 1998, there were 8,381,696 shares of the registrant's common
stock outstanding.


<PAGE>   2


                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES


                                      INDEX


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

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


         (a)  Condensed Consolidated Balance Sheets as of October 31, 1998 (unaudited) and
              January 31, 1998                                                                                          3

         (b)  Consolidated Statements of Operations for the Three Months Ended October 31, 1998
              and 1997 (unaudited)                                                                                      4

         (c)  Consolidated Statements of Operations for the Nine Months Ended October 31, 1998
              and 1997 (unaudited)                                                                                      5

         (d)  Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 1998
              and 1997 (unaudited)                                                                                      6

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

    Item 2.   Management's  Discussion  and  Analysis  of  Financial  Condition  and  Results  of
              Operations                                                                                               10


PART II.  OTHER INFORMATION

    Item 1.   Legal Proceedings                                                                                        13

    Item 3.   Defaults Upon Senior Securities                                                                          13

    Item 6.   Exhibits and Reports on Form 8-K                                                                         13

    Signatures                                                                                                         14
</TABLE>



                                        2

<PAGE>   3



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

<TABLE>
<CAPTION>
                                                                                    OCTOBER 31,           JANUARY 31,
                                                                                       1998                   1998*
                                                                                    -----------           -----------
                                                                                    (UNAUDITED)
<S>                                                                                 <C>                   <C>
ASSETS

CURRENT ASSETS
Cash and short-term investments                                                     $   624,000           $   892,000
Accounts receivable - net                                                             5,570,000             6,751,000
Costs and estimated earnings in excess of billings on
  uncompleted contracts                                                               1,066,000               725,000
Inventory                                                                               231,000               202,000
Other current assets                                                                    509,000               426,000
                                                                                    -----------           -----------

TOTAL CURRENT ASSETS                                                                  8,000,000             8,996,000

PROPERTY, PLANT AND EQUIPMENT                                                         4,949,000             4,527,000
Less:  accumulated depreciation                                                      (3,829,000)           (3,558,000)
                                                                                    -----------           -----------
                                                                                      1,120,000               969,000

OTHER ASSETS                                                                            415,000               372,000
                                                                                    -----------           -----------

TOTAL ASSETS                                                                        $ 9,535,000           $10,337,000
                                                                                    ===========           ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                                                                    $ 1,956,000           $ 3,746,000
Accrued liabilities                                                                   1,164,000             1,416,000
Billings in excess of costs and estimated earnings
  on uncompleted contracts                                                              796,000               842,000
Current portion of long-term debt                                                       180,000               198,000
                                                                                    -----------           -----------

TOTAL CURRENT LIABILITIES                                                             4,096,000             6,202,000

OTHER LONG-TERM LIABILITIES                                                             140,000               140,000

LONG-TERM DEBT                                                                          577,000             1,628,000

MINORITY INTEREST                                                                       239,000               102,000

STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock                                                14,000               400,000
Common stock                                                                            164,000               130,000
Additional paid-in capital                                                            6,239,000             4,571,000
Deficit                                                                              (1,934,000)           (2,836,000)
                                                                                    -----------           -----------

TOTAL STOCKHOLDERS' EQUITY                                                            4,483,000             2,265,000
                                                                                    -----------           -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $ 9,535,000           $10,377,000
                                                                                    ===========           ===========
</TABLE>


*Derived from audited financial statements.




See accompanying notes to consolidated financial statements.


                                        3

<PAGE>   4



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


<TABLE>
<CAPTION>
                                                                                              FOR THE THREE MONTHS
                                                                                                ENDED OCTOBER 31,
                                                                                        --------------------------------
                                                                                           1998                  1997
                                                                                        ----------            ----------
<S>                                                                                     <C>                   <C>       
CONTRACT REVENUES                                                                       $7,148,000            $6,204,000
CONTRACT COSTS                                                                           6,317,000             5,108,000
                                                                                        ----------            ----------

Gross margin                                                                               831,000             1,096,000

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                               731,000               689,000
                                                                                        ----------            ----------

Income from operations                                                                     100,000               407,000

OTHER INCOME (EXPENSE):
  Interest expense                                                                         (29,000)              (54,000)
  Interest income                                                                            2,000                 4,000
  Other income                                                                               4,000                 7,000
                                                                                        ----------            ----------
                                                                                           (23,000)              (43,000)
                                                                                        ----------            ----------
Income before income taxes and
  discontinued operations                                                                   77,000               364,000

INCOME TAX PROVISION                                                                       (20,000)               (5,000)

MINORITY INTEREST                                                                          (12,000)                    -
                                                                                        ----------            ----------

NET INCOME                                                                              $   45,000            $  359,000
                                                                                        ==========            ==========

PER SHARE OF COMMON STOCK - BASIC:                                                      $     0.01            $     0.06
                                                                                        ==========            ==========

PER SHARE OF COMMON SHARE - DILUTIVE                                                    $     0.01            $     0.05
                                                                                        ==========            ==========

AVERAGE COMMON SHARES OUTSTANDING                                                        7,820,000             6,017,000

AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS
OUTSTANDING                                                                                712,000             1,197,000
                                                                                        ----------            ----------

AVERAGE COMMON SHARES AND DILUTIVE COMMON STOCK
EQUIVALENTS OUTSTANDING FOR EARNINGS PER
SHARES CALCULATION                                                                       8,532,000             7,214,000
                                                                                        ==========            ==========
</TABLE>





See accompanying notes to consolidated financial statements.



                                        4

<PAGE>   5



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

<TABLE>
<CAPTION>
                                                                                              FOR THE NINE MONTHS
                                                                                                ENDED OCTOBER 31,
                                                                                       ---------------------------------
                                                                                          1998                   1997
                                                                                       -----------           -----------
<S>                                                                                    <C>                   <C>        
CONTRACT REVENUES                                                                      $31,343,000           $16,003,000
CONTRACT COSTS                                                                          27,175,000            13,177,000
                                                                                       -----------           -----------

Gross margin                                                                             4,168,000             2,826,000

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                             2,157,000             1,907,000
                                                                                       -----------           -----------

Income (loss) from operations                                                            2,011,000               919,000

OTHER INCOME (EXPENSE):
   Interest expense                                                                       (121,000)             (161,000)
   Interest income                                                                           6,000                13,000
   Other income                                                                              4,000                27,000
                                                                                       -----------           -----------
                                                                                          (111,000)             (121,000)
                                                                                       -----------           -----------
Income (loss) before income taxes and discontinued
   operations                                                                            1,900,000               798,000

INCOME TAX PROVISION                                                                       (60,000)              (15,000)

MINORITY INTEREST                                                                         (576,000)                    -
                                                                                       -----------           -----------

INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS                                             1,264,000               783,000

DISCONTINUED OPERATIONS
  Litigation settlement                                                                   (200,000)                    -
                                                                                       -----------           -----------

Net income (loss)                                                                      $ 1,064,000           $   783,000
                                                                                       ===========           ===========

PER SHARE OF COMMON STOCK - BASIC:

   INCOME BEFORE DISCONTINUED OPERATIONS                                               $      0.18           $      0.13
   DISCONTINUED OPERATIONS                                                                   (0.03)                    -
                                                                                       -----------           -----------

   NET INCOME PER SHARE                                                                $      0.15           $      0.13
                                                                                       ===========           ===========

PER SHARE OF COMMON STOCK - DILUTIVE:

  INCOME BEFORE DISCONTINUED OPERATIONS                                                $      0.16           $      0.11
  DISCONTINUED OPERATIONS                                                                    (0.02)                    -
                                                                                       -----------           -----------

  NET INCOME PER SHARE                                                                 $      0.14           $      0.11
                                                                                       ===========           ===========

AVERAGE COMMON SHARES OUTSTANDING                                                        7,181,000             5,961,000

AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS
OUTSTANDING                                                                                856,000             1,065,000
                                                                                       -----------           -----------

AVERAGE COMMON SHARES AND DILUTIVE COMMON STOCK
EQUIVALENTS OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION                                                                        8,037,000             7,026,000
                                                                                       ===========           ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                        5

<PAGE>   6



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


<TABLE>
<CAPTION>
                                                                                             FOR THE NINE MONTHS
                                                                                               ENDED OCTOBER 31,
                                                                                       ---------------------------------
                                                                                           1998                  1997
                                                                                       -----------           -----------
<S>                                                                                    <C>                   <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                                      $ 1,064,000           $   783,000

ADJUSTMENTS TO RECONCILE NET
  INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:
    Depreciation and amortization                                                          453,000               249,000
    Minority Interest                                                                      137,000                     -


CHANGES IN ASSETS AND LIABILITIES
  OTHER THAN CASH:
    Accounts receivable                                                                  1,181,000            (1,436,000)
    Costs and estimated earnings in excess of billings
      on uncompleted contracts                                                            (341,000)             (133,000)
    Inventory                                                                              (29,000)               31,000
    Prepaid income taxes                                                                    (8,000)                3,000
    Other current assets                                                                   280,000               263,000
    Accounts payable                                                                    (2,145,000)              (78,000)
    Billings in excess of costs and estimated earnings
      on uncompleted contracts                                                             (46,000)              539,000
    Accrued liabilities                                                                   (252,000)               35,000
    Other                                                                                  (27,000)              (17,000)
                                                                                       -----------           -----------

TOTAL ADJUSTMENTS IN ASSETS AND LIABILITIES                                             (1,387,000)             (793,000)
                                                                                       -----------           -----------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                                  267,000               239,000

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property, plant and equipment                                             (450,000)             (391,000)
    Proceeds from the sale of property, plant and equipment                                      -                 1,000
                                                                                       -----------           -----------
NET CASH USED BY INVESTING ACTIVITIES                                                     (450,000)             (390,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from exercise of stock options and warrants                                   984,000                35,000
    Proceeds from debt                                                                           -             2,194,000
    Principal payments on debt                                                          (1,069,000)           (1,850,000)
                                                                                       -----------           -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                  (85,000)              379,000
                                                                                       -----------           -----------

Net Increase in Cash and Short-Term Investments                                           (268,000)              228,000
Cash and Short-Term Investments, Beginning of Period                                       892,000               429,000
                                                                                       -----------           -----------

CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD                                         $   624,000           $   657,000
                                                                                       ===========           ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                        6

<PAGE>   7




                    PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1998
                                   (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

The consolidated financial statements include PDG Environmental, Inc. (the
"Corporation") and its wholly-owned subsidiaries. Additionally, the results of
PDG/Philip, L.P. (the "Venture") in which the Corporation holds a 60% interest,
are consolidated since the Corporation is the majority owner of the Venture and
exercises day-to-day operating control.

The accompanying financial statements of the Corporation are unaudited and
prepared in accordance with generally accepted accounting principles which
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. In the opinion of management, the financial
statements include all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows. All adjustments made
during the three and nine months ended October 31, 1998 were of a normal,
recurring nature. The amounts presented for the three and nine months ended
October 31, 1998 are not necessarily indicative of results of operations for a
full year. Additional information is contained in the Annual Report on Form
10-KSB of the Corporation for the year ended January 31, 1998 dated March 26,
1998 and Quarterly Reports on Form 10-QSB of the Corporation for the quarter
ended April 30, 1998 dated June 12, 1998 and for the quarter ended July 31, 1998
dated September 11, 1998, and should be read in conjunction with this quarterly
report.

The Corporation does not have any items which would require adjustments to
arrive at comprehensive income.

NOTE 2 - FEDERAL INCOME TAXES

No federal income taxes have been provided for the three and nine months ended
October 31, 1998 due to the existence of unused net operating loss
carryforwards. The Corporation has recorded a provision for state income taxes.

Income taxes paid by the Corporation for the nine months ended October 31, 1998
and 1997 totaled approximately $68,000 and $13,000, respectively.

NOTE 3 - DEBT

On August 25, 1997, the Corporation closed on a new $2 million credit facility
consisting of a 5-year $0.5 million equipment note and a 3-year revolving line
of credit with a maximum advance of $1.5 million. Both the equipment note and
the line of credit have an interest rate of prime plus 3.5%.

The proceeds of the financing fully satisfied the remaining outstanding balance
on the line of credit formerly maintained by the Corporation with Drummond
Corporation and provide working capital for the Corporation. As of October 31,
1998, the outstanding balance on the revolving line of credit was zero.

During fiscal 1996, the Corporation entered into two agreements guaranteeing a
former subsidiary, PDG Remediation, Inc. ("PDGR") now ICHOR Corporation
("ICHOR") accounts receivable financed by Sirrom Environmental Funding, LLC
("Sirrom"). At October 31, 1998, the balance guaranteed by the Corporation was
approximately $130,000. It is expected that the remaining outstanding
receivables covered by the guarantee will be paid by ICHOR's customer during the
remainder of Fiscal 1999, thus eliminating the Corporation's remaining
guarantee.

The Corporation paid interest costs totaling approximately $73,000 and $163,000
during the nine months ended October 31, 1998 and 1997, respectively.


                                        7

<PAGE>   8



NOTE 4 - PREFERRED STOCK

Cumulative dividends in arrears on the Corporation's 2% Series A Preferred Stock
were approximately $6,000 at October 31, 1998. At October 31, 1998, there were
6,000 shares of Series A Preferred Stock outstanding. The Series A Preferred
Stock is convertible into four shares of the Corporation's common stock at the
option of the preferred stockholder. During the quarter ending October 31, 1998,
161,338 shares of preferred stock were converted into 710,209 shares of common
stock.

The conversion rate on the Series A Preferred Stock is also subject to
adjustment as a result of certain changes in the Corporation's capital structure
or distributions to common stockholders (except for cash dividends permissible
under law).

NOTE 5 - NET EARNINGS PER SHARE


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


<TABLE>
<CAPTION>
                                                                                             FOR THE NINE MONTHS
                                                                                                ENDED JULY 31,
                                                                                        1998                     1997
                                                                                      ----------------------------------
<S>                                                                                   <C>                     <C>
  NUMERATOR:

  Income from continuing operations                                                   $1,264,000              $  783,000
  Preferred stock dividends                                                               (1,000)                (25,000)
                                                                                      ----------              ----------
  Numerator for basic earnings per share--income available
      to common stockholders                                                           1,263,000                 758,000

  Effect of dilutive securities:
      Preferred stock dividends                                                            1,000                  25,000
                                                                                      ----------              ----------

  Numerator for diluted earnings per share--income available to
      common stock after assumed conversions                                           1,264,000                 783,000
                                                                                      ----------              ----------

DENOMINATOR:

  Denominator for basic earnings per share--weighted average shares                    7,181,000               5,961,000

  Effect of dilutive securities:
    Employee stock options                                                               796,000                 252,000
    Warrants                                                                              34,000                  87,000
    Convertible preferred stock                                                           26,000                 726,000
                                                                                      ----------              ----------

  Dilutive potential common shares                                                       856,000               1,065,000
                                                                                      ----------              ----------
    Denominator for diluted earnings per share--adjusted
    weighted-average shares and assumed conversions                                    8,037,000               7,026,000
                                                                                      ==========              ==========

BASIC EARNINGS PER SHARE                                                              $     0.18              $     0.13
                                                                                      ==========              ==========

DILUTED EARNINGS PER SHARE                                                            $     0.16              $     0.11
                                                                                      ==========              ==========
</TABLE>


                                        8

<PAGE>   9



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


<TABLE>
<CAPTION>
                                                                                             FOR THE THREE MONTHS
                                                                                               ENDED OCTOBER 31,
                                                                                         1998                    1997
                                                                                      ----------------------------------
<S>                                                                                   <C>                     <C>
NUMERATOR:

  Net Income                                                                          $   45,000              $  359,000
  Preferred stock dividends                                                                                       (8,000)
                                                                                      ----------              ----------
  Numerator for basic earnings per share--income available
      to common stockholders                                                              45,000                 351,000

  Effect of dilutive securities:
      Preferred stock dividends                                                                -                   8,000
                                                                                      ----------              ----------

  Numerator for diluted earnings per share--income available to
      common stock after assumed conversions                                              45,000                 359,000
                                                                                      ----------              ----------

DENOMINATOR:

  Denominator for basic earnings per share--weighted average shares                    7,820,000               6,017,000

  Effect of dilutive securities:
    Employee stock options                                                               659,000                 349,000
    Warrants                                                                              27,000                 122,000
    Convertible preferred stock                                                           26,000                 726,000
                                                                                      ----------              ----------

  Dilutive potential common shares                                                       712,000               1,197,000
                                                                                      ----------              ----------
    Denominator for diluted earnings per share--adjusted
    weighted-average shares and assumed conversions                                    8,532,000               7,214,000
                                                                                      ==========              ==========

BASIC EARNINGS PER SHARE                                                              $     0.01              $     0.06
                                                                                      ==========              ==========

DILUTED EARNINGS PER SHARE                                                            $     0.01              $     0.05
                                                                                      ==========              ==========
</TABLE>


NOTE 6 - LITIGATION SETTLEMENT

As discussed in further detail in Item 3. Legal Proceedings contained in the
Corporation's Annual Report on Form 10-KSB for the year ended January 31, 1998,
the Corporation, PDGR, certain of PDGR's officers and directors and the
underwriters of PDGR's initial public offering were named as defendants in a
purported class action lawsuit involving the purchase by all persons and
entities of PDGR's common stock from February 9, 1995, through May 23, 1995. The
action alleged that the defendants violated certain federal securities laws.

On June 8, 1998 an agreement in principle to settle the litigation was reached
with the plaintiffs' attorneys. In October 1998, the Court and members of the
class approved the settlement which required that the Defendants, the
Corporation and ICHOR (formerly PDGR), pay a total of $432,500 to settle the
lawsuit. The Corporation's share of the settlement was $173,000. Additionally,
the Corporation incurred $27,000 of legal expenses in relation to the
litigation. The $200,000 expense was reflected in the Fiscal 1999 second quarter
(July 31, 1998) financial statements as a discontinued operations item as it
relates to ICHOR which was accounted for as a discontinued operation. The
Corporation paid its portion to the settlement fund in October 1998. The Court
has set a final hearing date of January 26, 1999, at which time, the Court will
consider any objections to the settlement. If no objections are raised to the
settlement, it is likely that the Court will finally approve the settlement.


                                        9

<PAGE>   10



                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997

The Corporation's contract revenues increased by approximately 15% to $7.1
million during the three months ended October 31, 1998 ("Fiscal 1999") compared
to $6.2 million in the three months ended October 31, 1997 ("Fiscal 1998"). The
increase in revenues was due to the Corporation entering the current fiscal year
with a greater backlog of contracts and securing a number of significant new
contracts during the current fiscal year.

The Corporation's gross margin decreased to $0.8 million in the third quarter of
fiscal 1999 compared to $1.1 million in the third quarter of fiscal 1998. The
decrease in gross margin was primarily attributable to significant additional
cost overruns of $0.5 million at a major project in Philadelphia and negative
contract adjustments totalling $0.4 million in Atlanta where the Company has
closed its branch office. These items were partially offset by positive results
at the Company's other offices and a positive adjustment of $0.55 million in
accrued insurance costs based upon an analysis of the Company's open liabilities
and an improved safety record.

Selling, general and administrative expenses increased slightly to $0.73 million
in the three months ended October 31, 1998 compared to $0.69 million in the
three months ended October 31, 1997. The increase is primarily attributable to
the acquisition of the Phoenix office in December 1997 and to personnel
necessary to support a higher level of activity.

As a result of the factors described above, the Corporation reported income from
operations of $0.1 million in the current three month period compared to $0.41
million for the same three months of the prior fiscal year.

The Corporation's interest expense decreased to $29,000 for the three months
ended October 31, 1998 from $54,000 for the three months ended October 31, 1997.
The Corporation's interest expense decreased due to the refinancing of the line
of credit facility in August 1997 and a lower average borrowed balance during
the current quarter.

During the three months ended October 31, 1998 and 1997, the Corporation made no
provision for federal income taxes due to the utilization of net operating loss
carryforwards for financial reporting purposes. The Corporation recorded state
income tax provisions of $20,000 and $5,000 during the three months ended
October 31, 1998 and 1997, respectively.

NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997

The Corporation's contract revenues increased by approximately 96% to $31.3
million for the nine months ended October 31, 1998 compared to $16.0 million for
the nine months ended October 31, 1997.

The increase in revenues was due to the Corporation entering the current fiscal
year with a greater backlog of contracts and the significant contribution to
revenue that the $12 million Keystone contract (completed in June 1998) made in
the current year.

The gross margin reported by the Corporation in the nine months ended October
31, 1998 increased to $4.2 million compared to $2.8 million for the nine months
ended October 31, 1997. The increase in gross margin primarily related to the
aforementioned increase in contract revenues but was negatively impacted by a
$0.75 million cost overrun on a major project in Philadelphia and negative
contract adjustments totalling $0.425 million in Atlanta where the Company has
closed its branch office. Also impacting the current period's gross margin was a
positive adjustment of $0.55 million in accrued insurance costs based upon an
analysis of the Company's open liabilities and an improved safety record.

Selling, general and administrative expenses reported by the Corporation for the
nine months ended October 31, 1998 increased to $2.2 million as compared to $1.9
million in the same nine month period of the prior fiscal year.


                                       10

<PAGE>   11



The increase is primarily attributable to the acquisition of the Phoenix office
in December 1997 and the personnel necessary to support a higher level of
activity.

The Corporation reported income from operations of $2.0 million in the nine
months ended October 31, 1998 as a result of the factors discussed above
compared to income from operations of $0.9 million in the same nine month period
last year.

Interest expense decreased to $0.12 million in the current nine month period
compared to $0.16 million in the nine months ended October 31, 1997 due to a
significant decrease in the balance of indebtedness as compared to the prior
fiscal year and to the previously discussed refinancing of the credit facility.

Interest income totaled $6,000 for the current nine month period versus $13,000
in the same nine month period of the prior fiscal year due to lower invested
cash balances. Other income in the prior nine month period was primarily
generated from rental income.

No provision for federal income taxes was made during the nine months ended
October 31, 1998 and 1997 due to the utilization of net operating loss
carryforwards for financial reporting purposes. State income tax provisions of
$60,000 and $15,000 were made during the nine months ended October 31, 1998 and
1997, respectively.

The $200,000 loss from discontinued operations relates to the agreement in
principle reached on June 8, 1998 with the plaintiffs in the proported class
action. The Corporation's share of the settlement is $173,000. The Corporation
also incurred $27,000 of legal expenses in relation to the litigation. Refer to
Note 6 - Litigation Settlement on page 9 for additional details.

LIQUIDITY AND CAPITAL RESOURCES

The Corporation's cash liquidity decreased during the nine months ended October
31, 1998 as cash and short-term investments decreased by $0.3 million to $0.6
million.

The decrease in cash during the current nine month period is principally
attributable to cash outflows associated with investing activities of $0.45
million and financing activities of $0.09 million. These cash outflows were
partially offset by cash inflows from operating activities of $0.27 million.

Cash inflows provided by operating activities of $0.27 million in the nine
months ended October 31, 1998 included $1.06 million of net income generated in
the current period, a $1.2 million reduction in accounts receivable primarily
due to the completion of the Keystone project, a $0.3 million reduction in other
current assets and $0.45 million of depreciation and amortization. The
aforementioned cash inflows from operating activities were partially offset by a
$2.15 million decrease in accounts payable primarily due to the completion of
the Keystone project, $0.34 million increase in costs and estimated earnings in
excess of billings on uncompleted contracts related to the timing of contract
billings and a $0.25 million decrease in accrued liabilities.

Cash outflows associated with financing activities during the current nine
months included $1.0 million of proceeds from the exercise of stock options and
warrants offset by $1.07 million of principal payments and reduction of the
outstanding balance of the line of credit.

The Corporation's investing activities of $0.45 million in the nine months ended
October 31, 1998 were for the purchase of property, plant and equipment.

During the nine months ended October 31, 1997, the Corporation's cash increased
by $0.23 million to $0.66 million. This increase in cash was due to cash
provided by operating activities of $0.2 million and cash provided by financing
activities of $0.4 million. These inflows were partially offset by cash used for
investing activities of $0.4 million.

The Corporation's cash inflows of $0.2 million from operating activities
principally included net income of $0.78 million generated during the period,
depreciation and amortization of $0.25 million, a $0.26 million decrease in
other current assets and a $0.54 million increase in billings in excess of costs
and estimated earnings on


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<PAGE>   12



uncompleted contracts. These cash flows were partially offset by a $1.44 million
increase in accounts receivable reflecting the related increase in revenues, a
$0.13 million increase in costs and estimated earnings in excess of billings on
uncompleted contracts and a $0.08 million decrease in accounts payable.

The Corporation's financing activities included proceeds of $0.375 million
received in May 1997 from the refinancing of the $0.29 million mortgage.
Additionally, a $0.5 million five-year term loan and a $1.5 million three-year
revolving line of credit were finalized in August 1997 to repay the $1.41
million line of credit with Drummond Corporation that had matured. Proceeds from
the exercise of stock options and warrants amounted to $0.04 million.

During the nine months ended October 31, 1997, cash outflows associated with
investing activities of $0.4 million related to the purchase of property, plant
and equipment.

At October 31, 1998, the Corporation's backlog associated with its asbestos
abatement business totaled $15.4 million ($8.8 million on fixed fee contracts
and $6.6 million of expected revenues on time and materials or unit price
contracts).

PROSPECTIVE INFORMATION

Effective November 1, 1998, the Corporation entered into an agreement (the
"Agreement") with Environmental Control & Abatement, Inc. ("EC&A"),
Environmental Remediation Services, Inc. ("ERS") (collectively the "Businesses")
and William A. Lemire ("Lemire") for the purchase of selected assets and
assumption of contracts of the Businesses. The Businesses are based in St. Louis
and Chicago and provide environmental remediation services.



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<PAGE>   13



                           PART II-- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

With respect to the action captioned Klein v. PDG Remediation, Inc., described
in the Corporation's Form 10-K for the fiscal year ended January 31, 1998, on
June 8, 1998, an agreement in principle to settle the class action litigation
was reached with the plaintiff's attorneys. In October 1998, the Court
preliminarily approved the settlement and ordered that notice be sent to the
class members. The Court has set as a final hearing date of January 26, 1999, at
which time the Court will consider any objections to the settlement. If no
objections are raised to the settlement, it is likely that the Court will
finally approve the settlement and the monies presently held in the settlement
fund will be distributed to the plaintiff class upon the filing of a proof of
claim and release in the lawsuit. The Corporation and ICHOR (formerly PDG
Remediation) paid a total of $432,500 to settle the lawsuit. The Corporation's
share of the settlement was $173,000 and was paid into the settlement fund in
October 1998.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

The registrant is currently in arrears with respect to the payment of dividends
on its Series A Preferred Stock. At October 31, 1998, the cumulative dividends
in arrears on the Series A Preferred Stock were approximately $6,000.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<S>          <C>                                                                                       <C>
(a)          Exhibits:

                                  EXHIBIT INDEX

                           EXHIBIT NO. AND DESCRIPTION

                                                                                                       PAGES OF SEQUENTIAL
                                                                                                         NUMBERING SYSTEM
27           Financial Data Schedule

(b)          The registrant did not file any current reports on Form 8-K during
             the three months ended October 31, 1998.

             A Form 8-K was filed on November 20, 1998 to disclose the
             acquisition of selected assets and the assumption of contracts of
             Environmental Control and Abatement, Inc. and Environmental
             Remediation Services, Inc. as further discussed in the previous
             "Prospective Information" section of this report.
</TABLE>


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<PAGE>   14


                                   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








Date:  December 14, 1998


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