##### 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 OCTOBER 31, 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
    
    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
 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 October 31, 2007 (unaudited) and January 31, 2007
    
    
    3(b) Consolidated Statements of Operations for the Three Months Ended October 31, 2007 and 2006 (unaudited)
    
    
    4(c) Consolidated Statements of Operations for the Nine Months Ended October 31, 2007 and 2006 (unaudited)
    
    
    5(d) Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2007 and 2006 (unaudited)
    
    
    6(e) Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22Part II. Other InformationItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 6. Exhibits
    
    
    24Signature and Certification
    
    
    25EX-31.1EX-31.2EX-32
  2




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PART I. FINANCIAL INFORMATION
 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 October 31,
    
    
    January 31,2007
    
    
    2007(unaudited)AssetsCurrent AssetsCash and cash equivalents
    
    $
    143,000
    
    
    $
    158,000Contracts receivable, net
    
    
    25,250,000
    
    
    
    21,257,000Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    6,753,000
    
    
    
    5,607,000Inventories
    
    
    660,000
    
    
    
    553,000Prepaid income taxes
    
    
    21,000
    
    
    
    271,000Deferred income tax asset
    
    
    1,109,000
    
    
    
    915,000Other current assets
    
    
    404,000
    
    
    
    534,000Total Current Assets
    
    
    34,340,000
    
    
    
    29,295,000Property, Plant and Equipment
    
    
    12,066,000
    
    
    
    11,352,000Less: accumulated depreciation
    
    
    9,614,000
    
    
    
    8,795,0002,452,000
    
    
    
    2,557,000Goodwill
    
    
    2,619,000
    
    
    
    2,651,000Deferred Income Tax Asset
    
    
    2,548,000
    
    
    
    2,565,000Contracts Receivable, Non Current
    
    
    500,000
    
    
    
    500,000Intangible and Other Assets
    
    
    5,174,000
    
    
    
    5,686,000Total Assets
    
    $
    47,633,000
    
    
    $
    43,254,000Liabilities and Stockholders EquityCurrent LiabilitiesAccounts payable
    
    $
    10,079,000
    
    
    $
    7,403,000Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    1,835,000
    
    
    
    3,421,000Accrued Income Taxes
    
    
    123,000
    
    
    
    Current portion of long-term debt
    
    
    414,000
    
    
    
    322,000Accrued liabilities
    
    
    5,688,000
    
    
    
    4,007,000Total Current Liabilities
    
    
    18,139,000
    
    
    
    15,153,000Long-Term Debt
    
    
    12,709,000
    
    
    
    12,161,000Series C Redeemable Convertible Preferred Stock
    
    
    3,207,000
    
    
    
    2,550,000Total Liabilities
    
    
    34,055,000
    
    
    
    29,864,000Stockholders EquityCommon stock
    
    
    416,000
    
    
    
    411,000Common stock warrants
    
    
    1,628,000
    
    
    
    1,628,000Additional paid-in capital
    
    
    19,609,000
    
    
    
    19,245,000Retained earnings (deficit)
    
    
    (8,037,000
    )
    
    
    (7,856,000
    )Less treasury stock, at cost
    
    
    (38,000
    )
    
    
    (38,000
    )Total Stockholders Equity
    
    
    13,578,000
    
    
    
    13,390,000Total Liabilities and Stockholders Equity
    
    $
    47,633,000
    
    
    $
    43,254,000
 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 October 31,2007
    
    
    2006Contract revenues
    
    $
    26,616,000
    
    
    $
    19,783,000Contract costs
    
    
    23,874,000
    
    
    
    17,772,000Gross margin
    
    
    2,742,000
    
    
    
    2,011,000Selling, general and administrative expenses
    
    
    3,594,000
    
    
    
    2,932,000(Gain) loss on Sale of Fixed Assets
    
    
    
    
    
    
    12,000Income (loss) from operations
    
    
    (852,000
    )
    
    
    (933,000
    )Other income (expense):Interest expense
    
    
    (303,000
    )
    
    
    (246,000
    )Non-cash interest expense for preferred dividends and accretion of discount
    
    
    (229,000
    )
    
    
    (195,000
    )Non-recurring charge for employee fraud
    
    
    
    
    
    
    (150,000
    )Non-cash impairment charge for goodwill
    
    
    
    
    
    
    (111,000
    )Interest and other income, net
    
    
    163,000
    
    
    
    3,000(369,000
    )
    
    
    (699,000
    )Income (loss) before income taxes
    
    
    (1,221,000
    )
    
    
    (1,632,000
    )Income tax provision (benefit)
    
    
    (221,000
    )
    
    
    365,000Net income (loss)
    
    $
    (1,000,000
    )
    
    $
    (1,997,000
    )Per share of common stock:Basic
    
    $
    (0.05
    )
    
    $
    (0.10
    )Dilutive
    
    $
    (0.05
    )
    
    $
    (0.10
    )Average common share equivalents outstanding
    
    
    20,749,000
    
    
    
    20,445,000Average dilutive common share equivalents
outstanding
    
    
    
    
    
    
    Average common shares and dilutive common equivalents
outstanding for earnings per share calculation
    
    
    20,749,000
    
    
    
    20,445,000
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 STATEMENTS OF CONSOLIDATED OPERATIONS
 (UNAUDITED)
 For the Nine MonthsEnded October 31,2007
    
    
    2006Contract revenues
    
    $
    74,954,000
    
    
    $
    58,579,000Contract costs
    
    
    64,478,000
    
    
    
    52,128,000Gross margin
    
    
    10,476,000
    
    
    
    6,451,000Selling, general and administrative expenses
    
    
    9,399,000
    
    
    
    9,188,000(Gain) Loss on Sale of Fixed Assets
    
    
    
    
    
    
    17,000Income (loss) from operations
    
    
    1,077,000
    
    
    
    (2,754,000
    )Other income (expense):Interest expense
    
    
    (883,000
    )
    
    
    (716,000
    )Non-cash interest expense for preferred dividends and accretion of discount
    
    
    (658,000
    )
    
    
    (1,870,000
    )Non-recurring charge for employee fraud
    
    
    
    
    
    
    (748,000
    )Non-cash impairment charge for goodwill
    
    
    
    
    
    
    (111,000
    )Interest and other income, net
    
    
    315,000
    
    
    
    16,000(1,226,000
    )
    
    
    (3,429,000
    )Income (loss) before income taxes
    
    
    (149,000
    )
    
    
    (6,183,000
    )Income tax provision (benefit)
    
    
    32,000
    
    
    
    (793,000
    )Net income (loss)
    
    $
    (181,000
    )
    
    $
    (5,390,000
    )Per share of common stock:Basic
    
    $
    (0.01
    )
    
    $
    (0.28
    )Dilutive
    
    $
    (0.01
    )
    
    $
    (0.28
    )Average common share equivalents outstanding
    
    
    20,614,000
    
    
    
    19,543,000Average dilutive common share equivalents
outstanding
    
    
    
    
    
    
    Average common shares and dilutive common equivalents
outstanding for earnings per share calculation
    
    
    20,614,000
    
    
    
    19,543,000
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 STATEMENTS OF CONSOLIDATED CASH FLOWS
 (UNAUDITED)
 For the Nine MonthsEnded October 31,2007
    
    
    2006Cash Flows from Operating Activities:Net income (loss)
    
    $
    (181,000
    )
    
    $
    (5,390,000
    )Adjustments to Reconcile Net Income to Cash:Depreciation and amortization
    
    
    1,403,000
    
    
    
    1,284,000Provision for deferred income taxes
    
    
    (177,000
    )
    
    
    (895,000
    )Interest expense for preferred dividends and accretion of discount
    
    
    657,000
    
    
    
    1,870,000Impairment charge for goodwill
    
    
    
    
    
    
    111,000Loss on sale of equity investment and fixed assets
    
    
    
    
    
    
    17,000Stock based compensation
    
    
    224,000
    
    
    
    209,000Provision for uncollectible accounts
    
    
    11,000
    
    
    
    140,000Changes in Assets and Liabilities Other than CashContracts receivable
    
    
    (4,004,000
    )
    
    
    382,000Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    (1,146,000
    )
    
    
    (372,000
    )Inventories
    
    
    (107,000
    )
    
    
    (35,000
    )Prepaid/accrued income taxes
    
    
    373,000
    
    
    
    509,000Other current assets
    
    
    1,113,000
    
    
    
    869,000Accounts payable
    
    
    2,676,000
    
    
    
    534,000Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    (1,586,000
    )
    
    
    (63,000
    )Accrued liabilities
    
    
    1,612,000
    
    
    
    (458,000
    )Total Changes in Assets and Liabilities Other than Cash
    
    
    (1,069,000
    )
    
    
    1,366,000Net Cash Provided by (Used in) Operating Activities
    
    
    868,000
    
    
    
    (1,288,000
    )Cash Flows from Investing Activities:Purchase of property, plant and equipment
    
    
    (528,000
    )
    
    
    (775,000
    )Proceeds from sale of equity investment and fixed assets
    
    
    
    
    
    
    24,000Increase in other assets
    
    
    (66,000
    )
    
    
    (57,000
    )Net Cash Used in Investing Activities
    
    
    (594,000
    )
    
    
    (808,000
    )Cash Flows from Financing Activities:Proceeds from debt
    
    
    730,000
    
    
    
    2,664,000Proceeds from exercise of stock options and warrants
    
    
    145,000
    
    
    
    861,000Payment of insurance premium financing
    
    
    (882,000
    )
    
    
    (1,039,000
    )Principal payments on debt
    
    
    (282,000
    )
    
    
    (485,000
    )Net Cash (Used in) Provided by Financing Activities
    
    
    (289,000
    )
    
    
    2,001,000Change in Cash and Cash Equivalents
    
    
    (15,000
    )
    
    
    (95,000
    )Cash and Cash Equivalents, Beginning of Period
    
    
    158,000
    
    
    
    230,000Cash and Cash Equivalents, End of Period
    
    $
    143,000
    
    
    $
    135,000Supplementary disclosure of non-cash Investing and Financing Activity:Increase (Decrease) in goodwill and accrued liabilities for contingent payment
    
    $
    (32,000
    )
    
    $
    561,000Financing of annual insurance premium
    
    $
    983,000
    
    
    $
    1,157,000Non-cash purchase of fixed assets financed through capital lease
    
    $
    197,000
    
    
    $
    
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 AS OF AND FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 2007
 (UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
    NOTE 2  CONTRACTS RECEIVABLE
  October 31, 2007
    
    
    January 31, 2007Billed completed contracts
    
    $
    15,908,000
    
    
    $
    13,989,000Contracts in Progress
    
    
    11,142,000
    
    
    
    9,058,00027,050,000
    
    
    
    23,047,000Less allowance for Uncollectible Accounts
    
    
    (1,300,000
    )
    
    
    (1,290,000
    )Net Contracts Receivables
    
    $
    25,750,000
    
    
    $
    21,757,000
   NOTE 3  INCOME TAXES
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NOTE 4  TERM DEBT
      NOTE 5  NET EARNINGS PER SHARE
  For the Three MonthsEnded October 31,2007
    
    
    2006Numerator:Net Income (loss)- Numerator for basic earnings per shareincome
available to common stockholders
    
    $
    (1,000,000
    )
    
    $
    (1,997,000
    )Effect of dilutive securities:
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For the Three MonthsEnded October 31,2007
    
    
    2006Preferred stock dividends and accretion of discount
    
    
    
    
    
    
    Numerator for diluted earnings per shareincome available to
common stock after assumed conversions
    
    $
    (1,000,000
    )
    
    $
    (1,997,000
    )Denominator:Denominator for basic earnings per shareweighted average
shares
    
    
    20,749,000
    
    
    
    20,445,000Effect 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
    
    
    20,749,000
    
    
    
    20,445,000Basic earnings per share
    
    $
    (0.05
    )
    
    $
    (0.10
    )Diluted earnings per share
    
    $
    (0.05
    )
    
    $
    (0.10
    )
  For the Nine MonthsEnded
October 31,2007
    
    
    2006(Restated)Numerator:Net Income (loss)- Numerator for basic earnings per shareincome
available to common stockholders
    
    $
    (181,000
    )
    
    $
    (5,390,000
    )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
    
    $
    (181,000
    )
    
    $
    (5,390,000
    )Denominator:Denominator for basic earnings per shareweighted average
shares
    
    
    20,614,000
    
    
    
    19,543,000Effect 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
    
    
    20,614,000
    
    
    
    19,543,000Basic earnings per share
    
    $
    (0.01
    )
    
    $
    (0.28
    )Diluted earnings per share
    
    $
    (0.01
    )
    
    $
    (0.28
    )
 9




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NOTE 6  STOCK OPTIONS
     NOTE 7  PRIVATE PLACEMENT OF SECURITIES  JULY 2005
 Common Private Placement
 Securities Purchase Agreement
  Common Warrants
  10




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Preferred Private Placement
 Securities Purchase Agreement
  Preferred Warrants
  11




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Terms of the Preferred Stock
    12




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Over-Allotment Warrants
    Warrant Derivative Liability
  Conversion of Preferred Stock to Common Stock
  13




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Exercise of Warrants for Common Stock
   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
  14




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NOTE 9  GOODWILL
   NOTE 10  EMPLOYEE FRAUD
     NOTE 11  NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109
  15




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The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115
    16




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
    17




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CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS
 Three Months Ended October 31, 2007
        18




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Nine Months Ended October 31, 2007
       19




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FINANCIAL CONDITION
 Liquidity and Capital Resources
      20




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21




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ITEM 3. QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
     22




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PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   23




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Total Votes Cast
    
    For
    
    Against
    
    WithheldJohn C. Regan
    
    
    19,409,981
    
    
    
    17,726,565
    
    
    
    0
    
    
    
    1,683,416Richard A. Bendis
    
    
    19,409,981
    
    
    
    17,531,265
    
    
    
    0
    
    
    
    1,878,716Edgar Berkey
    
    
    19,409,981
    
    
    
    17,531,370
    
    
    
    0
    
    
    
    1,878,611James D. Chiafullo
    
    
    19,409,981
    
    
    
    17,362,107
    
    
    
    0
    
    
    
    2,047,874Edwin J. Kilpela
    
    
    19,409,981
    
    
    
    17,531,890
    
    
    
    0
    
    
    
    1,878,091
  Votes For
    
    
    6,754,987Votes Against
    
    
    1,976,388Abstained
    
    
    23,735Broker Non-Votes
    
    
    10,654,871
  Votes For
    
    
    18,839,968Votes Against
    
    
    260,148Abstained
    
    
    309,865
 
 ITEM 6. EXHIBITS
  ExhibitsNumber
    
    Description31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Act of 1934, as amended, and Section 302 Of
The Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Act of 1934, as amended, and Section 302 Of
The Sarbanes-Oxley Act of 200232
    
    Certification Pursuant To 18 U.S.C. Section 1350, As Amended Pursuant To Section 906 Of
The Sarbanes-Oxley Act of 2002
 24




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SIGNATURES
  PDG ENVIRONMENTAL, INC.By
    /s/John C. ReganJohn C. ReganChairman and Chief Executive OfficerBy
    /s/Nicola BattagliaNicola BattagliaChief Financial Officer  25




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EXHIBIT INDEX
 Exhibit No. and Description
 Exhibit 31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Act of 1934, as amended,
and Section 302 Of The Sarbanes-Oxley Act of 2002
 Exhibit 31.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Act of 1934, as amended,
and Section 302 Of The Sarbanes-Oxley Act of 2002
 Exhibit 32
    
    Certification Pursuant To 18 U.S.C. Section 1350, As Amended Pursuant To Section 906 Of
The Sarbanes-Oxley Act of 2002
 26