##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
 For the period ended April 30, 2008
  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)
 Registrants telephone number, including area code 412) 243-3200
 
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company 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 April 30, 2008 (unaudited) and January 31, 2008
    
    
    3(b)
    
    Consolidated Statements of Operations for the Three Months Ended April 30, 2008 and 2007 (unaudited)
    
    
    4(c)
    
    Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2008 and 2007 (unaudited)
    
    
    5(d)
    
    Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4.
    
    Controls and Procedures
    
    
    16Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    17Item 6.
    
    Exhibits
    
    
    18Signature and Certification
    
    
    19EX-31.1EX-31.2EX-32
  2




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PART I  FINANCIAL INFORMATION
 
 PDG ENVIRONMENTAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 April 30,
    
    
    January 31,2008
    
    
    2008(unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    87,000
    
    
    $
    90,000Contracts Receivable, Net
    
    
    19,348,000
    
    
    
    22,154,000Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
    
    
    3,266,000
    
    
    
    3,325,000Inventories
    
    
    601,000
    
    
    
    689,000Deferred Income Tax Asset
    
    
    1,181,000
    
    
    
    1,111,000Other Current Assets
    
    
    1,037,000
    
    
    
    94,000Total Current Assets
    
    
    25,520,000
    
    
    
    27,463,000Property, Plant and Equipment
    
    
    12,296,000
    
    
    
    12,201,000Less: Accumulated Depreciation
    
    
    10,102,000
    
    
    
    9,859,0002,194,000
    
    
    
    2,342,000Intangible Assets
    
    
    4,525,000
    
    
    
    4,718,000Goodwill
    
    
    2,614,000
    
    
    
    2,614,000Deferred Income Tax Asset
    
    
    3,251,000
    
    
    
    2,804,000Contracts Receivable, Non Current
    
    
    677,000
    
    
    
    677,000Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts, Non Current
    
    
    3,327,000
    
    
    
    3,327,000Other Assets
    
    
    297,000
    
    
    
    300,000Total Assets
    
    $
    42,405,000
    
    
    $
    44,245,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    7,936,000
    
    
    $
    9,729,000Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
    
    
    1,859,000
    
    
    
    1,832,000Accrued Income Taxes
    
    
    187,000
    
    
    
    255,000Accrued Liabilities
    
    
    5,827,000
    
    
    
    4,921,000Current Portion of Long-Term Debt
    
    
    394,000
    
    
    
    412,000Total Current Liabilities
    
    
    16,203,000
    
    
    
    17,149,000Long-Term Debt
    
    
    10,552,000
    
    
    
    10,679,000Mandatorily Redeemable Cumulative Convertible Series C Preferred Stock
    
    
    3,694,000
    
    
    
    3,446,000Total Liabilities
    
    
    30,449,000
    
    
    
    31,274,000Stockholders EquityCommon Stock
    
    
    418,000
    
    
    
    418,000Common Stock Warrants
    
    
    1,628,000
    
    
    
    1,628,000Paid-In Capital
    
    
    19,857,000
    
    
    
    19,728,000Accumulated Deficit
    
    
    (9,909,000
    )
    
    
    (8,765,000
    )Less Treasury Stock, at Cost
    
    
    (38,000
    )
    
    
    (38,000
    )Total Stockholders Equity
    
    
    11,956,000
    
    
    
    12,971,000Total Liabilities and Stockholders Equity
    
    $
    42,405,000
    
    
    $
    44,245,000
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 For the Three Months Ended April 30,2008
    
    
    2007Contract Revenues
    
    $
    17,715,000
    
    
    $
    21,700,000Contract Costs
    
    
    15,482,000
    
    
    
    18,007,000Gross Margin
    
    
    2,233,000
    
    
    
    3,693,000(Loss) on Sale of Fixed Assets
    
    
    (3,000
    )
    
    
    Selling, General and Administrative Expenses
    
    
    3,461,000
    
    
    
    2,814,000Income (Loss) from Operations
    
    
    (1,231,000
    )
    
    
    879,000Other Income (Expense):Interest Expense
    
    
    (203,000
    )
    
    
    (271,000
    )Non-Cash Interest Expense for Preferred Dividends and Accretion of Discount
    
    
    (248,000
    )
    
    
    (210,000
    )Interest and Other Income
    
    
    21,000
    
    
    
    5,000(430,000
    )
    
    
    (476,000
    )Income (Loss) Before Income Taxes
    
    
    (1,661,000
    )
    
    
    403,000Income Tax (Benefit) Provision
    
    
    (517,000
    )
    
    
    89,000Net Income (Loss)
    
    $
    (1,144,000
    )
    
    $
    314,000Earnings (Loss) Per Common Share  Basic:
    
    $
    (0.05
    )
    
    $
    0.02Earnings (Loss) Per Common Share  Dilutive:
    
    $
    (0.05
    )
    
    $
    0.01Average Common Shares Outstanding
    
    
    20,814,000
    
    
    
    20,502,000Average Dilutive Common Stock Equivalents Outstanding
    
    
    
    
    
    
    495,000Average Common Shares and Dilutive Common StockEquivalents Outstanding
    
    
    20,814,000
    
    
    
    20,997,000
 See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 For the Three Months Ended April 30,2008
    
    
    2007Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    (1,144,000
    )
    
    $
    314,000Adjustments to Reconcile Net Income to Cash Provided by (Used in)
Operating Activities:Depreciation and Amortization
    
    
    450,000
    
    
    
    461,000Deferred Income Taxes
    
    
    (517,000
    )
    
    
    67,000Interest Expense for Series C Preferred Stock Dividends and
Accretion of Discount
    
    
    248,000
    
    
    
    210,000Stock Based Compensation
    
    
    129,000
    
    
    
    53,000Loss on Sale of Fixed Assets
    
    
    3,000
    
    
    
    Provision for Uncollectible Accounts
    
    
    
    
    
    
    (40,000
    )(831,000
    )
    
    
    1,065,000Changes in Current Assets and Liabilities:Contracts Receivable
    
    
    2,806,000
    
    
    
    (1,905,000
    )Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
    
    
    59,000
    
    
    
    58,000Inventories
    
    
    88,000
    
    
    
    (35,000
    )Prepaid Income Taxes
    
    
    (68,000
    )
    
    
    230,000Other Current Assets (Prepaid Insurance)
    
    
    370,000
    
    
    
    584,000Accounts Payable
    
    
    (1,793,000
    )
    
    
    541,000Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
    
    
    27,000
    
    
    
    (506,000
    )Accrued Liabilities
    
    
    (81,000
    )
    
    
    (292,000
    )Total Changes
    
    
    1,408,000
    
    
    
    (1,325,000
    )Net Cash Provided by (Used in) Operating Activities
    
    
    577,000
    
    
    
    (260,000
    )Cash Flows From Investing Activities:Purchase of Property, Plant and Equipment
    
    
    (86,000
    )
    
    
    (137,000
    )Proceeds from Sale of Fixed Assets
    
    
    1,000
    
    
    
    Changes in Other Assets
    
    
    3,000
    
    
    
    (25,000
    )Net Cash Used in Investing Activities
    
    
    (82,000
    )
    
    
    (162,000
    )Cash Flows From Financing Activities:Proceeds from Debt
    
    
    
    
    
    
    705,000Payment of Premium Financing Liability
    
    
    (326,000
    )
    
    
    (289,000
    )Principal Payments on Debt
    
    
    (172,000
    )
    
    
    (82,000
    )Net Cash Provided by (Used in) Financing Activities
    
    
    (498,000
    )
    
    
    334,000Net (Decrease) in Cash and Cash Equivalents
    
    
    (3,000
    )
    
    
    (88,000
    )Cash and Cash Equivalents, Beginning of Year
    
    
    90,000
    
    
    
    158,000Cash and Cash Equivalents, End of Period
    
    $
    87,000
    
    
    $
    70,000Supplementary Disclosure of Non-Cash Investing and Financing Activity:(Decrease) in Goodwill and Accrued Liabilities for Earnout Liability
    
    $
    
    
    
    $
    (32,000
    )Financing of Annual Insurance Premium
    
    $
    1,313,000
    
    
    $
    983,000Non-Cash Purchase of Fixed Assets Financed Through Capital Leases
    
    $
    27,000
    
    
    $
    38,000
 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 MONTHS ENDED APRIL 30, 2008
(UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
    NOTE 2  CONTRACTS RECEIVABLE
  April 30, 2008
    
    
    January 31, 2008Billed completed contracts
    
    $
    14,563,000
    
    
    $
    14,326,000Contracts in Progress
    
    
    6,678,000
    
    
    
    9,791,00021,241,000
    
    
    
    24,117,000Less allowance for Uncollectible Accounts
    
    
    (1,216,000
    )
    
    
    (1,286,000
    )Net Contracts Receivables
    
    $
    20,025,000
    
    
    $
    22,831,000
   NOTE 3  INCOME TAXES
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NOTE 4  TERM DEBT
      NOTE 5  NET EARNINGS PER SHARE
  For the Three MonthsEnded April 30,2008
    
    
    2007Numerator:Net Income (loss)- Numerator for basic earnings per shareincome
available to common stockholders
    
    $
    (1,144,000
    )
    
    $
    314,000Effect of dilutive securities:Preferred stock dividends and accretion of discount
    
    
    
    
    
    
    Numerator for diluted earnings per shareincome available to
common stock after assumed conversions
    
    $
    (1,144,000
    )
    
    $
    314,000Denominator:Denominator for basic earnings per shareweighted average shares
    
    
    20,814,000
    
    
    
    20,502,000Effect of dilutive securities:Convertible Preferred Stock and related accrued dividends
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Employee Stock Options
    
    
    
    
    
    
    495,000Denominator for diluted earnings per shareadjusted
weighted-average shares and assumed conversions
    
    
    20,814,000
    
    
    
    20,997,000Basic earnings (loss) per share
    
    $
    (0.05
    )
    
    $
    0.02Diluted earnings (loss) per share
    
    $
    (0.05
    )
    
    $
    0.01
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NOTE 6  STOCK OPTIONS
    Risk free interest rate
    
    3.78%Expected dividend yield
    
    0.00%Expected life of options
    
    6.0 yrsExpected volatility rate
    
    98.16%Weighted average fair value of options granted during 2008
    
    $
    0.44
  NOTE 7  PRIVATE PLACEMENT OF SECURITIES  JULY 2005
 Common Private Placement
 Securities Purchase Agreement
  Common Warrants
  8




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Preferred Private Placement
 Securities Purchase Agreement
    Preferred Warrants
  9




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Terms of the Preferred Stock
       10




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Over-Allotment Warrants
    Registration Rights Agreements
  Warrant Derivative Liability
  11




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Conversion of Preferred Stock to Common Stock
  Exercise of Warrants for Common Stock
  NOTE 8  GOODWILL AND OTHER INTANGILBLE ASSETS
    NOTE 9  NEW ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Post Retirement Plans Employers Accounting for Pension, Employers Accounting for Postretirement Benefits Other Than Pensions
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Business Combinations
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Noncontrolling Interests in Consolidated Financial
Statements
 Disclosures about Derivative Instruments and
Hedging Activities  an Amendment of FASB Statement No. 133
 The Hierarchy of Generally Accepted Accounting Principles
 13




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
    CRITICAL ACCOUNTING POLICIES
  14




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RESULTS OF OPERATIONS
 Three Months Ended April 30, 2008 Compared to Three Months ended April 30, 2007
        FINANCIAL CONDITION
 Liquidity and Capital Resources
    15




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ITEM 3.
    
    QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
  16




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PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  17




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ITEM 6.
    
    EXHIBITS
 (a)
    
    The following exhibits are being filed with this report:
 ExhibitsNumber
    
    Description31.1
    
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,
and Section 302 of The Sarbanes-Oxley Act of 200231.2
    
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,
and Section 302 of The Sarbanes-Oxley Act of 200232
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as amended Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002
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SIGNATURES
  PDG ENVIRONMENTAL, INC.By /s/ John C. ReganJohn C. ReganChairman and Chief Executive Officer By /s/ Nicola BattagliaNicola BattagliaChief Financial Officer  19




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EXHIBIT INDEX
Exhibit No. and Description
 Exhibit 31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of The
Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of The
Sarbanes-Oxley Act of 2002Exhibit 32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as amended
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
 20