FORM 10-Q

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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Table of Contents

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Table of Contents

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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 SECURITIES EXCHANGE ACT OF 1934

For the period ended April 30, 2009


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.

(Exact name of registrant as specified in its charter)


Delaware		22-2677298
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


1386 Beulah Road, Building 801
Pittsburgh, Pennsylvania		15235
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (412) 243-3200

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.

þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes þ No

As of June 8, 2009, there were 20,875,109 shares of the registrants Common Stock, par value $0.02 per share, outstanding.

PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PDG ENVIRONMENTAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	April 30,			January 31,
	2009			2009
	(unaudited)
ASSETS

Current Assets
Cash and Cash Equivalents	$	30,000		$	314,000
Contracts Receivable, Net		14,892,000			20,677,000
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts		2,209,000			3,180,000
Inventories		634,000			616,000
Income Taxes Receivable		3,000			355,000
Deferred Income Tax Asset		983,000			983,000
Other Current Assets		2,119,000			344,000


Total Current Assets		20,870,000			26,469,000

Property, Plant and Equipment		12,420,000			12,431,000
Less: Accumulated Depreciation		(10,990,000	)		(10,786,000	)

		1,430,000			1,645,000

Intangible Assets, Net		3,824,000			4,026,000
Goodwill		2,489,000			2,489,000
Deferred Income Tax Asset		2,948,000			2,948,000
Contracts Receivable, Non Current		1,820,000			1,820,000
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts, Non Current		1,630,000			1,630,000
Other Assets		326,000			345,000


Total Assets	$	35,337,000		$	41,372,000


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable	$	8,232,000		$	9,411,000
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts		982,000			1,125,000
Accrued Income Taxes		—			44,000
Accrued Liabilities		4,530,000			2,742,000
Current Portion of Long-Term Debt		250,000			303,000
Mandatorily Redeemable Cumulative Convertible Series C Preferred Stock		190,000			137,000


Total Current Liabilities		14,184,000			13,762,000

Long-Term Debt		9,748,000			15,045,000

Mandatorily Redeemable Cumulative Convertible Series C Preferred Stock		4,616,000			4,372,000


Total Liabilities		28,548,000			33,179,000

Stockholders’ Equity
Common Stock		418,000			418,000
Common Stock Warrants		1,628,000			1,628,000
Paid-In Capital		20,168,000			20,111,000
Accumulated Deficit		(15,387,000	)		(13,926,000	)
Treasury Stock, at Cost		(38,000	)		(38,000	)


Total Stockholders’ Equity		6,789,000			8,193,000


Total Liabilities and Stockholders’ Equity	$	35,337,000		$	41,372,000

See accompanying notes to consolidated financial statements.

PDG ENVIRONMENTAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Three Months Ended April 30,
	2009			2008
Cash Flows from Operating Activities:
Net (Loss)	$	(1,461,000	)	$	(1,144,000	)
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization		417,000			450,000
Deferred Income Taxes		—			(517,000	)
Interest Expense for Series C Preferred Stock Dividends and Accretion of Discount		297,000			248,000
Stock Based Compensation		57,000			129,000
Loss on Sale of Fixed Assets		18,000			3,000
Provision for Receivable Allowance		(8,000	)		—

		(680,000	)		(831,000	)
Changes in Operating Assets and Liabilities:
Contracts Receivable		5,793,000			2,806,000
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts		971,000			59,000
Inventories		(18,000	)		88,000
Accrued Income Taxes		(44,000	)		(68,000	)
Other Current Assets		1,307,000			370,000
Accounts Payable		(1,179,000	)		(1,793,000	)
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts		(143,000	)		27,000
Accrued Liabilities		44,000			(81,000	)

Total Changes		6,731,000			1,408,000

Net Cash Provided by Operating Activities		6,051,000			577,000

Cash Flows From Investing Activities:
Purchase of Property, Plant and Equipment		(18,000	)		(86,000	)
Proceeds from Sale of Fixed Assets		—			1,000
Changes in Other Assets		19,000			3,000

Net Cash Provided by (Used in) Investing Activities		1,000			(82,000	)

Cash Flows From Financing Activities:
Payment of Premium Financing Liability		(986,000	)		(326,000	)
Principal Payments on Debt		(5,350,000	)		(172,000	)

Net Cash Used in Financing Activities		(6,336,000	)		(498,000	)


Net Decrease in Cash and Cash Equivalents		(284,000	)		(3,000	)
Cash and Cash Equivalents, Beginning of Year		314,000			90,000

Cash and Cash Equivalents, End of Period	$	30,000		$	87,000


Supplementary Disclosure of Non-Cash Investing and Financing Activity:
Financing of Annual Insurance Premium	$	2,730,000		$	1,313,000

Non-Cash Purchase of Fixed Assets Financed Through Capital Leases	$	—		$	27,000

See accompanying notes to consolidated financial statements.

PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE MONTHS ENDED APRIL 30, 2009
(UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION

The consolidated financial statements include PDG Environmental, Inc. and its wholly-owned subsidiaries (the “Corporation” or “Company”).

The condensed consolidated financial statements as of and for the three months ended April 30, 2009 and 2008, are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, for the year ended January 31, 2009. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (which are of a recurring nature) necessary for the fair statement of the results for the interim periods.

Due to variations in the environmental and specialty contracting industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.

NOTE 2 — CONTRACTS RECEIVABLE

At April 30, 2009 and January 31, 2009, contracts receivable consist of the following:


	April 30, 2009			January 31, 2009
Billed Completed Contracts	$	4,931,000		$	5,092,000
Contracts in Progress		12,862,000			18,484,000


		17,793,000			23,576,000

Less Allowance for Uncollectible Accounts		(1,081,000	)		(1,079,000	)


Net Contracts Receivable	$	16,712,000		$	22,497,000

At April 30, 2009 and January 31, 2009, contracts receivable for billed completed contracts of $4.9 million and $5.1 million, respectively, is based on full completion of the project. The remaining $12.9 million and $18.5 million of contracts receivable at April 30, 2009 and January 31, 2009, respectively, is related to ongoing projects. At April 30, 2009 and January 31, 2009, approximately $1.1 million was included as allowance for uncollectible accounts.

Contracts receivable at April 30, 2009 and January 31, 2009, include $1.3 million and $1.9 million, respectively, of retainage receivables. At April 30, 2009 and January 31, 2009, a portion of the contracts receivable balance, $1.8 million, has been classified as non-current because the Corporation does not anticipate realizing the amount within the normal operating cycle.

At April 30, 2009, the Corporation had approximately $3.8 million of costs and estimated earnings in excess of billings on uncompleted contracts. Included in this amount is approximately $1.9 million of costs related to contract claims and unapproved change orders. Of the $17.8 million in contracts receivable, approximately $2.9 million of contracts receivable represent disputed or litigated items. The Corporation expects to process change orders or pursue contract claims for at least the full amount of these costs relative to the aforementioned contracts.

NOTE 3 — INCOME TAXES

There was no deferred tax benefit and no current federal or state income tax provision recorded for the three months ended April 30, 2009. A deferred tax benefit of $517,000 and no current federal or state income tax expense was recorded for the three months ended April 30, 2008.

At April 30, 2009, the Corporation has approximately $7.8 million of net operating loss carryforwards for federal income tax purposes expiring in 2029 and approximately $0.7 million of federal credit carryforwards, primarily Research and Development Tax Credits, expiring from 2022 to 2029.

At April 30, 2009, the gross deferred tax assets totaled $5.6 million. At April 30, 2009, it was determined that the recognition of the

deferred income tax assets would not all be realized. Therefore, a valuation allowance of $1.7 million has been recorded and the net deferred tax assets totaled $3.9 million at April 30, 2009.

Income taxes paid by the Corporation for the three months ended April 30, 2009 and 2008 totaled approximately $54,000 and $67,000, respectively.

NOTE 4 — TERM DEBT

The Corporation maintains a $15.0 million line of credit with Huntington Bank (formerly Sky Bank). The current interest rate on the line of credit is Prime plus 1.5% (at April 30, 2009, Prime was 3.25%).

On April 30, 2009, the balance on the line of credit was $9.4 million with an unused availability, based upon the asset based lending formula, of $0.4 million. The majority of the Corporation’s property and equipment are pledged as security for the above obligations. Effective May 14, 2009, the Company and Huntington Bank amended the loan agreement which resulted in an extension of the maturity date from June 30, 2010 to August 3, 2010; a change in the interest rate to Prime plus 0.75% (with a floor for Prime of 4.25%); and includes various covenants relating to matters affecting the Corporation, including the annual required evaluation of the debt service coverage ratio, debt to worth ratio, and tangible net worth.

The Corporation paid approximately $210,000 and $227,000 for interest costs during the three months ended April 30, 2009 and 2008, respectively.

The Corporation’s mortgage on its Pittsburgh operating location is at an interest rate of 7.75% fixed until July 31, 2009, and is then adjusted to 2.75% above the 3-year Treasury Index every three years. On April 30, 2009, the balance on the mortgage was $220,000.

NOTE 5 — NET LOSS PER COMMON SHARE

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


	For the Three Months
	Ended April 30,
	2009			2008
Numerator:

Net (Loss) — Numerator for basic earnings per share — income available to common stockholders	$	(1,461,000	)	$	(1,144,000	)

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	$	(1,461,000	)	$	(1,144,000	)


Denominator:

Denominator for basic earnings per share — weighted average shares	$	20,875,000		$	20,814,000

Effect 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	$	20,875,000		$	20,814,000


Basic (loss) per share	$	(0.07	)	$	(0.05	)

Diluted (loss) per share	$	(0.07	)	$	(0.05	)

For the three months ended April 30, 2009 and 2008, diluted loss per share was the same as basic loss per share since the Company

reported a net loss and therefore the effect of all potentially dilutive securities on the loss per share would have been antidilutive.

NOTE 6 — STOCK OPTIONS

The Corporation’s current accounting method for its stock-based compensation plans is FASB Statement No. 123R (FASB No. 123R), “Accounting for Share-Based Payment”. Under FASB No. 123R, the Corporation utilized the modified prospective approach where by only the effect of granted but unvested options was recognized on a prospective basis. Prior to fiscal year 2007, the Corporation accounted for its stock-based compensation plans under APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations. During the three months ended April 30, 2009 and 2008, the Company recognized $45,000 and $106,000 of stock-based employee compensation cost related to stock options.

At April 30, 2009, the Corporation had 1,027,053 stock options subject to time vesting. During the three months ended April 30, 2009, no stock options were issued by the Corporation.

During the three months ended April 30, 2009 and 2008, no shares of the Corporation’s common stock were issued due to the exercise of stock options.

NOTE 7 — PRIVATE PLACEMENT OF SECURITIES — JULY 2005

Common Private Placement

Securities Purchase Agreement

On July 1, 2005, the Corporation executed a securities purchase agreement (the “Common Purchase Agreement”) with various institutional and accredited investors (the “Common Investors”) pursuant to which it agreed to sell in a private placement transaction (the “Common Private Placement”) for an aggregate purchase price of $1,500,000 (a) 1,666,667 shares of the Corporation’s Common Stock, par value $0.02 per share (the “Common Stock”), (b) warrants to purchase 416,667 shares of the Corporation’s Common Stock at an exercise price of $1.11 per share (“First Common Offering Warrants”) and (c) warrants to purchase 416,667 shares of the Corporation’s Common Stock at an exercise price of $1.33 per share (“Second Common Offering Warrants” and, together with the First Common Offering Warrants, the “Common Offering Warrants”). The $0.90 purchase price per share for the Common Stock represents approximately represents 80% of the average of the daily volume weighted average price of the Common Stock for the 20 day period prior to the execution of the Common Purchase Agreement. The Corporation closed the Common Private Placement on July 6, 2005. On November 21, 2005, the Corporation’s registration statement covering the common stock to be received upon the conversion of the preferred stock and the common stock to be received upon the exercise of the warrants for common stock was declared effective by the SEC.

Common Warrants

The First Common Offering Warrants issued to each Common Investor provide such Common Investor the right to purchase shares of the Corporation’s Common Stock, in aggregate, up to an additional 25% of the total number of Common Shares purchased by such Common Investor in the Common Private Placement at an exercise price of $1.11 per share. The First Common Offering Warrants contain a cashless exercise provision, whereby if at any time after one year from the date of issuance of the Warrant there is no effective Registration Statement registering, or no current prospectus available for, the resale of the shares subject to the Warrant (“Warrant Shares”) by the Warrant Holder, then the Warrant may also be exercised at such time by means of a “cashless exercise” in which the Warrant Holder shall be entitled to receive common shares for the number of Warrant Shares equal to the appreciation in the warrant above the exercise price at the time of the exercise. The First Common Offering Warrants expire five years from the date of issuance and contain adjustment provisions upon the occurrence of stock splits, stock dividends, combinations, reclassifications or similar events of the Corporation’s capital stock, issuances of the Corporation’s securities for consideration below the exercise price and pro rata distributions of cash, property, assets or securities to holders of the Corporation’s Common Stock. If the First Common Offering Warrants are exercised in full in cash, the Corporation would receive upon such exercise aggregate proceeds of $462,500.

The Second Common Offering Warrants issued to each Common Investors provides such Common Investor the right to purchase shares of the Corporation’s Common Stock, in aggregate, up to an additional 25% of the total number of Common Shares purchased by such Common Investor in the Common Private Placement at an exercise price of $1.33 per share. The Second Common Offering Warrants contain a cashless exercise provision, whereby if at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Warrant Holder, then the Warrant may also be exercised at such time by means of a “cashless exercise” in which the Warrant Holder shall be entitled to receive common shares for the number of Warrant Shares equal to the appreciation in the warrant above the exercise price at the time of the exercise. The Second Common Offering Warrants expire five years from the date of issuance and contain adjustment provisions upon the occurrence of stock splits, stock dividends, combinations, reclassifications or similar events of the Corporation’s capital stock, issuances of

Corporation’s securities for consideration below the exercise price and pro rata distributions of cash, property, assets or securities to holders of the Corporation’s common stock. If the Second Common Offering Warrants are exercised in full in cash, the Corporation would receive upon such exercise aggregate proceeds of $554,167.

The net proceeds to the Corporation from the offering, after costs associated with the Common Stock portion of the offering, of $1,349,000 have been allocated among common stock and warrants based upon their relative fair values. The Corporation used the Black-Scholes pricing model to determine the fair value of the warrants to be $360,000.

Preferred Private Placement

Securities Purchase Agreement

On July 1, 2005, the Corporation executed a securities purchase agreement (“Preferred Purchase Agreement”) with various institutional and accredited investors (the “Preferred Investors”) pursuant to which it agreed to sell in a private placement transaction (the “Preferred Private Placement”) for an aggregate purchase price of $5,500,000 (a) 5,500 shares of the Corporation’s Series C Convertible Preferred Stock, stated value $1,000 per share (the “Preferred Shares”), (b) warrants to purchase 1,375,000 shares of the Corporation’s Common Stock at an exercise price of $1.11 per share (“First Preferred Offering Warrants”), (c) warrants to purchase 1,375,000 shares of the Corporation’s Common Stock at an exercise price of $1.33 per share (“Second Preferred Offering Warrants” and, together with the First Preferred Offering Warrants,” the “Preferred Offering Warrants”) and (d) warrants (“Over-Allotment Warrants”) to purchase (1) up to 1,375 shares of Series C Preferred Stock (the “Additional Preferred Shares”), (2) warrants to purchase up to 343,750 shares of Common Stock at $1.11 per share (“First Additional Warrants”) and (3) warrants to purchase up to 343,750 shares of Common Stock at $1.33 per share (“Second Additional Warrants” and, together with the First Additional Warrants, the “Additional Warrants”). The Preferred Private Placement closed on July 6, 2005.

On September 30, 2005, the Corporation’s shareholders approved to the Corporation’s Certificate of Incorporation to increase by 30 million the number of authorized shares of $0.02 par value common stock to a total of 60 million common shares. Subject to certain permitted issuances under the Preferred Purchase Agreement, the Corporation is also restricted from issuing additional securities for a period of six (6) months following the effective date of the Preferred Registration Statement without the prior written consent from the holders of the Preferred Shares.

All shares of the Series C Preferred Stock shall rank superior to the Corporation’s Common Stock and any class or series of capital stock of the Corporation hereafter creates.

Preferred Warrants

The First Preferred Offering Warrants issued to each Preferred Investor provide such Preferred Investor the right to purchase shares of the Corporation’s Common Stock, in aggregate, up to an additional 25% of the total number of shares of Common Stock issuable upon the conversion of the Preferred Stock purchased by such Preferred Investor in the Preferred Private Placement at an exercise price of $1.11 per share. The First Preferred Offering Warrants contain a cashless exercise provision, whereby at any time the Warrant may also be exercised at such time by means of a “cashless exercise” in which the Warrant Holder shall be entitled to receive common shares for the number of Warrant Shares equal to the appreciation in the warrant above the exercise price at the time of the exercise. The First Preferred Offering Warrants expire five years from the date of issuance and contain adjustment provisions upon the occurrence of stock splits, stock dividends, combinations, reclassifications or similar events of the Corporation’s capital stock, issuances of Common Stock for consideration below the exercise price and pro rata distributions of cash, property, assets or securities to holders of the Corporation’s common stock. If the First Preferred Offering Warrants are exercised in full in cash, the Corporation would receive upon such exercise aggregate proceeds of $1,526,250.

The Second Preferred Offering Warrants issued to each Preferred Investor provide such Preferred Investor the right to purchase shares of the Corporation’s Common Stock, in aggregate, up to an additional 25% of the total number of shares of Common Stock issuable upon the conversion of the Preferred Stock purchased by such Preferred Investor in the Preferred Private Placement at an exercise price of $1.33 per share. The Second Preferred Offering Warrants contain a cashless exercise provision, whereby at any time the Warrant may also be exercised at such time by means of a “cashless exercise” in which the Warrant Holder shall be entitled to receive common shares for the number of Warrant Shares equal to the appreciation in the warrant above the exercise price at the time of the exercise. The Second Preferred Offering Warrants expire five years from the date of issuance and contain adjustment provisions upon the occurrence of stock splits, stock dividends, combinations, reclassifications or similar events of the Corporation’s capital stock, issuances of the Corporation’s securities for consideration below the exercise price as well as pro rata distributions of cash, property, assets or securities to holders of the Corporation’s common stock. If the Second Preferred Offering Warrants are exercised in full in cash, the Corporation would receive upon such exercise aggregate proceeds of $1,828,750.

The net proceeds to the Corporation from the offering, after costs associated with the Preferred Stock portion of the offering, of

$4,877,000 have been allocated among common stock and warrants based upon their relative fair values. The Corporation used the Black-Scholes pricing model to determine the fair value of the warrants to be $1,204,000.

Terms of the Preferred Stock

The rights and preferences of the Preferred Shares are set forth in the Certificate of Designation, Preferences and Rights of Series C Preferred Stock (the “Certificate of Designation”). The Preferred Shares have a face value of $1,000 per share and are convertible at any time at the option of the holder into shares of Common Stock (“Conversion Shares”) at the initial conversion price of $1.00 per share (the “Conversion Price”), subject to certain adjustments including (a) stock splits, stock dividends, combinations, reclassifications, mergers, consolidations, sales or transfers of the assets of the Corporation, share exchanges or other similar events, (b) certain anti-dilution adjustments. For a complete description of the terms of the Preferred Shares please see the Certificate of Designation.

Outstanding shares of preferred stock that have not been converted to common stock at the maturity date of July 1, 2009 are payable in cash along with the related 8% per annum dividend. As of May 14, 2009, upon the exchange and cancellation of these Series C Convertible Preferred Stock, no Preferred Shares remain outstanding.

Beginning 120 days following effectiveness of the registration statement, the Corporation may mandatorily convert the Preferred Shares into shares of Common Stock, if certain conditions are satisfied including, among other things: (a) if the average closing bid price of the Corporation’s Common Stock during any 20 consecutive trading day period is greater than 150% of the conversion price, (b) the Preferred Registration Statement is currently effective, (c) the maximum number of shares of Common Stock issued upon such mandatory conversion does not exceed 100% of the total 5 day trading volume of our Common Stock for the 5 trading day period preceding the mandatory conversion date and (d) no mandatory conversions have occurred in the previous 30 trading days.

The Corporation consulted FAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, FAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Corporation’s Own Stock” in accounting for the transaction. The preferred stock has been recorded as a liability after consulting FAS No. 150. Although the preferred includes conversion provisions, they were deemed to be non-substantive at the issuance date. Subsequent to the issuance, the Corporation’s stock price rose in part to Hurricane Katrina and the acquisition of the former Flagship operations, and a number of preferred shares were converted to common. Per FAS No. 150, there is to be no reassessment of the non-substantive feature.

After valuing the warrants for the purchase of the Corporation’s common stock issued with the convertible Preferred Shares ($1,204,000), the beneficial conversion contained in the Preferred Shares ($1,645,000) and the costs associated with the Preferred Stock portion of the financing ($623,000) the convertible preferred stock was valued at $2,028,000. The difference between this initial value and the face value of the Preferred Stock of $3,429,000 will be accreted back to the Preferred Stock as preferred dividends utilizing an effective interest rate of 25.2%. The accretion period is the shorter of the four-year term of the preferred or until the conversion of the preferred stock. For the three months ended April 30, 2009 and 2008, the accretion of the aforementioned discount was $177,000 and $138,000, respectively. In accordance with FAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” the accretion of the discount on the preferred stock is classified as interest expense in the Statement of Consolidated Operations.

A cumulative premium (dividend) accrues and is payable with respect to each of the Preferred Shares equal to 8% of the stated value per annum. The premium is payable upon the earlier of: (a) the time of conversion in such number of shares of Common Stock determined by dividing the accrued premium by the Conversion Price or (b) the time of redemption in cash by wire transfer of immediately available funds. For the three months ended April 30, 2009 and 2008, the accrued dividend was $76,000 and $76,000, respectively, for both the initial private placement in July 2005 and the subsequent exercise of the over-allotment option for additional shares of Preferred Stock. At April 30, 2009 and 2008, total accrued dividends were $1,149,000 and $844,000, respectively. In accordance with FAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” the preferred stock dividend is classified as interest expense in the Statement of Consolidated Operations.

Over-Allotment Warrants

The Over-Allotment Warrants issued to each Preferred Investor provides such Preferred Investor the right to purchase at an exercise price of $1,000 per share (a) Additional Preferred Shares, in aggregate, up to 25% of the total number of shares of Series C Preferred Stock purchased by such Preferred Investor in the Preferred Private Placement, (b) First Additional Warrants exercisable for a number of shares of Common Stock in an amount, in aggregate, up to 6.25% of the total number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock purchased by such Preferred Investor in the Preferred Private Placement at an exercise price of $1.11 per share and (c) Second Additional Warrants exercisable for a number of shares of Common Stock in an amount, in aggregate, up to 6.25% of the total number of shares of the Common Stock issuable upon conversion of the Series C Preferred purchased by such Purchaser in the Preferred Private Placement at an exercise price of $1.33 per share.

From late October 2005 through mid December 2005, all holders of shares of our Series C Preferred exercised their over-allotment warrants resulting in the issuance of (i) 1,375 shares of Series C Preferred, (ii) warrants to purchase 343,750 shares of the Corporation’s Common Stock at an exercise price of $1.11 per shares and (iii) warrants to purchase 343,750 shares of the Corporation’s Common Stock at an exercise price of $1.33 per share. The warrants expire five years from the date of issuance. The exercise of the over-allotment warrants resulted in proceeds of $1,375,000 to the Corporation.

After valuing the warrants for the purchase of the Corporation’s common stock issued with the convertible Preferred Shares ($322,000), the beneficial conversion contained in the Preferred Shares ($432,000) and the costs associated with the exercise of the over-allotment ($69,000) the convertible preferred stock, issued in October 2005 from the exercise of the over-allotment option, will initially be valued at $552,000. The difference between this initial value and the face value of the Preferred Stock of $1,375,000 will be accreted back to the Preferred Stock as preferred dividends utilizing an effective interest rate of 25%. The accretion of the discount related to the over-allotment option was $44,000 and $34,000 for the three months ended April 30, 2009 and 2008, respectively, and was classified as interest expense in the Consolidated Statement of Operations.

Registration Rights Agreements

In connection with the private placements in July 2005, the Corporation entered into registration rights agreements with the Common Stockholders and Preferred Stockholders. Under these registration rights agreements, the Corporation agreed to file a registration statement for the purpose of registering the resale of the common stock and the shares of common stock underlying the convertible securities we issued in the private placements. The registration rights agreements require the Corporation to keep the registration statement effective for a specified period of time. In the event that the registration statement is not filed or declared effective within the specified deadlines or is not effective for any period exceeding a permitted Black-Out Period (45 consecutive Trading Days but no more than an aggregate of 75 Trading Days during any 12-month period), then the Corporation will be obligated to pay the Preferred and Common Stockholders up to 12% of their purchase price per annum. On November 21, 2005 the Corporation’s Registration Statement was declared effective by the SEC. As of April 30, 2009 the Corporation has utilized sixty-seven of the permitted aggregate Black-Out days. Other than the aforementioned monetary penalty, there are no provisions requiring cash payments or settlements if registered shares cannot be provided upon conversion / exercise or the shareholders cannot sell their shares due to a blackout event.

Warrant Derivative Liability

Both the preferred and Common Stock portions of the July 2005 private placement included registration rights agreements that imposed liquidating damages in the form of a monetary remuneration should the holders be subject to blackout days (i.e. days when the holders of the Corporation’s Common Stock may not trade the stock) in excess of the number permitted in the registration rights agreements. On November 21, 2005 the Corporation’s Registration Statement on Form S-2 was declared effective by the SEC. Other than the aforementioned monetary penalty, there are no provisions requiring cash payments or settlements if registered shares cannot be provided upon conversion / exercise or the shareholders cannot sell their shares due to a blackout event. After assessing the provisions of the registration rights agreements and the related authoritative guidance a $20,000 warrant derivative liability was provided. No gain or loss on the derivative was recorded in the three months ended April 30, 2009 and 2008 and the liability was recorded in accrued liabilities.

Conversion of Preferred Stock to Common Stock

During the three months ended April 30, 2009 and 2008, there were no conversions of preferred stock to common stock.

Exercise of Warrants for Common Stock

During the three months ended April 30, 2009 and 2008, there were no warrants exercised for common stock.

NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS

At April 30, 2009 and January 31, 2009, the Corporation’s goodwill was $2.5 million and $2.5 million, respectively.

At April 30, 2009 and January 31, 2009, the Corporation’s intangible assets, net of amortization expense, were $3.8 million and $4.0 million, respectively. For the three months ended April 30, 2009 and 2008, amortization expense of the intangible assets was $202,000 and $193,000, respectively.

SFAS No. 142 “Goodwill and Other Intangible Assets” prescribes a two-phase process for impairment testing of goodwill, which is performed annually, absent any indicators of impairment. The first phase screens for impairment, while the second phase (if necessary) measures impairment. The Corporation has elected to perform its annual analysis during the fourth quarter of each year

based upon goodwill balances as of the end of the year. Although no indicators of impairment have been identified during the three months ended April 30, 2009, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

NOTE 9 — NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides guidance for using fair value to measure assets and liabilities and expands required information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. Implementation of SFAS No. 157 is required for the fiscal years beginning after November 15, 2007. The standard, which was adopted effective February 1, 2008, did not have a significant impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires an employer that sponsors one or more single-employer defined benefit plans to recognize the over-funded or under-funded status of a benefit plan in its statement of financial position, recognize as a component of other comprehensive income, net of tax, gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit costs pursuant to SFAS No. 87, Employers Accounting for Pension, or SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end, and disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations. The recognition and disclosure provisions required by SFAS No. 158 are effective for the Corporation’s fiscal year ending January 31, 2007. The measurement date provisions are effective for fiscal years ending after December 15, 2008. The standard, which was adopted effective February 1, 2008, did not have a significant impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115, which permits entities to choose fair value measurement for many financial instruments and certain other items as of specified election dates. Business entities will thereafter report in earnings the unrealized gains and losses on items for which the fair value option has been chosen. The fair value option may be applied instrument by instrument, may not be applied to portions of instruments and is irrevocable unless a new election date occurs. SFAS No. 159 is effective for an entity’s first fiscal year beginning after November 15, 2007. The standard, which was adopted effective February 1, 2008, did not have a significant impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations, which will change accounting guidance for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at their estimated acquisition date fair values, including noncontrolling interests, accrued contingent liabilities and in-process research and development. Acquired contingent liabilities will subsequently be measured at the higher of the acquisition date fair value or the amount determined under existing guidance for non-acquired contingencies. SFAS No. 141R also provides that acquisition costs will be expenses as incurred, restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date, and that changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141R is effective as of the beginning of an entity’s first fiscal year after December 15, 2008, and will be applied prospectively for business combinations occurring on or after the date of adoption. Early adoption of SFAS No. 141R is prohibited. The standard, which was adopted effective February 1, 2009, did not have a significant impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, which establishes new accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 requires recognition of a noncontrolling interest as equity in the consolidated financial statements separate from the parent’s equity. Net income attributable to the noncontrolling interest is to be included in consolidated net income on the consolidated income statement. SFAS No. 160 also clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. SFAS No. 160 requires that a gain or loss be recognized in net income upon deconsolidation of a subsidiary based on the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 is effective as of the beginning of an entity’s first fiscal year after December 15, 2008. The standard, which was adopted effective February 1, 2009, did not have a significant impact on the Company’s consolidated financial statements.

On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133. SFAS No. 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c)

derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. The standard, which was adopted effective February 1, 2009, did not have a significant impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC’s approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The standard, which was adopted effective February 1, 2009, did not have a significant impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts - An Interpretation of FASB Statement No. 60. SFAS No. 163 applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years and interim periods beginning after December 15, 2008, except for the disclosure requirements, which are effective the first period (including interim periods) beginning after May 23, 2008. The standard, which was adopted effective February 1, 2009, did not have a significant impact on the Company’s consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, it provides that the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively.

NOTE 10 — SUBSEQUENT EVENTS

Amendment to Loan Agreement

On May 14, 2009, the Company and Huntington Bank entered into a Fifth Amendment to the Amended and Restated Loan Agreement. Significant terms of the Fifth Amendment include:

	•		Waiver of the non-compliance with the financial covenants as of January 31, 2009

	•		Modification of financial covenants for the period ended January 31, 2010

	•		Extension of maturity date of loan agreement to August 3, 2010

	•		Interest rate of Prime plus 0.75% (with a floor for Prime of 4.25%)

Exchange of Series C Preferred Stock

On May 14, 2009, the Company and its sole remaining preferred shareholder entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Series C Convertible Preferred Stock were surrendered and exchanged for a subordinated secured promissory note (the “Subordinated Note”), with the possibility of an additional note (the “Additional Note” and together with the Subordinated Note, the “Subordinated Notes”) to be issued by the Company with substantially the same terms in certain circumstances. The Subordinated Notes are subordinate only to the debt to Huntington Bank, our senior lender, pursuant to the terms of a subordinated and intercreditor agreement.

The principal amount of the Subordinated Note is $5.0 million, bears interest at an annual rate of 8% and is due on August 31, 2010. A monthly payment of principal and interest of $50,000 will be made with the remainder of the amount due on August 31, 2010. As part of the Exchange Agreement, if the Company has not entered into an agreement resulting in a Change in Control (as defined in the Exchange Agreement) within a specified time or has not repaid the note in its entirety by November 14, 2009, then the Additional Note would be issued by the Company with the substantially same terms as the Subordinated Note. Due to the execution of the Exchange Agreement, $4.6 million of the Series C Preferred Stock has been classified as a long-term liability and $0.2 million has been classified as a current liability as of April 30, 2009. As of May 14, 2009, upon the exchange and cancellation of these Series C Convertible Preferred Stock, no Preferred Shares remain outstanding.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

This Management’s Discussion and Analysis of the Consolidated Condensed Financial Statements should be read in conjunction with our annual report on Form 10-K for the year ended January 31, 2009 (the “2009 Form 10-K”). The statements contained in this Management’s Discussion and Analysis of the Consolidated Condensed Financial Statements and other sections of this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding the Corporation’s or Corporation management’s expectations, hopes, beliefs, intentions or strategies regarding the future. These forward-looking statements are based on the Corporation’s current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” and similar expressions are intended to identify forward-looking statements. There can be no assurance that future developments and actual actions or results affecting the Corporation will be those that the Corporation has anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Corporation’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the ability to secure additional financing to enable us to satisfy our obligation for our Subordinated Note on August 31, 2010, current economic conditions, including conditions in the credit markets which may adversely affect the ability of our customers to obtain funding for projects which require our services and our ability to collect receivables, the continuing validity of the underlying assumptions and estimates of total forecasted project revenues, costs and profits and project schedules; the outcomes of pending or future litigation, arbitration or other dispute resolution proceedings; the availability of borrowed funds on terms acceptable to the Corporation or that borrowed funds will be available to the Corporation at all; the Corporation’s ability to remain in compliance with the covenants in its credit agreement; the ability to retain certain members of management; the ability to obtain surety bonds to secure the Corporation’s performance under certain construction contracts; possible labor disputes or work stoppages within the construction industry; changes in federal and state appropriations for infrastructure projects; possible changes or developments in worldwide or domestic political, social, economic, business, industry, market and regulatory conditions or circumstances; and actions taken or not taken by third parties including the Corporation’s customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials; and other risks and uncertainties discussed under the heading “Risk Factors” in the Corporation’s 2009 Form 10-K. The Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

OVERVIEW

We provide environmental and specialty contracting services including asbestos and lead abatement, microbial remediation, disaster response, loss mitigation and reconstruction, demolition and related services throughout the United States. During the three months ended April 30, 2009, revenues from disaster response, loss mitigation and reconstruction were 56.0% of total revenues compared to 44.0% of revenues from abatement of asbestos. The Company has broadened its offering of services in recent years to include a number of complementary services which utilize its existing infrastructure and personnel. Cash flows from contracting services are primarily generated from periodic progress billings on large contracts under which the Corporation performs services and single project billings on small short duration projects.

The Corporation operates in a complex environment due to the nature of our customers and our projects. Due to the size and nature of many of our contracts, the estimation of overall risk, revenue and cost at completion is complicated and subject to many variables. Depending on the contract, this poses challenges to the Corporation’s executive management team in overseeing contract performance and in evaluating the timing of the recognition of revenues and project costs, both initially and when there is a change in project status. Thus, the Corporation’s management team spends considerable time in evaluating and structuring key contracts, in monitoring project performance, and in assessing the financial status of our major contracts. Due to the complexity in the revenue recognition for the Corporation’s projects, executive financial management is attentive to developments in individual contracts that may affect the timing and measurement of contract costs and related revenues.

The Corporation continues to manage its projects to minimize risk and the negative financial impact upon the Corporation. More information on risks and the Corporation’s efforts to manage risks is available in Item 1A under the caption “Risk Factors” in the Corporation’s 2009 Form 10-K and supplemented elsewhere in this report. Additionally, please refer to the Corporation’s 2009 Form 10-K for a discussion of the components of the significant categories in the Corporation’s consolidated Statement of Operations.

CRITICAL ACCOUNTING POLICIES

In general, there have been no significant changes in the Corporation’s critical accounting policies since January 31, 2009. For a detailed discussion of these policies, please see Item 7 of the Corporation’s 2009 Form 10-K.

RESULTS OF OPERATIONS

Three Months Ended April 30, 2009 Compared to Three Months Ended April 30, 2008

During the three months ended April 30, 2009, the Corporation’s contract revenues decreased by 28.7% to $12.6 million compared to $17.7 million in the three months ended April 30, 2008. The decrease was due to lower sales volumes as a result of lower capital spending by our customer base driven by difficult economic conditions. Specifically, we had a reduction of approximately $1.1 million in revenues generated from non-asbestos projects and approximately $4.0 million for asbestos abatement projects during the three months ended April 30, 2009, as compared to the same period last year. The Corporation’s gross margin decreased to $1.9 million in the first quarter of fiscal 2010 as compared to $2.2 million in the first quarter of fiscal 2009 largely due to the lower revenues generated during the three months ended April 30, 2009. Gross margin as a percentage of revenue increased to 14.7% for the current quarter from 12.6% for the prior year quarter. Field margin, which is defined as the difference between contract revenues and direct field costs, increased to 29.2% of revenue for the current quarter, from 26.6% in the prior year fiscal quarter. The increase in the field margin percentage is due to higher percentage of revenues generated from non-asbestos projects, which have higher profit margins than asbestos abatement projects, in the current fiscal quarter compared to higher percentage of revenues generated from asbestos projects in the prior fiscal quarter. Other direct costs decreased to $1.8 million or 14.5% of revenue for the current quarter as compared to $2.5 million or 14.0% of revenue for the prior year quarter. The dollar decrease is due to lower personnel and related costs and the closure of certain offices formerly maintained by the Company since the end of the prior year period.

Selling, general and administrative expenses decreased to $2.8 million in the three months ended April 30, 2009, as compared to $3.5 million in the three months ended April 30, 2008. The decrease is primarily due to reduced personnel costs and marketing expenses offset by higher legal services. As a percentage of contract revenues, selling, general and administrative expenses in the current fiscal quarter increased by 2.9% to 22.4% from 19.5% in the prior year fiscal quarter as a result of the above and a lower revenue base.

The Corporation reported a loss from operations of ($1.0 million) for the three months ended April 30, 2009, compared to a loss from operations of ($1.2 million) for the three months ended April 30, 2008, as a direct result of the factors discussed above.

Interest expense decreased to $194,000 in the current quarter as compared to $203,000 in the same quarter of a year ago as a result of lower interest rates during the three months ended April 30, 2009.

Non-cash interest expense for preferred dividends and accretion of the discount relates to the private placement in July 2005 of $5.5 million of redeemable convertible preferred stock and the subsequent issuance of $1.375 million of redeemable convertible preferred stock from the exercise of the over-allotment option. As the preferred shares are mandatorily redeemable, the actual dividend and the accretion of the discount associated with the preferred stock are required to be reflected as interest expense. The current fiscal period had a $297,000 expense, which includes the actual dividend of $76,000 and the accretion of the discount associated with the preferred stock of $221,000. The prior fiscal period had a $248,000 expense, which included the actual dividend of $76,000, and the accretion of the discount associated with the preferred stock of $172,000.

During the quarter ended April 30, 2009, was no current federal or state income tax provision and no deferred tax benefit recorded. During the quarter ended April 30, 2008, the Corporation recorded a $517,000 deferred tax benefit. At April 30, 2009, the gross deferred tax assets totaled $5.6 million. At April 30, 2009, it was determined that the recognition of the deferred income tax assets would not all be realized. Therefore, a valuation allowance of $1.7 million has been recorded and the net deferred tax assets totaled $3.9 million at April 30, 2009.

FINANCIAL CONDITION

Liquidity and Capital Resources

During the three months ended April 30, 2009, the Corporation’s cash and cash equivalents decreased by $284,000 to $30,000. The decrease in cash during the period is attributable to inflows from operating activities of $6,051,000 and investing activities of $1,000 offset by outflows from financing activities of $6,336,000.

Cash provided by operating activities totaled $6.0 million in the three months ended April 30, 2009. The bulk of the inflow was due to a decrease in working capital of $6.7 million and the change in non-cash expenses of $0.8 million offset by the net loss of $1.5 million. The

change in working capital is primarily due to the decreases in contracts receivable of $5.8, costs in excess of billings of $1.0 million, and other current assets of $1.3 million offset by the decreases in accounts payable of $1.2 million and billings in excess of costs of $0.1 million. The decreases in contracts receivable, costs in excess of billings, accounts payable and billings in excess of costs is due to decreased revenues from the fourth quarter of fiscal 2009 to the first quarter of fiscal 2010.

Investing activities cash inflows included a decrease in other assets of $19,000 offset by $18,000 for the purchase of property, plant and equipment.

Financing activities cash outflows consisted of $5.3 million net payments on the line of credit and payment for the insurance premium financing of $1.0 million.

At April 30, 2009, the Corporation’s backlog totaled $30.1 million ($16.7 million on fixed fee contracts and $13.4 million on time and materials or unit price contracts). At April 30, 2009, our backlog consisted of $13.8 million of booked orders and an additional $16.3 million of open ended purchase orders or orders in final negotiation stage which will likely become booked orders in either the second or third quarter of fiscal 2010.

As of April 30, 2009, we have a $15.0 million loan agreement from our financial institution The Huntington Bank National Association (successor in interest to Sky Bank). We rely significantly upon our revolving line of credit in order to operate our business. The line of credit and term loan is secured by a “blanket” security interest in our assets and a mortgage on the real estate owned by us. We expect that we will be able to maintain our existing loan agreement (or to obtain replacement or additional financing) when it expires on August 3, 2010, or becomes fully utilized. We may have difficulty securing replacement financing or additional financing upon the same or substantially similar terms to our existing loan agreement. Because the global capital and credit markets have been severely constrained, we may not be able to obtain additional or replacement financing or, even if we are able to obtain additional or replacement financing, such financing may not be upon the same or substantially similar terms or may contain more onerous debt covenants that may be difficult for the Company to achieve. Inability to obtain additional financing should our capital requirements change or to obtain replacement financing upon expiration of our current loan agreement could have a material adverse effect on our future financial condition and results of operations.

On May 14, 2009, the Company and its sole remaining preferred shareholder entered into an exchange agreement pursuant to which the Series C Convertible Preferred Stock were surrendered and exchanged for a subordinated secured promissory note of nearly $5 million dollars due to the subordinated lender on August 31, 2010 (the “Subordinated Note”), with the possibility of an additional $600,000 note (the “Additional Note” and together with the Subordinated Note, the “Subordinated Notes”) with substantially the same terms in certain circumstances. The Subordinated Notes are subordinate only to the debt to Huntington Bank, the terms of which are set forth in a subordinated and intercreditor agreement.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, the Company has elected scaled disclosure reporting obligations and therefore is not required to provide the information in Item 3.

ITEM 4. CONTROLS AND PROCEDURES

Prior to the filing of this Report on Form 10-Q, an evaluation was performed under the supervision of and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures. Based on the evaluation, the CEO and CFO have concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, as appropriate, to allow timely decisions regarding required disclosure.

During the fiscal quarter ended April 30, 2009, there were no changes in the Company’s internal control procedures with respect to financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


	Page
Part I. Financial Information

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

(a) Condensed Consolidated Balance Sheets as of April 30, 2009 (unaudited) and January 31, 2009		3

(b) Consolidated Statements of Operations for the Three Months Ended April 30, 2009 and 2008 (unaudited)		4

(c) Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2009 and 2008 (unaudited)		5

(d) Notes to Consolidated Financial Statements (unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3. Quantitative and Qualitative Disclosures about Market Risk		16

Item 4. Controls and Procedures		16

Part II. Other Information

Item 1. Legal Proceedings		17

Item 6. Exhibits		17

Signatures		18

Exhibit Index		19
EX-31.1
EX-31.2
EX-32


	For the Three Months Ended April 30,
	2009			2008
Contract Revenues	$	12,630,000		$	17,715,000

Contract Costs		10,777,000			15,482,000


Gross Margin		1,853,000			2,233,000

(Loss) on Sale of Fixed Assets		(18,000	)		(3,000	)
Selling, General and Administrative Expenses		2,825,000			3,461,000


(Loss) from Operations		(990,000	)		(1,231,000	)

Other Income (Expense):
Interest Expense		(194,000	)		(203,000	)
Non-Cash Interest Expense for Preferred Dividends and Accretion of Discount		(297,000	)		(248,000	)
Interest and Other Income		20,000			21,000

		(471,000	)		(430,000	)


(Loss) Before Income Taxes		(1,461,000	)		(1,661,000	)


Income Tax (Benefit)		—			(517,000	)


Net (Loss)	$	(1,461,000	)	$	(1,144,000	)


(Loss) Per Common Share — Basic:	$	(0.07	)	$	(0.05	)


(Loss) Per Common Share — Diluted:	$	(0.07	)	$	(0.05	)


Average Common Shares Outstanding		20,875,000			20,814,000

Average Dilutive Common Stock Equivalents Outstanding		—			—


Average Common Shares and Dilutive Common Stock Equivalents Outstanding		20,875,000			20,814,000


Exhibit
Number		Description

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 2002, filed herewith.

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 2002, filed herewith.

32		Certification Pursuant to 18 U.S.C. Section 1350, as amended, pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, filed herewith.


	PDG ENVIRONMENTAL, INC.
	By	/s/ John C. Regan
	John C. Regan
	Chief Executive Officer


	By	/s/ Nicola Battaglia
	Nicola Battaglia
	Chief Financial Officer


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 2002, filed herewith.

Exhibit 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 2002, filed herewith.

Exhibit 32		Certification Pursuant to 18 U.S.C. Section 1350, as amended, pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, filed herewith.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company þ

(Do not check if a smaller reporting company)